Sunday, October 21, 2012

The Week Ahead: FOMC and GDP

A big week, economically and politically.

The Federal Open Market Committee meets Wednesday and announces results of the meeting at 2:15 p.m. Eastern. The Fed has been so transparent under Chairman Bernanke that surprises are few (in contrast to the Greenspan era, when the chairman appeared to enjoy maintaining the suspense).

On Friday we get a first look at the 3rd quarter's gross domestic product. The 8:30 a.m. release is a first stab at the quarterly stats; there will be two further revisions, in November and December.

Both the FOMC and the GDP play into themes that have been active this election year.

Republicans have been taking a hawkish view of the Fed's attempts to stimulate the economy and indeed their party's presidential candidate, Gov. Romney, has promised to replace Bernanke if elected.

Both parties are staking their success largely on whether or not things have improved since President Obama took office amid collapsing financial and housing sectors and battered economy; Democrats say yes and Republicans, no. A weaker GDP number will play into the Romney campaign's hands; stronger, into the hands of the Obama campaign.

And of course, there's the final presidential debate, focused on foreign affairs, on Monday, to add some spice to the mix.

(Although, with election day, Nov. 3, so close and early voting having already begun in parts of the U.S., the power of events to influence the outcome is rapidly diminishing.)

Also out, and important, new home sales on Wednesday at 10 a.m., and durable goods orders on Thursday at 8:30 a.m.

Leading indicators out this week:

Average weekly initial jobless claims will be reported at 8:30 a.m. Thursday.

The index of consumer expectations from the University of Michigan/Reuters consumer sentiment report, out Friday at 9:55 a.m.

Traders also keep track of these financial leading indicators: The M2 money supply, out Thursday at 4:30 p.m. from the Federal Reserve, and two reported continually during market hours: The S&P 500 index and the interest rate spread between 10-year Treasuries and the federal funds rate.

I also like to keep an eye on the Baltic dry index of world shipping, updated daily.

Other reports of interest:

Wednesday: Petroleum inventories at 10:30 a.m.

Thursday: The Realtors' pending home sales index -- existing homes, contracted but not closed -- at 10 a.m.

Trading calendar

By my rules, as of Monday I can trade November vertical, calendar and butterfly spreads, as well as iron condors and the short legs of diagonals and covered calls, as well as February single options and straddles. Of course, shares are good at any time.

Good trading!

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