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.
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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 purchases.
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 is completed 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.