US SUMMARY: Fed Meeting Dominates The Week Ahead

DJIA 12002.37 loss 9.36 dn 0.1%
NASDAQ 2342.30 gain 1.36 up 0.1%
S&P 500 1368.60 gain 1.64 up 0.1%
Dow Future 12069.00 gain 21.00 up 0.2%
NASDAQ Future 1723.50 gain 4.75 up 0.3%
S&P Future 1377.75 gain 2.75 up 0.2%
Euro-USD 1.2616 loss 0.0002 dn 0.02%
10-Yr US Treasury: 4.78% unchanged
(Futures values, Treasury, EUR/USD Data as of 0450 GMT)

After another record-setting week in which the Dow Jones industrial average closed above 12,000 for the first time, investors will sift through another heavy flow of earnings reports and key economic data. For now, stocks are tipped to open higher later in New York, with Treasurys and oil lower and the dollar steady.

STOCKS: As stocks are set to open higher Monday, much of the economic discussion will focus on the Federal Reserve, which begins a two-day meeting Tuesday. Though the central bank is expected to leave short-term interest rates unchanged, investors will be eager to obtain the Fed's latest assessment of the economy.

The rally in stocks in the third quarter and this month has occurred in part because recessionary concerns have given way to a sense that the cooling economy is headed for a soft landing. Some investors had questioned whether the Fed reached too far in its push to contain inflation when it raised interest rates 17 straight times over two years before pausing in August.

Beyond the Fed meeting, investors expect to receive data on home sales and on the nation's gross domestic product, the broadest measure of the economy.

In the coming week, investors expect to hear from American Express, Ford Motor, DuPont and Microsoft.

FOREX: As the dollar opens in Europe little changed, dealers are already squared up going into this week's Fed meeting. The position-squaring helped the dollar recover modestly on Friday. The dollar draws support this week at around Y118, and the euro has good underpinning at $1.25 but still faces tough resistance at Y150.00.

Traders generally look for narrow ranges before the Fed's meeting. After, the dollar is likely to drift lower after its gains last week proved fleeting.

BONDS: The U.S. Treasury bond market, seen opening higher later Monday, expects the Federal Reserve to keep rates unchanged after its meeting Tuesday and Wednesday week, and rerun the language contained in its last statement. But other forces, such as new debt issuance, could still weigh.

On the data front, the market gets housing numbers on Wednesday and Thursday, and the first look at third quarter gross domestic product on Friday.

In new issuance, Monday has a $7 billion five-year inflation-indexed note auction, followed by Tuesday's $20 billion two year note sale and Thursday's $14 billion five year note offering.

There will be "no change in policy, and I expect the FOMC to reiterate that some risk remains on the inflation front, which is pretty much what Fed officials have been saying," said Ken Kim, an economist with Stone & McCarthy Research Associates."I think the Fed is through" lifting rates and will keep its current funds rate for some time, he added.

Societe Generale fixed income researchers said "we are still looking for (U.S. Treasury) 10-year yields to trade a little higher, as some more economic pessimism deserves to be priced out of the front end."

OIL: Many analysts believe the Organization of Petroleum Exporting Countries will have difficulty enforcing its production cut in its entirety because oil prices are still twice as high as they were just three years ago.

"It's clear there will be some production cutbacks. But is it going to be 1.2 million barrels? That's probably unlikely," said Andrew Lebow, a broker at Man Financial.

On Friday, prices fell to an 11-month low below $57 a barrel in a sign of the market's doubts about OPEC's willingness to carry out a 4 percent production cut.

"What brought us to this point - where OPEC needs to reduce production by 1 million barrels a day - is bearish for prices," James Cordier, president of Liberty Trading "The fact is, demand has fallen or is about to fall more and OPEC is trying to catch this by producing less."

