@ The White House
In the morning, the First Family will arrive in Washington, DC. Later, the President and the Vice President will receive the Presidential Daily Briefing in the Oval Office. The President will then meet with senior advisors.
In the afternoon, the President and the Vice President will meet for lunch in the Private Dining Room.
Later, the President and the Vice President will meet with Secretary of Defense Panetta in the Oval Office.
In the evening, the President will participate in a video teleconference with Iowa Caucus attendees.
@ Wall Street
Eurozone debt returned to the fore this week as investors pondered the implications of Italy?s latest bond auction. On the plus side, yields were substantially lower than the last auction. On the negative side, yields remain unsustainably high, and demand for the debt was notably weak and required the ECB to step in. Given the scale of Italy?s funding needs next year ? ?440 billion in new debt will be issued ? this source of volatility is here to stay. The first half of 2012 could look similar to the second half of 2011. Otherwise, economic data for the US was mixed.
Consumer confidence improved on better jobs prospects and lower gas prices. Home prices, however, continued to fall in October and further price declines are expected as the foreclosure pipeline becomes unclogged.
As of midday Thursday, major US equity indices shed 0.4% for the week. Stocks may ultimately post a minor gain or loss for the year by the end of the day on Friday. However, this is a far cry from the 10-20% returns that had been expected at the beginning of the year.
Bonds rallied, driving the 10-year Treasury rate below 2% again to 1.93%. Many thought yields would hit 3.5%-4% by this time. The yield curve flattened by 9 bps, while corporate credit spreads narrowed. Oil prices jumped mid-week when Iran threatened to retaliate against economic sanctions, but fell back later in the week. WTI prices settled around $99 a barrel (-0.6% for the week). Brent prices fell to $107 (-0.7%).
The dollar gained strongly against the euro and pound, but fell against the yen. Gold shed $51 to end the week near $1,555 as investors chose the safety of the US dollar once again.
The week ahead ? the first of 2012 ? brings a slew of readings on construction spending, manufacturing and non-manufacturing activity, vehicle sales, and culminates with the always-critical employment report. Construction spending stayed flat in November as cuts in the public sector offset gains in the private sector. Regional manufacturing surveys for December point to measured gains in the national ISM Manufacturing Index.
The ISM Non-Manufacturing Index should see a similar modest bump centered on improved jobs. December was likely another strong month for vehicle sales as year-end promotions lured customers into showrooms. Finally, the economy likely added about 150K jobs in December, better than November but still far from robust. The unemployment rate, however, could correct slightly upward.
Construction Spending (Nov.) For November, we are expecting a decline in public construction spending to offset spending increases in private nonresidential and residential construction, resulting in no change in total construction spending. Excluding the volatile improvements category, spending will also be unchanged.
ISM Manufacturing Index (Dec.) The December ISM manufacturing index should improve for the second month in a row, based on the evidence from regional surveys. We expect a reading of 54.0, up from 52.7 in November. That's still in the "modest growth" category, but it would be the best reading since June, moving further above the breakeven mark of 50.