At a Fed conference held in Wyoming last Friday, the US Federal Chairman admitted the economic recovery has weakened more than expected. This simply confirms what the investors have known through increasingly disappointing economic reports. Chairman Ben however seems to be in wait and see mode ready to intervene when “needed” since his expectations are still for a modest expansion in the second half of 2010 with the pace picking up in 2011.
If the outlook was to deteriorate significantly, Ben will move in with his tools to fix it up i.e. spur growth and fight disinflation. The U.S. central bank can continue its purchases of longer-term securities, commit to hold interest rates exceptionally low for an even longer period than is currently priced in to financial markets or raising the Fed’s inflation targets. With the prospect of QE2, no wonder investors drove the markets up to a positive close last week.
Today is starting off with some M&A activity. Sanofi-Aventis proposed an $18.5 billion offer for Genzyme Corp. Intel is buying German chipmaker Infineon wireless unit. 3PAR Inc. is considering HP’s offer as superior to Dell’s and 3M is looking to buy Cogent for $900M.
On the other hand, we have a lot of data coming out this week such as: Consumer confidence and FOMC Minutes on Tuesday, preliminary employment report and the ISM manufacturing PMI on Wednesday, Unemployment claims and Pending home sales on Thursday with ISM Non-Manufacturing PMI and Non-Farm Employment to top it off on Friday.
In this trendless market, the outcome of this data could result in a lot of volatility this week. Investors are cautious and will be watching these numbers closely.
Do you think the Fed will be able to pull it off and “save the day” avoiding a double dip?