ASIAN SUMMARY: Japan Stocks Gain As Govt Bonds Fall

USD-Yen 118.76 gain 0.01 up 0.01%
AUD-USD 0.7602 gain 0.0016 up 0.2%
Nikkei 225 16715.79 gain 64.16 up 0.4%
Hang Seng 18092.21 loss 21.34 dn 0.1%
S&P/ASX 200 5310.00 gain 5.60 up 0.1%
Taiwan Index 7025.78 loss 13.59 dn 0.2%
S.Korea Kospi 1460.22 loss 4.02 dn 0.3%
JGB Yield 1.8200% up 0.0250
(All values as of 0450 GMT)
STOCKS: Japanese stocks rose to a five-month high Monday on hopes for upward earnings outlook revisions by exporters.

The Nikkei gained on hopes for upward earnings outlooks by exporters amid a weakening of the yen against the U.S. dollar, traders said.

However, traders said they expect the Nikkei to retreat before major Japanese companies begin releasing earnings reports on Wednesday afternoon.

Other markets in the region were mixed.

FOREX: The yen was steady against the dollar but dealers said the dollar could fall to Y115 over the next few weeks if coming Japanese data encourage thoughts that the Bank of Japan might tighten policy again this year.

BONDS: Higher stocks drew off investors, with prices of Japan's government bonds falling. However, signs the stock market's gains were stalling capped the bond losses, dealers said.

METALS: Spot gold is down around $8 at around $592 an ounce, and may have to fall to $585 before finding buyer interest, according to dealers. The market will look to this week's U.S. economic data to determine if growth there will turn inflationary.

Copper futures, now little changed, are pegged to trade lower in London on a weak physical market.

OIL: Prices slipped 32 cents to $59.01 on Monday amid market doubts about a pledge by OPEC to cut production. But Saudi Arabia formally informed some of its Asian customers that it will cut term crude oil supplies for the first time in 19 months, trading sources said Monday.

EUROPEAN OUTLOOK: Shares May Start Higher; Euro Steady

Euro-USD 1.2616 loss 0.0002 dn 0.02%
Stlg-USD 1.8825 loss 0.0007 dn 0.04%
USD-Franc 1.2588 gain 0.0006 up 0.05%
(All values as of 0450 GMT)

European shares may open slightly higher, while prices of government debt tip lower. The euro opens little changed.

STOCKS: European stock markets are likely to extend gains, following in line with small advances in Asian markets and in Wall Street futures overnight.

Cantor Index is calling the FTSE up 18 at 6173, the DAX up 14 at 6216, the CAC up 10 at 5385, and the Eurostoxx up 10 at 4015.

On Friday, European stocks closed mostly higher, although a decline in oil prices took some of the luster off earlier highs.

FOREX: The euro opens little changed, with sell orders set at $1.2625, slightly higher than current levels. On the downside, the euro has good support at around $1.2595. It seems trapped in range trading for now.

BONDS: Prices of European government bonds, after a mixed performance on Friday, are likely to start the week lower ahead of the Fed's meeting and prospects for more global monetary tightening. Treasury futures also point lower.

Financial market participants widely expect the ECB to continue its tightening cycle, raising rates by another 25 basis point in December. At its last meeting at the beginning of October, the bank lifted its key refinancing rate to 3.25%, its fifth hike since December 2005.

Looking ahead, market participants may enjoy a quiet start to the week in the absence of any European or U.S. data. Activity is likely to pick up Tuesday, when the first German states are due to report preliminary estimates for October consumer price inflation. Tuesday will also bring the U.K.'s CBI industrial trends survey.

But the main focus this week will come Wednesday when Germany's closely watched Ifo business climate reading is due for release and the Federal Reserve issues its latest decisions.


CALENDAR: Monday, Oct 23: ECB's Tumpel-Gugerell

GMT Expected Previous
0500 JPN Sep Supermarket Sales -1.1%YY
0820 EU ECB Member Tumpel-Gugerell speaks on
europen financial sector intergration
in Lisbon
0830 UK Sep Focus on consumer price indices
1230 CAN Aug Retail Sales +0.9% +1.5%
1300 US Tsy Secy Paulson unveils U.S. currency
with his signature in Washington
N/A US No major economic indicators scheduled
N/A JPN El Salvador Pres Elias Antonio Saca
Gonzalez to meet Japan Pres Shinzo Abe
in Tokyo

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(END) Dow Jones Newswires