NEW YORK (
) -- There will be plenty of news to keep investors on their toes in the coming week.
A flurry of economic reports aside, the
policy meeting, select corporate earnings, the ongoing discussion about the tax-cut deal, developments in Europe and Chinese inflation numbers will battle for investors' attention in the days ahead.
Trading could be quite active during the week, as investors square off positions before heading into the holidays in the subsequent weeks.
Stocks rose this week, with the
touching multiyear highs after President Obama reached a compromise with Congressional Republicans to extend Bush-era tax cuts across the board for another two years.
deal has met with opposition from Democrats and some independents, it has already encouraged expectations of a speedier economic recovery.
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But it was the activity in the bond market that took investors by surprise. The yield on the 10-year Treasury climbed sharply to 3.3% from 2.9% in the beginning of the week, while the 30-year yield edged up to 4.4%. Concerns that the extension of the tax cuts would increase the deficit fueled the selloff in bonds.
The unexpected rise in yields has prompted some market participants to question the effectiveness of the Fed's quantitative easing efforts. The central bank embarked on a $600 billion asset purchase program in early November in a bid to lower long-term interest rates and boost the economy.
On Tuesday, the Fed will hold its monthly policy meeting. Few analysts expect the Fed to make any dramatic changes to its program in the final month of the year. The central bank is expected to say that its program is on target and that it will continue to evaluate and act on economic information in the following months.
Gary Flam, portfolio manager at Bel Air Investment Advisors, says that the backup in yields in recent days may not be a good indicator of the success or failure of QE2, noting that yields climbed shortly after the first round of quantitative easing as well. In March 2009 the 10-year yield was 2.6% to 2.7%, but between then and June, the yield rose to 3.8%, he pointed out.
Flam went on to argue that the move towards risky assets was partly what the Fed wanted as it would stimulate investment and business activity.
"The Fed's goal is to support economic activity. The Fed is getting its stated goal," he said.
What's more, he added, investors were moving out of safe havens like fixed income and gold and into riskier assets because they were confident about the economy, not because the interest rates on bonds were low. That trend is more sustainable for the economy in the long term.
The tax deal will also draw close attention. Most analysts expect the deal to pass as the current session of Congress will end in three weeks and Democrats likely will have to make more concessions when the new Congress begins in January.
At the global level,
China announced Saturday that inflation rose to a 5.1% rate in November
, and the news could have a bearing on the market Monday. On Friday, China's central bank raised the reserve requirement for banks for the third time in five weeks.
On Sunday, Chinese leaders
in the coming year.
Investors will also have to brace themselves for volatility in the dollar and the euro through next week ahead of the EU Summit. France and Germany have been balking at the idea of adding more to the European Union's 440-billion euro rescue fund and have rejected the idea of joint eurozone bonds.
Stateside, investors will be looking for more confirmation that the U.S. is on track for a speedier economic recovery. Retail sales data for November will be released on Tuesday. Economists expect sales to rise 0.5% according to consensus estimates from
. Retailers including
will be in focus.
The Labor Department will be releasing the PPI and CPI numbers on Tuesday and Wednesday. Economists expect inflation levels to be subdued.
Investors will be paying attention to the Empire Manufacturing and Philadelphia Manufacturing data, due out Wednesday and Thursday, respectively, as they reflect more recent economic activity.
Thursday will be a big day, with jobless claims and housing starts giving direction to the markets. Initial claims are expected to rise to 425,000 from 421,000 in the previous week, according to
. Housing starts are forecast at a 545,000 annual rate, up from a 519,000 pace in the previous month.
There will be corporate news to digest as well.
is set to issue its 2011 outlook on Tuesday. The stock jumped more than 3% on Friday after announcing
Research In Motion
are among the prominent companies scheduled to report quarterly results in the week ahead.
Robert Pavlik of Banyan Partners expects financials to continue to get attention. Shares of
have been in the spotlight as the government prepares its exit from the companies.
Credit card companies including
may also be in focus in the coming week, as the Fed is expected to weigh a proposed cap of debit-card transaction fees.
--Written by Shanthi Bharatwaj in New York
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