We have the Fed, the European Central Bank, Bank of England and the Bank of Japan meeting this week, along with a full plate of data and the U.S. elections as a news-intensive side course.
We started off with China's PMI numbers, which delivered one of the best one-month growth performances in the last several years. The Chinese economy is definitely resilient, if this jump to 54.7 from 53.8 is any guide. It also explains why China raised its benchmark interest rates: all that growth runs the risk of inflation.
On Tuesday, it is likely that the Republicans will regain the majority in the House and maybe the Senate as well. Republican control of Congress would raise the prospect of making the Bush tax cuts permanent, and that would be a positive for the market. However, the risk factor is for gridlock over the next two years.
From the Fed, markets are expecting at least $100 billion a month from the next round of quantitative easing -- the long-awaited QE2. This will probably take the form of substantial Treasury bond purchases that could easily extend to at least $1 trillion in total. Anything less will probably disappoint investors at this point.
Watch the Fed's policy statement to see whether rates will stay low for an "extended" or an "indefinite" period. Sooner or later, we will need to reflate, which is why long-term Treasury yields are rising. Thursday brings the Bank of England and European Central Bank rate policy meetings, and then on Friday the Bank of Japan will weigh in. Look for more stimulus from Tokyo in particular, and possibly another round of currency intervention as well depending on how markets respond to previous announcements elsewhere.
Also on Friday, we have the U.S. jobs report, which is ordinarily the most closely watched data release of the month. It is likely that unemployment stayed at 9.6% in October. Ultimately, this week is all about risk management. Bullish sentiment is at a post-recession high, but the S&P 500 SPY is still treading water. Better to protect yourself than get too aggressive.