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A weaker looking Durable Goods reading this morning and another day of Bernanke testimony provide the backdrop for today’s trading session. Italy related concerns will also be at play, partly offset by positive earnings reports from Target (TGT - Free Report) and Dollar Tree (DLTR - Free Report) this morning and (PCLN - Free Report) after the close on Tuesday.

Weakness in this morning’s Durable Goods orders for January came in weaker than expected, but the ‘headline’ softness was primarily in the transportation sector. After all, Boeing (BA - Free Report) took only two aircraft orders in January after orders for more than 180 planes the month before. But ‘core’ capital good goods orders officially known as nondefense capital goods orders excluding aircraft came in surprisingly very strong.

The ‘core’ serves as a proxy for private sector capital expenditures in the economy and is typically weaker in the first month of the quarter. The inherent volatility of the Durable Goods report limits its utility on a month-to-month basis, but the ‘core’ strength is nevertheless positive and likely indicative of improvement in business confidence in January following the Fiscal Cliff headwind in at year’s end.

We also have another day of testimony from the Fed Chief today, but the market likely got enough reassurance from his Tuesday comments. The bottom line on the Fed front is that there is no imminent change in the central bank’s bond purchase program, which has served as a key driver of the market’s recent momentum. Bernanke was categorical in claiming that they are well aware of the program’s costs and benefits and that it made sense for the Fed to continue with the open-ended QE program at this end. He cautiously cited improvement in the underlying economy, but also pointed towards policy risks, particularly from the budget sequester.

Barring a material improvement in the labor market, meaning monthly job gains in excess of 200K for at least 3 months, I don’t expect any changes to the Fed’s current monetary policy stance, particularly given the strong likelihood of fiscal austerity getting underway as a result of the sequester.


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