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QE2, Earnings in Focus for Coming Week

The greater-than-expected drop in nonfarm payrolls in September will likely keep the focus on the macroeconomic picture in the coming week, even as earnings season starts to pick up momentum.



) -- The greater-than-expected drop in nonfarm payrolls in September will likely keep the focus on the macroeconomic picture in the coming week, but earnings reports from heavyweights

JPMorgan Chase

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should also drive trading.



pushed higher during the past week, rising past 11,000 on Friday to its highest level since May, as disappointing jobs data fueled expectations the

Federal Reserve

will resume its bonds purchase program to boost the economy.

Further quantitative easing, cheekily dubbed QE2 by market pundits, will create more liquidity in the system, weakening the dollar but driving up stocks, gold and commodities. While economists debate the effectiveness of the tool on jobs and the economy, the market is already pricing in the event, taking each bout of slightly negative news as a signal that the central bank will respond by loosening money supply.

Investors will therefore be paying even more attention than usual to the minutes of the Fed meeting, which will be released on Tuesday afternoon. In recent weeks, various Fed officials have hinted more loudly at the prospect of further easing, with William Dudley, the vice chairman of the Federal Open Market Commission and New York Fed president, saying that further monetary action was warranted and that the central bank was keen on returning inflation to "more normal levels."

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Doug Roberts, chief investment strategist of Channel Capital Research and author of the book

Follow the Fed to Investment Success

, expects the central bank to make its move at its next meeting, which happens to be in early November, around the same week as the midterm elections.

Roberts expects the Obama administration to use the Fed and its tools to boost the economy, as the President faces pressure to keep the government's swelling deficit under check. "It is a very cooperative Fed," Roberts told


. "Even if the Republicans take more control in November, things are unlikely to change. As long as the Federal Reserve has the support of the President, it will continue to use this tool."

Barbara Marcin, portfolio manager of Gabelli Blue Chip Value Fund, also says further easing appears more likely. "The government feels it has to do something (to boost the economy) and that the only tool it has is QE2," she says.

Marcin adds that the inflation numbers will be a key data point to watch out for in the coming week, in light of the

Fed's recent statements that inflation was too low.

On Thursday, the Labor Department will release the producer price index, which measures prices at the wholesale level, to be followed by the consumer price index on Friday. The consensus is for PPI to have risen 0.2% in September after a 0.4% advance in August, and for CPI to have increased 0.2% after rising 0.3% in August. The core rate of inflation is expected to stay unchanged at 0.1% at both the wholesale and consumer level.

The weekly jobless claims report will command attention on Thursday. The consensus is for claims to rise by 4,000 to 449,000 after

a surprise drop of 11,000 in the last week.

The Michigan Consumer Sentiment index as well as a report on retail sales are on tap for next Friday.

Earnings season will pick up some momentum next week, and the market is likely to reward companies that show strong revenue growth.

"Companies that are exposed to industrials and infrastructure and have operations in overseas markets, those that are not exposed to the consumer, will manage top-line growth," says Marcin, adding that the cheap dollar will likely help the large companies. "Others will continue to grow their bottom line but cutting down labor costs and improving productivity."

On Tuesday,


is expected to report a profit of 50 cents per share on revenues of $11 billion for its fiscal third quarter. Intel cut its sales forecast in August, citing weaker than expected PC demand.

On Wednesday,

JPMorgan Chase

will the first of the big money center banks to announce its quarterly results. The bank is expected to report profit of 88 cents per share on revenues of $24.48 billion for the three months ended in September.


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Advanced Micro Devices

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will be in the spotlight on Thursday when their numbers are released.

The week wraps up with

General Electric's

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earnings announcement on Friday. The conglomerate is expected to report a profit of 27 cents per share on revenue of $37.68 billion.

--Written by Shanthi Venkataraman in New York

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Shanthi Venkataraman


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