Wall Street ends flat as Fed wait nears an end

NEW YORK Wed Sep 12, 2012 4:40pm EDT

Traders work on the floor of the New York Stock Exchange, September 12, 2012. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange, September 12, 2012.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Wall Street ended little changed on Wednesday, erasing early gains, as investors turned cautious before a Federal Reserve decision on another round of monetary stimulus to boost the economy.

Stocks got a lift early after Germany's Constitutional Court approved the new euro zone rescue fund, which will allow the European Central Bank to buy sovereign bonds in an effort to reduce crippling borrowing costs faced by Spain and Italy.

But the gains faded as investors shifted their attention to the Fed, which concludes a two-day meeting on Thursday. Equities have rallied on expectations of more Fed action to keep interest rates low, leading some analysts to warn of disappointment.

Economists put the odds of a third round of bond buying from the Fed at 65 percent, up from 60 percent in August, according to a Reuters poll.

"The market is somewhat nervous ahead of tomorrow's Fed decision, and rightfully so," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York, who believes the Fed will not begin another round of stimulus until after November's presidential election.

"We could be setting ourselves up here for a quick 2 to 4 percent correction."

The Dow Jones industrial average .DJI closed up 9.99 points, or 0.07 percent, to 13,333.35. The Standard & Poor's 500 Index .SPX ended up 3.00 points, or 0.21 percent, to 1,436.56. The Nasdaq Composite Index .IXIC gained 9.79 points, or 0.32 percent, to 3,114.31.

Apple Inc (AAPL.O) shares were up 1.39 percent to $669.79 after it unveiled its iPhone 5. The introduction of the new iPhone comes as Apple tries to fend off competition that has reached a fever pitch.

Facebook Inc (FB.O) jumped 7.7 percent to $20.93 after Chief Executive Mark Zuckerberg hinted at new growth areas from mobile to search in his first major public appearance since the No. 1 social network's rocky IPO in May.

The S&P 500 index has advanced more than 9 percent since the start of June on hopes for global central bank stimulus. The index has been unable to break through the 1,438-1,440 level, seen as a significant resistance point.

Uncertainties about the economic outlook, highlighted by recent profit warnings from FedEx Corp. (FDX.N) and Intel Corp. (INTC.O), could also limit the market's upward momentum.

"It's a little scary for me when you think about what we are going to be faced with next year," said Catherine Avery, president of Catherine Avery Investment Management in New Canaan, Connecticut.

"In addition to the fiscal cliff, we do have a very slow rate of GDP growth. It's very possible that the S&P earnings that analysts are predicting for next year are just way too high."

Ford Motor's (F.N) stock was up 0.59 percent to $10.21 after the company's board of directors decided to discuss this week a succession plan for Chief Executive Alan Mulally, who is expected to retire by the end of 2013, Bloomberg reported on Tuesday, citing a person familiar with the matter.

Chesapeake Energy (CHK.N) slipped 1.04 percent to $19.89 after the company said it is selling $6.9 billion in gas fields and pipelines, with most of its assets in the Permian Basin being sold to Royal Dutch Shell Plc (RDSa.L) and Chevron Corp (CVX.N), as well as most of its remaining infrastructure network.

Mediware Information Systems Inc MEDW.O shares surged 39 percent to $21.86. The clinical software solutions provider agreed to be acquired by private equity firm Thoma Bravo LLC for $22 per share in cash.

On the New York Stock Exchange, about two stocks rose for every one that fell. On the Nasdaq, three stocks rose for every two that fell.

Volume was light, with about 6.15 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 7.84 billion.

(Editing by Kenneth Barry)

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Comments (5)
TommyPaine wrote:
In its ruling today the German Consitutional Court opened significant new questions about the legality of the ECB’s recently announced OMT program. According to an article in today’s Guardian:

“Another important element in today’s court ruling: the judges are going to consider the bond-buying programme announced last /week by the European Central Bank….German MP Peter Gauweiler asked the court to consider whether the Outright Monetary Transactions (OMT) plan was also a violation of German sovereignty, as it allows the ECB to buy unlimited quantities of eurozone sovereign debt…. Gauweiler’s complaint failed to postpone today’s decision, but it suggests there could be further action from Karlsruhe in the months ahead, as the judges examine whether OMT transfers German sovereignty to the ECB.”

Not only did the German Constitutional Court open this issue of the possible illegality of the ECB bond buying plan, in today’s ruling it seemed to hint that it could eventually rule that the OMT is prohibited. Here is the language that seems to apply:

“…A depositing of government bonds by the European Stability Mechanism with the European Central Bank as a security for loans would also infringe the ban on the direct acquisition of debt instruments of public entities. Here, it can remain open whether this would constitute a direct acquisition of debt instruments of state issuers on the primary market or whether after their intermediate acquisition by the European Stability Mechanism, it would be tantamount to an acquisition on the secondary market. For an acquisition of government bonds on the secondary market by the European Central Bank aiming at financing the Members’ budgets independently of the capital markets is prohibited as well, as it would circumvent the prohibition of monetary financing.”

Sep 12, 2012 9:18am EDT  --  Report as abuse
dareconomics wrote:
The Northern countries keep insisting on conditionality to bailout cash, and today’s comments by Spanish politicians succinctly show why they are correct. Let’s look at a chart of Spain’s decreasing bond yields over the past few months:

(chart shows decreasing yields since July)

Note the large decreases in fits and starts since Draghi told us that he would do whatever it takes to save the Euro in July. What is important about this chart is that it shows that while yields have been decreasing, nothing has changed.

I realize that the ESM has jumped over its last hurdle and that the ECB has pledged to monetize the short-term debt of countries requesting a bailout. These initiatives are virtually meaningless, because the fundamentals have not changed.

To wit, Spain is now backing off seeking a bailout and is locked in a dangerous game of chicken with Europe:

http://dareconomics.wordpress.com/2012/09/03/draghi-rajoy-in-game-of-chicken/

Every country that has requested a bailout has thrown the party doing the requesting out of office. The problem with the bailout is not the free money from Germany; it is those pesky austerity conditions. What the promise of external help has done is remove the immediate reason, rising interest rates for its debt, for Rajoy’s government to pursue deeper cuts and to seek a bailout.

If you examine Spain’s current fiscal position, you will see that Spain cannot meet its financing needs for the rest of the year without external help:

http://dareconomics.wordpress.com/2012/09/06/actual-spanish-financing-needs/

But there’s more. Spain is still in the midst of a depression caused by the bursting of its housing bubble. Housing prices have not even hit bottom yet. Unemployment is around 25%, and the economy is still shrinking. The entire banking system is going to need a bailout. Indeed, things have changed in the last few months; they have actually gotten worse.

In the spirit of self-preservation, I think that Rajoy will stick to his guns. Europe needs Spain to request a bailout as much as Spain does. His goal is to get bailout cash without the humiliation of having to sign a memorandum of understanding effectively ending his government.

If he could pull this off, it would be quite the coup. Of course, this action would also stoke resentment in the countries that have already gone through austerity and troika inspections. What will the reaction be in Greece, Portugal and Ireland if Spain gets it way?

Sep 12, 2012 9:57am EDT  --  Report as abuse
SanPa wrote:
FRB will stay put knowing that another QE will only serve to stoke the actions of moneychangers, but have no material impact on general commerce.

Sep 12, 2012 11:59am EDT  --  Report as abuse
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