An extremely busy day awaits markets as the Federal Open Market Committee kicks off its last two-day meeting of the decade.

Two hours before the opening bell investors are being cautious. The S&P 500 hit 14-month highs yesterday but this morning futures are off 3.00 points to 1,108. Similarly, Dow futures are down 25 points to 10,412 and Spot Gold is $12.25 lower at $1,114.45. 

Somewhat conversely, WTI Crude oil is up a slight 14 cents to $69.65 per barrel, yet that’s 15% off its highs from late October.

“The US$ is stronger against most of the majors, particularly the euro which continues to struggle amid financial-sector problems in Austria and concerns over the fiscal situation in Greece,” noted BMO analyst Robert Kavcic. 

Key Events Today:

8:30 ― The Producer Price Index advanced 0.3% in October as rising energy and food prices kicked up the headline. With those elements stripped out the core index told an opposing story of prices falling 0.6%. For November the trend is similar: the headline index is set to increase 1.0% but core prices will only inch forward by 0.2%. Forecasts for the headline range from +0.5% to +1.2%, and flat to +0.4% for the core.

“Gasoline prices rose in dollar terms and the rise will be amplified in the PPI, because the seasonal adjustment process expects prices to fall,” said economists at IHS Global Insight, who look for prices to rise 1.6% on account of a “double-digit surge in gasoline prices.

Economists from BMO expect to see a more tepid headline. “Producer prices are projected to jump 0.7% in November, nearly completely switching signs of the annual change to +1.6% y/y from -1.9% in October and ending its 11-month run in negative territory. A year ago, energy prices were plummeting in double digits as the global financial crisis flared. Excluding food and energy, the PPI is expected to be flat m/m, and unchanged at +0.7% y/y.”

8:30 ― The Empire State Manufacturing Index is expected to see growth for the fifth consecutive month in December. Wall Street expects the index, which fell 11 points in November, to improve slightly from a 23.5 reading to 25.0, with forecasts ranging widely from 15.6 to 27.0, according to Bloomberg.

“The Empire State index fell sharply in November following several months of strong gains,” said analysts from Nomura. “Given that it remains above other survey-based measures of manufacturing activity, as well as an average of its own components, we expect another decline this month to 20.0.”

9:00 ― The Treasury International Capital report, which measures the flows of financial instruments to and from the US, is expected to “reveal several durable trends in foreign purchases of US securities,” said analysts from Nomura. 

“First, net inflows into Treasuries remain strong, with overseas accounts continuing to finance a large share of net issuance. Second, foreign investors are purchasing few agency securities. Foreign official institutions in particular have been net sellers of agencies in every month since June 2008. Third, net inflows into corporate bonds (including asset-backed securities) have been close to zero, but net purchases of equities have increased.” 

Economists at BMO add: “TIC data might show another sizable inflow of capital in October following generally large net outflows the past year. This would suggest that the U.S. is having less difficulty funding its growing public-sector debt and ongoing (albeit shrinking) external deficits, likely because of growing confidence that the economy is recovering and that the U.S. dollar is approaching a bottom (after already losing 10% of its trade-weighted value the past year).”

9:15 ― A positive Industrial Production report could set the tone for the entire week.  Markets are expecting the report, which saw just a 0.1% increase in October, to pull forward by 0.6% in November as productivity per worker rises. This would mark the fifth straight month of growth.

“Hours worked in manufacturing surged 0.4% in November, the auto industry assembled more vehicles, and there appear to be no major negatives for the month,” said forecasters from IHS Global Insight. “Electricity could be a wildcard as industry association data suggests a rise in production while the warm weather suggests output should have fallen back. Natural gas production surely did decline due to the warm weather. Overall, we assume little change in utility output.” 

1:00 ― The Homebuilder Sentiment Survey indicates general improvement when the score is above 50. The current reading of 17 is far, far below that, so few analysts have their hopes tied to this survey. However, sentiment could have risen after Congress extended the tax incentive program for first-time homebuyers.

“After flattening out through October and November, December’s reading is not expected to break new ground,” said economists at BMO. “Because of the massive overbuilding that took place during the boom, housing starts may not return to normal levels for several years. But as long as they rise instead of fall, residential construction will support the recovery.”


  • Treasury Auctions:
  • 11:30 ― 4-Week Bills
  • 11:30 ― 52-Week Bills