THIS WEEK IN THE MARKETS: Italy, Bernanke, Sequestration, And More
However, U.S. markets are opening strongly in the green.
This week is loaded with market-moving events. So, let's get right to it.
Top Stories
- Over the weekend, reports surfaced that Haruhiki Kuroda would become the next governor of the Bank of Japan. Kuroda is known for being extremely dovish. With Kuroda at the helm, the Japanese yen is likely to continue to depreciate. This is what Prime Minister Shinzo Abe wants, as it would make Japanese goods cheaper to the country's export partners.
- Italy just held its general election. According to exit polls, Pier Luigi Bersani is projected to be the big winner. This should bring some calm to the markets as Bersani is seen as the leader to offer continuity to Italian reforms that are seen as keeping the debt crisis at bay.
- This week, Federal Reserve Chairman Ben Bernanke will be in Washington D.C. on Tuesday and Wednesday giving his semi-annual Humphrey/Hawkins monetary policy testimony. Recent language out of the Federal Reserve has confused markets about their intentions for continuing easy monetary policy. Fed-watchers will be paying attention to Bernanke for more clarity.
- Unless we get a miracle out of Washington, then the sequestration budget cuts will begin on March 1. These are the $85 billion worth of spending cuts that'll ripple across the U.S. government. Most agree that this is bad news for the economy. Some, like UBS's Maury Harris, believe that the negative impact has been greatly over-exaggerated.
Economic Calendar
- This is a big week of U.S. housing data. On Tuesday, the Case-Shiller index is expected to show that home prices climbed by 0.8 percent in December. That same day, we're expected to learn that new homes are selling at a 381k annual rate in January, up from 369k in December. On Wednesday, we expect to learn that pending home sales climbed by 3.0 percent in January.
- We'll also be getting two key reads on America's long-term investment activities. On Wednesday, we'll get the crucial durable goods orders report. Economists expect a 4.0 percent decline. And on Friday, we'll get U.S. auto sales stats. Economists estimate that cars sold at a healthy 12.1 million annualized rate.
- Perhaps the most important report of the week will be the January personal income and spending report. Income is expected to fall by 2.1 percent, and spending is expected to rise by just 0.2 percent. This report will be particularly closely watched this month as it will show us just how much the new payroll tax hike may (or may not) have hit the U.S. consumer.
Market Update
So, U.S. stocks continue to be right near their highest levels since late 2007. Some market strategists like JP Morgan's Tom Lee believe that stocks are looking a bit stretched and that a correction is due. Others like NYU's Nouriel Roubini believe that stocks will continue to go up as the world's central banks continue to employ extremely easy monetary policy.
"An equity correction may clarify a key issue: What’s been driving equities – loose monetary policy, or expectations of better macro and earnings?" say Morgan Stanley's Gerard Minack.