The Street has been acting like the long commodities/short dollar trade is coming to an end; the wording of the Fed's statement will determine if that is really the case. It may be unlikely for them to change their bias toward lower rates this early, but they will almost certainly sound more hawkish on inflation.
But will inflation be with us for the foreseeable future? Ned Davis, in a note to clients, noted that there are elements that indicate that inflation may lessen in the near future: 1) labor costs are in check, 2) inflation normally ebbs during recessions, and 3) the debt bubble and credit squeeze normally have serious deflationary potential.
Are the world's central banks starting to turn? The Bank of Japan gave up its two-year bias toward rising rates and warned of downside risks to the country's economy. They kept interest rates at 0.5 percent. They warned that inflation posed a risk to the economy. Will the ECB follow?
Elsewhere, the two big trends continue: commodity inflation is a real concern, and strong international sales and a weak dollar are offsetting U.S. weakness.
1) Inflation watch:
--Despite higher costs, Dean Foods and Kellogg both beat.
--International Paper short of expectations, and again inflation is the issue. They were able to raise some prices, but not fast enough to keep up with material costs.
2) International sales strong:
--GMsmaller than expected loss. International sales up 20 percent. Not clear what impact the American Axle strike has had on sales. Up 5 percent pre-open.
--Engine maker Cummins beat, and strong international sales (57 percent of sales are now overseas) helped offset rising commodity prices and sluggishness in the U.S.
--Colgate reported U.S. sales up 7 percent, while international sales were up mid to high double digits. To offset higher prices, they have been trying to shift to higher-margin items.
--Citi prices at $4.5 b common stock offering at $25.27. It was supposed to be $3 b, at least that what was said yesterday, but it was increased "in response to strong demand."
--Proctor & Gamble in line with expectations, lower end of guidance raised.
--United Online buying FTD group , for what amounts to $15.08 per share, which includes about half cash and half United Online notes. FTD closed last night at $13.50.
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