“Financial markets will find & exploit hidden flaws, particularly in untested new innovation — and do so at a time that will inflict the most damage to the most people” — Raymond F. DeVoe

1. White House outlines tax accord — President Obama announced yesterday evening a ‘framework’ agreement with Republicans that includes a two-year extension on Bush-era tax cuts, keeps the dividend and capital gains tax at 15%, temporarily cuts payroll and Social Security taxes, and extends unemployment benefits. However, despite earlier reports that the deal was ‘all but done,’ Democratic lawmakers object to parts of the plan and will discuss the matter today. The downside here is lost revenue to the government, which would total at least $450B in 2011 and could climb to $600B, depending on the strength of the economy over the next two years.
2. China may hike rates this weekend — The Chinese central bank may increase its interest rates this weekend to signal its shift to a “prudent” monetary policy amid rising inflationary pressures, a published Chinese media report said Tuesday. Chinese inflation figure is scheduled for release this Saturday.
3. US Delivers More Subpoenas in Insider Trading Probe — Federal authorities have expanded an investigation into insider trading on Wall Street, bringing to more than one dozen the number of subpoenas sent to hedge funds and other investment firms over the past two weeks, people familiar with the inquiry said.
4. China exports, imports surge in November — China’s exports jumped 34.9% in November from the year-ago period, accelerating from October’s 22.9% growth and surpassing the 22.4% increase expected by economists surveyed by Dow Jones Newswires. Imports grew at an even faster pace, 37.7%, ahead of October’s 25.3% increase and expectations for a 24.5% expansion.
China ups reserve requirements to cool inflation; The People’s Bank of China Friday raised lenders’ reserve requirement by half a percentage point in a move designed to take liquidity out of the banking system and cool inflationary pressures in the country. The hike is the sixth such increase in bank reserve requirements by the central bank this year. It takes effect on Dec. 20.
5. EU banks reportedly face further stress tests — The European Union will begin a fresh round of stress tests on its major banks in February, including an increased focus on the immediate access that lenders have to liquid assets, according to media reports. Olli Rehn, European commissioner for economic and monetary affairs, said late Tuesday that the next round of tests will be more rigorous and will include a liquidity assessment, rather than solely focusing on banks’ capital levels, according to the reports.
6. U.S. trade deficit narrows to $38.7 billion – — The U.S. trade deficit narrowed sharply in October, surprising economists and suggesting that the trade sector may make a positive contribution to growth in the fourth quarter for the first time since the final three months of 2009.

The week ahead — Economic data from Econoday.com: