Tuesday Look Ahead: Fed Countdown
Tuesday could be another wait-and-see day in the markets as investors count down to the Fed's Wednesday afternoon interest rate announcement. But it may be earnings news that has the biggest sway over stocks.
Monday's trading was sluggish despite some upbeat deal news, including Mars $23 billion bid for Wrigley and Tracinda's decision to make a bet on Ford stock with the purchase of a substantial stake.
"Earnings Central" will be in full swing Tuesday with a number of important names reporting ahead of the open (see below). In late day earnings news, hot IPO Visa disappointed with a weaker than expected growth forecast, and its stock traded off several percent after hours.
The Dow slipped 20 or 0.2 percent to 12,871.75, while the Nasdaq rose 1.47 points to 2424. The S&P was down 1.47 to 1396.37, but it crossed above the 1400 marker briefly to 1402. The 10-year Treasury yield slipped to 3.835 percent, and the two-year's yield fell to 2.374 percent. The dollar, meanwhile, lost some ground, losing 0.28 percent against the euro, finishing at $1.5640 per euro.
"I think the heavy data week is probably holding people back," said Art Cashin, UBS director of floor operations. Cashin, appearing on "Street Signs," said stock market volume was also low.
"It's an empty playing field. If the bulls actually got their act together, they could make something meaningful happen," said Cashin. "But I don't think anybody's got the energy or the animal spirits for it."
The Fed is widely expected to trim the target Fed funds rate by a quarter point, and it is believed by some traders that it will signal it is done cutting. The meeting begins Tuesday and finishes with the 2:15 p.m. statement Wednesday.
"I will add what really counts is the statement. The presumption is they're going to do 25 (a quarter) and then they are going to announce something. The problem is the last statement was filled with worry and woe, and they can't walk out and say: 'Well, everything's fine now.' So they've got to be kind of measured...It's going to be a critical statement," Cashin said.
We did learn Monday that the Fed will discuss paying interest to commercial banks on reserves they keep on deposit at the Fed. The Wall Street Journal reports that by paying interest, the Fed could increase its lending to banks and securities firms without deeply cutting the federal funds rate. Under current rules, the Fed can now start paying interest as of 2011, but it could ask Congress to move that date forward.
Earnings Central = Inflation Nation
Tuesday is a big day for earnings, and many of those companies reporting will show impact - good and bad - from rising commodities prices. Before the bell, reports will come in from oil giants British Petroleum and Royal Dutch Shell . Other energy companies reporting include refiner Valero Energy and Ashland . Archer Daniels , the food giant, will also be reporting.
Other companies of interest include Daimler , Deutsche Bank , Burlington Northern , Countrywide Financial and Corning .
Companies holding shareholder meetings Tuesday include IBM, Wells Fargo, Six Flags and SunTrust.
Meanwhile, in an interesting development, members of the Rockefeller family are holding an early morning press briefiing Wednesday to discuss their concerns about the leadership of Exxon Mobil. They will call for a change in corporate governance that would result in an independent chairman of the board and bigger roles for the company's board of directors.
The Rockefellers, descendents of founder John D. Rockefeller, say Exxon is failing to address the future of energy. More than a dozen family members have sponsored four proxy resolutions this year.
On the data front, consumer confidence is released at 10 a.m.
Other events worth watching include Lehman Brothers Retail and Restaurant conference. This conference could be newsy, as many on the street are ramping up holdings of the consumer stocks as rebate checks begin to reach consumers this week.
Also the Milken Institute Global Conference continues in Los Angeles, and the annual Ceres conference, which focuses on the on the environment and policy solutions, is underway in Boston. CEOs of Duke and PSE&G are among the speakers.
Made In America
Merrill Lynch economist David Rosenberg Monday issued a note called "A made-in-America Manufacturing Revival." Rosenberg says in his note that we are in the early stage of a manufacturing renaissance in the U.S. He says there's been significant improvement in the cost competitiveness of U.S. industry, mainly due to the weaker dollar of course, but also because of productivity gains and wage containment.
Rosenberg, early to the recession call, says the lagged effects of the dollar decline over the last five years is affecting U.S. export competitiveness. He says there are plenty of negatives in housing, credit and the consumer, yet manufacturing looks brighter.
And this one final tidbit is particularly interesting. Rosenberg says unit labor costs are the lowest in 30 years, when measured in dollar terms relative to the rest of the industrialized world.
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