Waiting on the Fed

US equity markets are clinging to yesterday's 10% rally, awaiting the Fed's decision on interest rates.  Investors are anticipating a 50 basis point cut in the Fed Funds target, with some calling for 75 basis points.  It's hard to imagine that the Fed will do anything to surprise the market today given how fragile conditions remain in the credit markets.  I anticipate a 50 basis point cut, because that is the most expected action and frankly, it really doesn't matter what the Fed does with the Fed Funds target.  Three-month Libor fell 5 basis points to 3.42%, which is a huge improvement over October 10's fix at 4.82%, but still nearly 200 basis points over the current fed funds rate.  It seems hard to imagine that another 50 basis points is going to crack Libor if 17 new Fed Facilities have yet to do the trick. 

In the "completely unexpected good news" department, durable-goods orders rose 0.8%, although the ex-transportation number was down 1.1%.  The rebound was due to an increase in aircraft orders (seriously?) and an increase in defense bookings (yeah, that makes sense.)  The durable-goods numbers are notoriously volatile so reading anything into this number about the US economy being "strong" would be foolish for anyone other than, perhaps, a Presidential candidate of the current US ruling party.

In the "genuinely good news" department, Proctor & Gamble posted solid earnings, benefitting from price increases and favorable foreign exchange rates.  Both Kraft and Kellogg reported higher-than-expected third-quarter profits also due to price hikes.  Despite all of the bleak news related to housing, banking, and stock market declines, Americans can still afford food and diapers.  That, my friends, is better than nothing.