Market Analysis

The Week Ahead: Dec. 9-15, 2012

A number of US economic reports, Federal Reserve and European Council meetings are scheduled for next week.

Next week’s news is likely dominated by Wednesday’s Fed rate-policy meeting. Although expectations are for the Fed to maintain its extremely accommodative stance, we share our CEO, Ken Fisher’s view that the overarching policy direction behind paying interest on bank reserves and a flattening of the yield curve via QE3 and Operation Twist is contractionary and deflationary, not stimulative. Both moves reduce banks’ incentive to lend.

Sunday, 12/09:

Parliamentary elections in Romania

Prime Minister Victor Ponta’s center-left Social Democratic Party and coalition partners are leading in early polls. However, center-right President Traian Basecu has vowed to not reappoint Ponta as Prime Minister—a possible violation of the country’s constitution. The outcome likely means continued political volatility for a country hoping to negotiate a new loan deal with the IMF early next year.

China November industrial production, trade and retail sales

On balance, Chinese economic reports continue to show broad improvement—signs the country’s stimulus efforts are beginning to take hold.

Japan Q3 GDP (Revised)

The final revision to Japan’s Q3 GDP is expected to remain unchanged at -0.9%. Whatever the result, our estimate is the country’s economy continues to reflect weakness as a result of its revolving leadership door and various economic missteps, including a move to raise the a consumption tax from 5% to 10%. Japan is set to vote in snap parliamentary elections on December 16, potentially ushering in its eighth prime minister in as many years.

Monday, 12/10:

German trade balance

Turkey Q3 GDP

France industrial production

Italy October industrial production and revised Q3 GDP

After losing the support of Silvio Berlusconi’s People of Liberty party last week, technocrat Prime Minister Mario Monti vowed to resign following a critical 2013 budget vote in Parliament. The news likely means investors will be watching these economic data closely.

Tuesday, 12/04:

Japan October machine orders and November PPI

US October international and wholesale trade balance

German December ZEW survey and US NFIB small business optimism index

Wednesday, 12/05:

Eurozone and India October industrial production

German November CPI

OPEC Summit

Fed FOMC meeting begins

The final FOMC meeting of the year, expectations are for the Fed to maintain its extremely accommodative policy—including a possible extension of Operation Twist or its replacement with additional balance sheet expansion through outright asset purchases. Though, we’ve questioned the efficacy of such moves in the past.

Thursday, 12/06:

European Council heads of state assemble in Brussels

Other than a possible final decision on a region-wide banking supervisor, little of substance is expected to emerge from this final EU-wide meeting of the year.

Brazil November retail sales

House of Representatives Financial Services committee hears Volcker Rule implementation arguments

Definitions of the Dodd-Frank Act’s Volcker Rule are still being drafted by regulators who estimate it’ll take until at least early 2013 to finish. The Fed already announced it would push implementation of the rule out from July 2012 to at least July 2014, but House Financial Services committee chair Spencer Bachus is now requesting the rule not go into effect until at least two years after a final version is drafted. Recall, the Volcker Rule seeks to limit commercial banks’ proprietary trading activities.

Italy November CPI

US weekly jobless claims, October business inventories, November PPI and retail sales

US EIA natural gas report

Japan Q4 tankan business survey

Friday, 12/07:

Eurozone November HICP (CPI)

US November CPI and industrial production

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.