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Stock Futures Heat Up Ahead of Fed Meeting

NEW YORK ( TheStreet) -- Stock futures were heating up Tuesday ahead of the start of the two-day Federal Open Market Committee meeting following a much-better-than-expected German investor confidence report and amid signs that "fiscal cliff" talks in the U.S. are progressing.

Societe Generale noted that after playing out on TV screens fiscal cliff negotiations seemed to have shifted to a quieter stage, and that the near-silence about the weekend meeting between President Barack Obama and Speaker John Boehner has led to speculation that the two sides are getting closer to a deal.

Investors were also getting a confidence boost from a leap in Germany's ZEW economic sentiment survey to 6.9 in December, which was much better than the -12 expected by economists and the prior print of -15.7. The data contrasted with the recent sobering growth forecast for Germany from the Bundesbank and euro area from the European Central Bank.

Futures for the Dow Jones Industrial Average were rising 30 points, or 50.12 points above fair value, at 13,217. Futures for the S&P 500 were up 3.30 points, or 5.95 points above fair value, at 1423. Futures for the Nasdaq were up 8 points, or 12.63 points above fair value, at 2658.

The FOMC -- the Federal Reserve's rate-setting arm, begins its two-day meeting Tuesday.

It's widely expected that the talks will be followed by the announcement of a $40 billion to $45 billion a month Treasury purchase program targeted on longer-dated Treasuries, expanding their total purchases per month, including mortgage-backed securities, to $85 billion.

Drew Matus, senior U.S. economist at UBS, said he thinks that the ultimate size of the program will depend on whether the Fed believes market liquidity is currently impaired and whether they view "Operation Twist" as having been a successful program.

"The Fed, like most other large central banks are like players in a high stakes poker game. They have pushed all their chips to the middle of the table and declared, 'all in,'" said Jordan Waxman, managing director and partner at HighTower HSW Advisors. "Should they need more powder, the Treasuries stand ready to print more. This is the position we find ourselves in four years after a financial crisis that sapped liquidity, confidence and capital from the global economy, and created a cycle of deleverage, cash hoarding on the part of the very banks in which the chips are placed and thus low interest rates."

"For now, the Fed has a one track mind -- stimulate, stimulate, stimulate. That means low interest rates, forcing savers to make riskier investments," Waxman continued. "Anything with a spread over treasuries will continue to deliver total return, and equities should perform well. In addition, flooding the market with paper currency means it is devalued. This is good for companies which export from the US, and good for commodities. Although the Fiscal Cliff trumps the Fed on a day-to-day or hour-to-hour trading basis, the trend is your friend, and we expect the Fed's liquidity trend to continue."

Major U.S. stock averages eked out gains Monday with the help of blue-chips McDonald's (MCD) and Hewlett-Packard (HPQ).

On Monday, President Barack Obama visited a Daimler engine plant in Redford, Mich., to make his case for raising taxes on the wealthiest Americans.

The Census Bureau reported Tuesday that the U.S. trade deficit widened to $42.2 billion in October, from a downwardly revised $40.3 billion in September. Economists, on average, expected a trade deficit of $42.6 billion in October.

At 10 a.m., the Census Bureau is forecast by economists to say that wholesale inventories rose 0.4% in October after increasing 1.1% in September.

The FTSE 100 in London was up 0.18% and the DAX in Germany was rising 0.6%.

The Asian markets closed mixed Tuesday amid ongoing worries about the uncertain political situation in Italy and "fiscal cliff" uncertainties in the U.S., and as investors sought more clarity on Greek debt repurchases.

Japan's Nikkei average finished down 0.09% on Tuesday and Hong Kong's Hang Seng index settled up by 0.21%.

Gold for February delivery was falling $3.40 at $1,711 an ounce at the Comex division of the New York Mercantile Exchange, while January crude oil contracts were up 48 cents at $86.04 a barrel.

The benchmark 10-year Treasury was down 3/32, pushing the yield up to 1.631%. The dollar was down 0.12%, according to the U.S. dollar index .

In corporate news, the U.S. Treasury said Monday it would sell its remaining stake of more than 234 million shares of American International Group (AIG), the giant insurer.

Shares of AIG were up over 1% in premarket trading.

Texas Instruments (TXN) reduced its outlook for fourth-quarter earnings.

HSBC (HBC), Europe's largest bank, said Tuesday it would pay $1.9 billion to settle a U.S. money-laundering probe.

Shares were up incrementally.

Morgan Stanley (MS) could soon ask U.S. regulators to allow it to buy back shares for the first time in more than four years, The Wall Street Journal reported, citing people familiar with the firm's thinking.

Morgan Stanley could make its request to the Federal Reserve as soon as January as part of the annual "stress-test" process, the people told the newspaper.

Shares were up more than 1%. Dollar General (DG - Get Report) on Tuesday reported third-quarter earnings of 63 cents a share on revenue of $3.96 billion, compared with the average analyst estimate of 60 cents a share on revenue of $3.96 billion, as same-store sales increased 4% and surpassed that of a handful of rivals. Still, Dollar General's same-stores sales figure were weaker than Family Dollar Stores' (FDO) 5.4% growth.

Shares were sliding 2.5%.

Limited Brands (LTD) shares were rising 2.5% after the apparel retailer announced a special dividend of $3 a share.

Retailer PetSmart (PETM) joins many other companies in pushing up its 2013 quarterly dividend payment to 2012 amid expectations of tax rate increases.

-- Written by Andrea Tse in New York.

>To contact the writer of this article, click here: Andrea Tse.

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DG $80.88 -2.20%
PETM $82.98 0.04%
LTD $0.00 0.00%
AAPL $94.75 -3.10%
FB $116.85 7.30%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,074.51 -20.64 -0.99%
NASDAQ 4,805.6670 -57.4740 -1.18%

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