Financial Options

Savvy investors may look to a relatively new economic indicator due out Thursday, the Conference Board's Euro Area Leading Index, for a heads up on where markets will be heading the next few weeks. With the Federal Reserve committing to essentially flooding the market with dollars, basically doubling the base US money supply, the dollar could be in real trouble if European markets do better than expected. A down report on Europe could signal some short term relief for the dollar and with it oil prices and US stocks.

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Investors will find lots of information packed into the holiday shortened week and it's even more packed with no major indicators due out until Tuesday. The first numbers due out are the Commerce Department's final 3rd quarter GDP and corporate crofits figures with a 0.5% drop in GDP expected. Aside from corporate profits, Tuesday will have one other big corporate oriented figure – the State Street Investor Confidence Index. This index, which measures the actual risk taking behavior of institutional portfolios, could help indicate if the market has actually bottomed or if we are in a sustained bear market rally – if the big boys are starting to move out of debt securities back into equities, it's a good sign.

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The holiday shortened week gets a holiday shortened version of the Financial Roadmap. The major numbers to watch this week are all due out Monday, Tuesday and Wednesday. Monday and Wednesday, the National Association of Realtors will report on existing home sales and the Commerce Department will report on new home sales. Also Wednesday, the Commerce Department will report on durable goods orders – a number that provided a positive showing and an upside surprise of nearly 2% in the last report. Look especially at nondefense capital goods orders, a component of the Leading Index. Tuesday, the Conference Board's Consumer Confidence Index will be released. The big question here will be how much, if at all, the huge drop in energy prices has offset the huge drop in the stock market and doomsday reporting by the media.

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This week markets will have even more reason to focus on geopolitical news and the details of the credit crunch as only three major US monthly economic indicators are released and the first of those is almost a foregone conclusion.

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For the third week running the biggest factors moving markets are likely to be developments in the ongoing efforts by the Federal Reserve and US Treasury to restore order to credit markets. A couple of scheduled events that may shed some light on how foreign investors are taking those efforts are Treasury security auctions Tuesday for 52-week T-bills, Wednesday for 2-year Treasury Notes and Thursday for 5-Year Treasury Notes. The shorter term bills have been benefiting from a «flight to quality» that resulted in essentially zero yields part of last week. The slightly longer term bills are slightly riskier and may reflect more of the 1 to 5-year outlook for the dollar and the US economy.

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