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German Economic Sentiment Skyrockets, DAX Carries S&P Higher


Today's financial recap and tomorrow's financial outlook.

The highlight of pre-market trading was the sharp rise in German economic sentiment. Last month's survey saw sentiment stay negative at -15.7, but this month the index rose to 6.9, well ahead of economist estimates of -11.5. The German DAX advanced 0.78% on the day to close at 7589.75, near multi-year highs.

Former Italian Prime Minister Silvio Berlusconi intensified attacks on sitting PM Mario Monti in his attempt to win back control of the position in the upcoming February elections. Over the weekend, Monti stepped down amidst growing discontent from the Italian Parliament.

An early rally in US trading was sparked by large trades of e-mini S&P 500 futures and call spreads before House Speaker Boehner spoke at noon. Continued chatter from investors led to the prevalent attitude that "a deal is done." However, though Speaker Boehner made vague comments about progress being made with President Obama, Senate Majority Leader Reid said that it would be extremely difficult to complete a deal by Christmas.

Intraday, the S&P 500 reached the $1431 level, which is the point where the market collapsed following the election of Barack Obama in early November. However, this level was rejected as the market sold off after holding this point for less than a few hours. Oddly enough, while many of the major currencies including the dollar, yen, and Swiss franc fell, the euro rose and most major commodities fell, an inverse of the usual relationship.

Lastly, Greece officially closed its voluntary debt buyback offer to private creditors. Creditors formally tendered 31 billion euros in bonds to the Greek government, decreasing the long-term debt load of Greece by 21 billion euros. Greece took out a 10 billion euro loan from the EFSF to complete the debt tender. Greek bonds continued to rally today to a price of 44.6 cents on the euro.

Tomorrow's Financial Outlook

Tomorrow the Fed will release its monthly monetary policy decision at 12:30 p.m. EST. It is nearly universally expected that the Fed will increase its monthly purchases of long-term assets by $45 billion in Treasuries, to $85 billion purchases per month of Treasuries and MBS. At 2:00 p.m. EST, the Chairman Ben Bernanke will hold a press conference and will likely update the FOMC's economic projections for the next three years.

Also in US economic data, the Treasury will release the budget deficit from the past month. The deficit is expected to widen to -$140.5 billion from last month's -$137.3 billion.

In Europe, Germany will release inflation data from the past month and the UK will release employment data. For Germany, the second estimate of inflation is expected to stay unchanged at an annual rate of 1.9%. The UK's jobless claims change is expected to decrease to a monthly rate of 7,000 from last month's 10,100.

In earnings, Costco (COST) and Joy Global (JOY) will report.

Twitter: @Minyanville

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No positions in stocks mentioned.

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