Mildly Optimistic, "Newisiness"-Challenged

With investors generally giving a positive response to Friday’s European deal, attention will now shift to follow-up action, particularly from the European Central Bank (ECB). The expectation all along was that unified action from European leaders in creating a viable fiscal union will give the ECB the needed cover to start playing a more proactive role in the government bond markets. The key question in the market from now on will be if and when the ECB will start playing such a role.

The U.S. economic calendar is fairly quiet today, though we do have a number of important releases on deck for the rest of this week. We have a Fed meeting and FOMC announcement Tuesday afternoon, though no one is looking for any news out of the Fed this time around.

With the U.S. economic outlook in its best shape in a long while, the Fed will just stay the course and not make any changes. This week brings the November inflation readings with Thursday’s PPI and Friday’s CPI reports. And we will likely get further confirmation of the improved U.S. economic outlook through Tuesday’s Retail Sales and Thursday’s Industrial Production reports. We will also get the regional manufacturing surveys through Thursday’s Empire State and Philly Fed readings.

Overall, though, the ‘newsiness’ and market-moving potential of this week’s U.S. economic calendar is limited. This will keep investors focused on developments across the pond, notwithstanding the Friday agreement. Will the ECB announce its next course of action, along the lines of the U.S. Fed’s quantitative easing program, or the markets will have to decipher its intentions from its actions?

If I had to make a wager, I would say that the ECB will not be coming out with an explicit announcement. But we may not have to wait longer for ECB’s response, as the bond market will likely test its resolve sooner rather later by again pushing up Italian government bond yields.

A tangible positive outcome of Friday’s EU deal will be if the ECB comes out in full force against such an uptrend in Italian government bond yields. If that doesn’t happen, then investors will be fully justified in questioning the value of Friday’s EU deal.

In corporate news, Ingersoll-Rand (IR - Snapshot Report) announced a 33% increase in its quarterly dividend. Hewlett-Packard (HPQ - Analyst Report) announced plans on Friday to convert the webOS into an open-source system, likely giving the technology a new lease of life. HP had acquired the webOS as part of its Palm purchase, but has struggled to extract any value out of it.

What Will Brussels Sprout?

Trade Deficit Both Up and Down

Unemployment, Participation & Demographics

Read the full analyst report on HPQ

Read the full analyst report on IR