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MARKET SNAP: At 06:10 a.m. EDT, S&P 500 futures down 0.19%. Treasury yield lower at 2.05%. Nymex down 50 cents at $43.26; gold 0.12% higher at $1154.60. In Europe, FTSE 100 up 0.22%, DAX down 1.08% and CAC 40 down 0.32%. In Asia, Nikkei 225 up 1.0% and Hang Seng down 0.2%.
WATCH FOR: 8:30 a.m. EDT. February residential construction. [Housing starts expected -2.3% on-month to 1.04 million annualized rate; permits expected +0.5% on-month to 1.07 million rate.]
THE BREAKFAST BRIEFING
Small changes could have big impacts on stocks when the Federal Reserve provides commentary following its two-day policy meeting Wednesday.
Since the Fed last delivered its forward guidance in December, the central bank has seen a batch of mixed economic data. The labor market has significantly picked up with the jobless rate already within the range that many Fed policy makers consider to be full employment. But the U.S. dollar has surged 13% and the price of U.S. oil has tumbled 22%, weighing on corporate earnings and GDP growth. Furthermore, inflation has staged a steeper decline below the Fed's 2% target and its weakness is among the biggest factors delaying a rate liftoff.
Because of this, the Fed may downwardly revise its GDP growth projections and the inflation outlook in its Summary of Economic Projections. Such moves could signal the central bank is less confident raising rates in June.
In December, the Fed saw inflation rising between 1% and 1.6% in 2015 and 1.7% and 2% in 2016. GDP growth, on the other hand, was estimated to expand between 2.6% and 3% this year and 2.5% and 3% next year. When those figures were released, many economists saw a June rate increase as a very viable option.
Stock investors would almost certainly welcome a downgrade to inflation and growth guidance because of their affinity toward the Fed's easy-money policies. As markets have inched closer toward liftoff date, the bad-news-is-good-news trade has gathered momentum with stocks rallying Monday after a slew of disappointing data and Thursday when retail sales came in below consensus.
Economists at Goldman Sachs and Wells Fargo Securities see the recent choppy economic data as portending a cut to the Fed's growth and inflation forecasts, which could result in the first rate increase coming after the June meeting.
Goldman Sachs, for one, suspects the Fed's median inflation target will be lowered substantially in 2015 to 0.8%, but only slightly in 2016 to 1.8%. The bank says a larger downward revision to 2016 would demonstrate reduced confidence in the inflation outlook and reinforce the notion that the Fed is only going to increase rates when it is reasonably confident that inflation will move back toward 2% over the medium term. Economists there still believe a September liftoff in rates is more likely than one in June. They also see growth being revised down fractionally at March's meeting, reflecting soft data and potentially greater concern about the rising greenback.
Wells Fargo Securities joins Goldman in its views that the 2015 median inflation target will drop significantly, but it doesn't expect there will be any major cuts to the price gauge further out. "Any changes to 2016 and 2017 will be minor as the Fed still seems reasonably confident that headline inflation will return to the 2% target over the medium-term horizon (consistent with our inflation call)," wrote Wells Fargo Securities Senior Economist Sam Bullard. He sees the Fed fractionally lowering its 2015 GDP growth target to 2.5% Wednesday and expects the first rate rise will come in June.
Investors will be left with many things to parse from Wednesday's meeting. But it is unlikely there will be a definitive takeaway on when rates will increase because even as some sectors of the economy have improved, others -- like inflation -- have gotten worse.
Morning MoneyBeat Daily Factoid: On this day in 1901, 71 paintings by the late Dutch painter Vincent van Gogh were shown at the Bernheim-Jeune gallery in Paris, drawing worldwide attention. Van Gogh, who was known for his post-impressionist style, had committed suicide 11 years earlier without any idea that his work would go on to receive such acclaim. In his lifetime, he sold just one painting.
- By Kristen Scholer
STOCKS TO WATCH
Oracle is projected to report fiscal third-quarter earnings of 68 cents a share, according to a consensus survey by FactSet.
Adobe is forecast to post fiscal first-quarter earnings of 39 cents a share, while Burlington Stores is expected to post fourth-quarter earnings of $1.32 a share.
American Airlines Group shares are likely to trade higher after Standard & Poor's said late Monday the airline will be included in the S&P 500 Index.
Black Diamond shares gained after hours Monday after the outdoor sports gear company said it was exploring strategic alternatives for its brands.
MUST READS (LINKS)
More Investors Bet Fed Will Raise Rates As Soon as June: More investors are betting that the Federal Reserve will raise short-term interest rates as soon as June, belying signs that the U.S. economy is reverting to sluggishness following a strong second half of 2014.
Euro Creeps Higher: The rise comes ahead of the U.S. Federal Reserve's March policy announcement this week, which is expected to shed light on the timing of a rise in interest rates.
Iran Nuclear Deal Could Open Oil Flood Gates: Iran, the U.S. and its allies are pushing ahead with talks over a nuclear deal that would change many things--perhaps none faster than the price of oil.
Israelis Start Voting in Election: Israelis began voting in an election that will test the survival skills of Prime Minister Benjamin Netanyahu and his bet that their fear of the country's adversaries outweighs concerns about the rising cost of living at home.
Investors Turn to Stocks as European-Bond Returns Plummet: The move is driven by the European Central Bank's bond-buying program, which has pushed government-bond prices sharply higher, forcing investors to look further afield for a steady income.
In Shift, Firms Give Investors New Clout Over Board Seats: Some big U.S. companies are poised to hand activist investors the keys to their boardrooms following intense shareholder pressure and a regulatory shift that disrupted firms' ability to block investor initiatives.
Oil Prices Set to Take a Bath: The glut in U.S. oil inventories has come back into focus. The next phase in the oil-price slide is getting under way.
Valeant Wins Salix After Raising Offer: Valeant Pharmaceuticals raised its price for Salix Pharmaceuticals by about a billion dollars in a new deal that knocked out rival bidder Endo International.
Cement Deal in Doubt as Holcim Rejects Terms: Holcim is challenging the financial terms of a proposed $44 billion merger with Lafarge, casting doubt over the creation of a global construction-materials behemoth.
Oil Hits Six-Year Low: The benchmark U.S. oil price slumped to a six-year low on Monday on fresh signs that crude supplies are swamping the market.
Would-Be Finance Whiz Is Charged With Stealing From Investors: Mark Malik, who had won plaudits from firms that rate hedge funds, has been charged with stealing from investors.
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(END) Dow Jones Newswires
March 17, 2015 06:39 ET (10:39 GMT)
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