Tuesday Outlook

Dow Futures are up 33 pts this morning ahead of Consumer Confidence and the Case/Shiller 20-city home price Index.

Consensus forecast for the 20-city Index for July is 3.1% vs. prior of 4.23%. The bar has been set fairly low and we could see a beat here given the 113 bps sequential drop expected from June to July.

UPDATE: Case-Shiller came in at 3.18% for a slight beat. Futures remain in solidly in positive territory (Dow +0.26%, S&P +0.21%).

Conference Board Consumer Confidence should also look ok as the forecast has nearly matched the result for the past few months. (July 51 vs. 51 exp'd, August 53.5 vs. 49.5 exp'd, September consensus of 54.)

The NY Fed will be launching the latest installment of POMO this morning buying back TIPS. Thursday will see Fed purchases of longer-dated bonds, due 2/15/2021-8/15/2040. This will be followed by back-to-back POMO days on Monday and Tuesday next week as we head into earnings.

With the expectation for QE2 still alive and well, and two more POMO operations by the Fed this week, I believe it is unlikely that we will see much downward pressure on the markets ahead of the end of Q3 on Thursday. Its been the best September in 70 years and with only three days to the finish line, with mutual fund managers fighting 21 weeks of consecutive outflows, I would expect the markets to stay buoyant.

Major news stories this morning have taken on a decidedly positive slant:

* Toys R Us to hire 45k workers for the holidays (temp, but helps) (Yahoo Finance)
* ADB raises Asia growth forecast to 8.2% (Yahoo Finance)
* Job optimism boosts German consumer confidence (Yahoo Finance)
The forward-looking indicator for October stood at 4.9 pts vs. 4.2 prior (Sept) which had been the brightest in 3 years.
* Walgreen 4Q profit rises 8% (Yahoo Finance)
* FedEx, Li & Fung Shipments Signal Improved U.S. Holiday Sales (a bit early?) (Bloomberg)
* U.K. Growth Fueled by Jump in Government Spending (Bloomberg)
* Apple May Unveil Next iPad by June 2011, Goldman Says (Bloomberg)

Not so positive headlines this morning:

* Ireland Leads Surge in Sovereign Default Swaps on Bailout Costs (Bloomberg)
* Man Group Expects 55% Drop in First-Half Profit as Fees Decline
* Anglo Irish Cost May Exceed 35B Euros, S&P Says
* Morgan Stanley Said to Freeze Investment-Bank Hiring for 2010

The possible look of QE2 is starting to be reported on. The WSJ ran a story yesterday suggesting that the Fed will likely do $100B of QE per month until it no longer sees the need to continue the program. This is not the all-in approach many expected to be announced at one of the coming Fed meetings. It seems that Bernanke is backing off somewhat following the slide in the US dollar and subsequent run-un in consumer staples since last Tuesday's FOMC statement suggested QE2 is becoming more likely.

ICSC Retail Store Sales number just announced: +0.4% W/W vs. -1.4% last week. +3.6% Y/Y vs. +3.3% last week. Monthly sales remains on target for +3% Y/Y. This is positive and bodes well for consumer confidence numbers today.