The Day Ahead: Last Auction, Retail Sales, and Post-FOMC Range-Finding

If nothing else, today should at least be "informative."  When it comes to perfecting the recipe for market movement into 2013, there are too many cooks in the kitchen at present.  It's hard to know if we're getting a taste of their individual efforts or if the whole pot of soup has been tainted by The Fiscal Cliff.

The Fiscal Cliff is such a pervasive topic that it's potentially enticing market participants to pay too much attention to it, and not enough to everything else.  It asks the question: "why does anything else even matter compared to me?"  Yesterday morning's article was something of an answer to that arrogant question, essentially saying Fed Policy matters regardless of the Cliff.

Indeed, we got the largest swing in several weeks following the FOMC, but stepping back a bit, it actually wasn't all that big.  If it happens to unwind today--bringing 10yr yields back into the 1.6's for instance--then it will reinvigorate the Cliff's megalomania.  It's not that anyone was counting on the FOMC Announcement to fight some ideological battle with the Fiscal Cliff for a share of the market-moving pie, simply that the more stuff we clear off our end-of-the-year plate, the bigger and bigger the Cliff resolution (or lack thereof?) becomes.  

The FOMC Announcement was a chance to show that "other stuff" could matter as far as year-end market-moving considerations.  We know the Fed's statement will ultimately matter very much, but if trading levels stay muted, then there will be even more temptation to assume they'll continue to be muted until a "Cliffy" resolution--a potentially dangerous assumption, but nothing that a little defensive posture can't protect against.

Helping to read the verdict in the case of The Fiscal Cliff Vs. The FOMC, will be the last of this week's Treasury Auctions as well as Retail Sales data.  Regarding the auction, there's a possibility that afternoon weakness in Treasuries was given extra room to roam with an eye toward today's auction.  If that's the case and if the auction is decent, then we'd see an incrementally stronger reaction to today's auction than we did to yesterday's.  Retail Sales aren't as complicated.  It's simply a historically relevant piece of economic data and if it acts accordingly this morning, then there's still hope that the Cliff hasn't overwhelmed our palate.