Markets Set for Bearish Wave as Dell Earnings Fail to Meet Expectations; Trichet Signals ECB Will Withdraw Cash from Markets

The U.S. economy lacks economic fundamentals today, however, we still should expect a hectic day for stock markets; Dell Inc reported earnings that failed to meet expectations and accordingly stock future indexes dropped ahead of the U.S. session; meanwhile, the U.S. dollar gained momentum against majors after ECB Chairman, Trichet, signaled that the ECB will start to gradually withdraw liquidity from markets.

The ECB is rather known for its conservative approach when it comes to the monetary policy, and Trichet is signaling that excess liquidity needs to be withdrawn from markets in order to prevent upside risks to inflation from soaring, while keeping in mind that the Fed also pumped huge amounts of cash into the financial system, in order to facilitate lending and ease credit conditions. We should expect an aftermath to be reflected through higher inflation rates over the medium to long term.

The Fed however, have been reluctant to signal upside risks to inflation, where so far the Feds signaled that inflation risks will remain subdued for some time; also highlighting that the expectations outlook for inflation remains stable, yet the Feds are in a much more critical position than the ECB; where rising unemployment and tightened credit conditions continue to weigh down on economic activity.

Unemployment rose in the United States in October to a 26-year high at 10.2%, where unemployment will probably continue to rise over the upcoming few months; therefore we should expect consumer spending to remain under pressure, which means the U.S. economy will remain under pressure, especially since spending accounts for nearly 2/3 of economic activity in the United States.

Unemployment has been rising all across the country, however the pace of layoffs seems to be easing recently; where for instance, unemployment in New York city remained unchanged in October at 10.3%, while overall state’s unemployment increased to 9% in October, as 12,700 jobs were shed in the state of New York, although adding 14,100 jobs, while the private sector continued to lose jobs, as private employers continue to cut jobs in a bid to reduce costs and survive the ongoing economic weakness.

The city of New York suffered deeply from the worst financial crisis since the Great Depression, since financial services companies were the most to layoff workers in the city, followed by professional and business services; however, as the recovery prevails we should see the pace of layoffs furthur easing, where employers will probably start hiring new employees in the second half of next year.

Meanwhile, Dell Inc announced its results for the third quarter of the fiscal 2010 year, reporting EPS of $0.23 a share down from $0.27 reported in the prior quarter, as well as below median estimates of $0.274 a share EPS; accordingly stock futures dropped in early trading this morning, as investors will be very disappointed with the results and given the lack of major market movers today, we might witness a strong reaction in stock markets today.

Future indexes dropped in New York this morning; the DJIA future index dropped by 75 points and was last traded at 10250; while the S&P 500 Future index dropped 8.75 points to trade at 1085; NASDAQ 100 Future index dropped 212 points to trade at 1758, data as of 07:25 New York time.