The Federal Open Market Committee concludes a two-day meeting on Wednesday with a written statement, a release of forecasts by committee members and a news conference by Fed Chairman Ben Bernanke.
This three-ring circus of messaging may be more impactful than most.
The Fed has been molding market expectations toward a slowing of its efforts to stimulate economic recovery through bond purchases.
I think it's likely that what the Fed says on Wednesday will allow traders to understand with greater precision when that slowing will begin. That in turn will have both immediate and longer-term influences on how the markets price in future Fed policy.
The FOMC meeting announcement will be released at 2 p.m. New York time, concurrently with the FOMC forecasts. The Bernanke news conference will begin at 2:30 p.m.
A key component of the Fed's money policy decision making is inflation and deflation, and the most timely indicator of those forces is the consumer price index, to be released Tuesday at 8:30 a.m. It will provide a speculative prelude to the Fed's statements on Wednesday.
There are four other major reports on the schedule.
Industrial production, out Monday at 8:15 a.m., tells how a major part of the economy is doing. I always read this report with the mental caveat that it is only a piece of the economy, not the whole economic universe.
Two housing reports provide insight into the sector that is the basis of recovery. Housing starts at 8:30 a.m. on Wednesday is a measure of future sales, and existing home sales on Thursday tracks sales that have occurred. The existing home market dwarfs that of new homes, which is tracked in a separate report out next week.
Finally, the Philadelphia Fed survey, which tracks market conditions in the Mid-Atlantic Region, will be released at 10 a.m. Thursday. Traders treat the region as fairly typical of important parts of the national economy, and that gives this report its influence.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
The S&P 500 index, reported continually during market hours.
Average weekly initial jobless claims, at 8:30 a.m. Thursday.
Building permits for new private homes from the housing starts report, at 8:30 a.m. Wednesday.
Other reports of interest:
Monday: The Empire State manufacturing survey at 8:30 a.m., tracking conditions in New York.
Tuesday: The Treasury Department's international capital report, tracking inflows and outflows of foreign money into and from the U.S. economy, at 9 a.m., and the Home Builders' housing market index at 10 a.m.
Wednesday: Petroleum inventories at 10:30 a.m.
Fedsters
Aside from Bernanke at Wednesday's news conference, three FOMC members make public appearances, all on Friday: St. Louis Fed Pres. James Bullard, Kansas City Fed. Pres. Esther George, and Fed Gov. Daniel Tarullo.
An FOMC alternate, Minneapolis Fed Pres. Narayana Kocherlakota, also has an appearance on Friday.
Analytical universe
This week I shall be analyzing new bull and bear signals among 2,347 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. My universe is selected from mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.
Trading calendar
By my rules, I'm trading October options for the short legs of vertical, diagonal and calendar spreads and covered calls, and for all legs of butterfly spreads and iron condors. I'm trading December options for single calls and puts. Shares, of course, are good at any time.
Good trading!
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