The 'Fiscal Cliff' negotiations are reportedly making
progress, but a deal may not come through before the last minute.
Judging from the market's behavior thus far, investors don't seem
to be overly concerned about the delay, expecting the political
leadership to come through in the end. Market participants also
expect the Fed to come through with additional stimulus at the
conclusion of the two-day FOMC meeting today, replacing the
expiring 'Operation Twist' with a new round of Treasury bond
Minutes of the last FOMC meeting and the official post-meeting
statement indicated that the central bank would be open to
additional monetary easing measures if the labor market did not
improve. And notwithstanding the upward revision to third quarter
GDP, largely a function of non-material items, the economy and
the labor market remain weak. This forms the basis for the
market's expectation of a new round of bond purchases as the
existing duration extending 'Twist' program comes to an end at
the end of the month.
Fresh purchases of Treasury bonds in magnitudes equivalent to
the expiring program will effectively be QE4, a significant ramp
up in the Fed's stimulus measures. This would also indicate that
the Fed perceives the economy weak enough to be needing such
help. That said, there is room for disappointment from the
market's perspective, particularly with respect to the size or
duration of the new program. The Fed has also been thinking about
replacing communication about its exit program from the current
explicit calendar period (mid-2015) to specific economic targets.
The issue was reportedly debated at length in the last meeting as
well, though nothing concrete came out of it. We will most likely
not see a resolution of that issue today either, but this
definitely something on the Fed's to-do list.
In corporate news,
) is reportedly in talks to acquire the remaining 49% of
) that it doesn't already own. The move is seen as improving
Sprint's competitive position by giving it access to Clearwire's
vast spectrum reserves, but is complicated by the carrier's
pending acquisition by Japan's Softbank.
is scheduled for release today at 2:00 PM EST, with an
anticipated deficit of $111.9 billion, following the reported
$119.99 billion surplus in October.
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