The Fed's comments yesterday calmed some of the credit angst in the markets and set the stage for a move higher in global equities. U.S. stocks are positioned to trade higher this morning, and Cisco's strong earnings news is adding some punch to the Nasdaq.
Fed's Soothing Words?
Yesterday, the Fed gave a nod to the troublesome behavior of credit markets and the potential economic impact, but it held tight to its belief that inflation is the number one problem facing the economy. Some market pros, like CNBC's Jim Cramer, had been hoping for a rate cut and most expected the Fed to revise its comments to acknowledge the market turmoil. There was no rate cut and the raging debate on what the Fed should say has now given way to a debate about whether the Fed said the right things.
"The debate becomes - Did the Fed do enough at this point? Did it get it right? Was it too stubborn holding onto its inflation concern?" said CNBC senior economic correspondent Steve Liesman.
Liesman said the Fed's words move it closer to taking a neutral stance. "It brings (a rate cut) forward in the Fed's mind but the market is ahead of the Fed in its worries."
"What Bernanke wants is flexibility. That's what he got. He doesn't want to be painted into a corner," said Liesman. A CNBC snap poll of economists and strategists shows that 92% of the 60 surveyed believe the Fed will keep rates unchanged at its September meeting, but 49% believe that Fed funds will be lower six months from now.
CNBC's Larry Kudlow saw the Fed statement as a positive on the state of the markets and economy. "He (Bernanke) seems to be suggesting a Goldilocks soft landing. The Fed forecast this year is 2.5% or thereabouts ...Number two - as I read it, this is my interpretation, he is saying yes there is a low grade credit virus infection in the markets, but it's no big deal and it seems to me he's suggesting it's going to go away soon," Kudlow said on his show yesterday.
The much anticipated drama surrounding the Fed's statement did not disappoint -- at least if you watch the stock market's gyrations as a measure of audience response. Stocks headed steadily down hill after the statement, with the Dow losing much as 121 points, but then the market made an about face, and the Dow soared to a level of up 140 on the day. That move did not last, and the Dow closed up 35 points, or 0.3% to 13,504.
The Nasdaq was up 14 or 0.6%, and the S&P 500 finished up 9, or 0.6%.
CNBC's Scott Wapner followed the action from the New York Stock Exchange. "The mortgage lenders and the home builders - the most beaten down, beleaguered sectors of the last few weeks - were the ones that delivered over the last two days. The home builders exploded. They were up huge. Some of the individual stocks are impressive in and of themselves - Beazer up 10%, Hovnanian 7%, and Pulte, up 7%," he said.
"Technology was especially weak," said Wapner.
Speaking of technology, Cisco's 25% jump in net profit for its fiscal fourth quarter came on strong sales of networking equipment. Profit totaled $1.93 billion, up from $1.54 billion the year earlier. Revenues grew 18% to $9.43 billion. Bear Stearns upgraded Cisco to outperform and the firm bumped the price target to $36. The stock is trading higher this morning, just north of $31.50.
Today AIG and News Corp. also report after the bell today.
One year from now, the Olympic games take place in China. CNBC and other NBC networks are showing the celebrations there today. CNBC's Melissa Lee will also take us to the red hot Shanghai stock exchange and CNBC's Darren Rovell takes a look at the business of the Olympics.
Did they REALLY say this?
There's a report making the rounds this morning from the U.K. Telegraph about a campaign by the Chinese government to threaten economic hard ball with the U.S. The article discusses how two lower level officials gave interviews in recent days hinting China could use its foreign reserves to pressure Washington if the U.S. imposes trade sanctions to force China to revalue its currency. The article cites an interview with He Fan, an official with the Chinese Academy of Social Sciences, who says "China has accumulated a large sum of U.S. dollars. Such a big sum, of which a considerable portion is in U.S. Treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency." He said China is unlikely to move away from dollar assets "as long as the yuan's exchange rate is stable against the dollar." A rapid appreciation in yuan would cause a mass depreciation of the dollar, he said.
The article says this not so veiled threat is described as the "nuclear option" in state media reports.
CNBC's Maria Bartiromo speaks to Treasury Secretary Hank Paulson on Closing Bell today. No doubt he will have a lot to say about China. We will also look at the complicated relationship between the Chinese and U.S. economies today and will pay special attention to the Treasury auction later today.
Oil inventory data could set direction today. Crude snapped two days of losses with a 1.3% move higher yesterday to $72.42 per barrel. Oil is slightly weaker morning.