Big Rate Cut May Lift Investor Confidence
While most investors are banking on a cut of at least a quarter percentage points in the bench mark fed funds rate, many think a deeper reduction is needed to unfreeze credit markets and boost confidence.
On Thursday, President George W. Bush announced a plan to stern
“The big focus next week is on the Fed meeting” The market was pricing in an interest rate cut, there was still speculation about how big such a cut would be and whether the Fed would also cut the discount rate.
Encouraging data this week, including a resilient payrolls report on Friday, eased some concerns about the economy, decreasing the likelihood of an aggressive 50-point-basis cut in the fed funds rate.
And with just a few more weeks left in the year, the Dow is up 9.3% so far in 2007. The S&P 500 is up 6.9% for the year to date and the Nasdaq is up 12%.
The discount rate for overnight bank loans now stands at 4.5% following the two back to back rate cuts in September and October. While investors are primarily focusing on a potential rate cut on Tuesday, they will also be closely watching inflation data later in the week.
In addition, four blue-chip industrial heavyweights are expected to spell out their financial expectations for 2008 next week.
Manufacturers are facing economic headwinds, including the slumping
Other economic data scheduled for this week includes pending home sales for October on Monday, which if very weak, would add to calls for a big rate cut on Tuesday. They are expected to fall 1%.