Wednesday: Bernanke, Toyoda Testify Before Congress
Markets will hang on every word from Fed Chairman Ben Bernanke Wednesday and Thursday, but it's not likely investors will hear much new.
"I think we get a lot of what we saw in the testimony two weeks ago, in more detail on the exit strategy. If we learn anything new, it will be technical. I wouldn't expect any shift. The (economic) data has has been only so so. I don't think it's been succeeding or falling far short of anyone's expectations," said Michael Feroli, an economist with J.P. Morgan.
The Fed has been in frequent communication with markets lately. Two weeks ago, Bernanke released Congressional testimony on the Fed's exit strategy plans, previewing a move to raise the discount rate. It raised that rate last week to 0.75 percent, and at the same time signaled it does not intend to move on the Fed funds rate, a rate that more directly affects consumer and business loans and investments.
The Fed also released the minutes of its last meeting last week, and there have been plenty of Fed presidents on the speaking circuit. "They've told us an awful lot and not much has changed in the last few days," said CRT Capital Treasury strategist David Ader.
Bernanke appears before the House Financial Services Committee at 10 a.m. Wednesday for his semiannual report on monetary policy and the state of the economy. On Thursday, he makes a similar address before a Senate committee.
"I just don't know what can happen. Interest rates are already zero. I guess they can yell at him for a while, but once it's over there's not going to be any news, in my opinion," said Steve Massocca, a managing director at Wedbush Securities.
Washington is hosting another important hearing Wednesday. Toyota CEO Akio Toyoda appears before the House Oversight and Government Reform committee at an 11 a.m. hearing Wednesday. U.S. Transportation Secretary Ray LaHood also testifies, among others.
Toyota's U.S. president James Lentz testified Tuesday, apologizing to Congress members and acknowledging it has taken too long for the company to come to grips with the accelerator problem.
Stocks fell and Treasurys moved higher Tuesday on worries about the economy. A steep drop in consumer confidence to 46 in February, a 10-month low, was a nasty surprise for markets, which expected just a slight decline to 55 from 56.5 in January.
T-bill rates, however, spiked after the Treasury Department said it would replenish the Supplementary Financing Program from $5 billion to $200 billion, the amount that was in the program through last September. The program was created in September, 2008 as a Treasury bill issuance program, and the proceeds were held at the Fed in a special Treasury account, according to Feroli.
Some speculated the move was a type of stealth tightening, but Ader said it was really more a technicality. "It is not a monetary policy tool.. it is not a market event," he said. "The Treasury, in order to come in under the debt ceiling, reduced the SFP to $5 billion. Now that the debt ceiling is out of the way, the last one of the $5 billion rolls off Thursday. They kept it there because they had wanted to keep the program alive," he said.
Beginning tomorrow, the Fed will hold SFP auctions over the next two months, issuing $25 billion 56-day bills each Wednesday at 11:30. The announcement triggered the sell off in t-bills, and even in the 2-year ahead of the Tuesday's auction of $44 billion in 2-year notes.
"I think it really does give the people who read the discount rate cut as a stealth tightening another arrow in their quiver," Feroli said. "You've got to kind of respect their argument even though I disagree with it..I have to respect the fact it does look like there's two concise shots across the bow. I suspect and hope Bernanke will address this."
Massocca said he is also focused on Greece, which he thinks could return as a problem for the stock market. Fitch downgraded the ratings of several Greek banks Tuesday, sending spreads wider on Greek sovereign debt. Greece has been expected to announce a 10-year issue this week, but there was no announcement as of Tuesday. "I think it's got an opportunity to burn hot and bright again at some point in time," said Massocca.
In addition to the Bernanke testimony, investors will watch another big Treasury auction Wednesday at 1 p.m., this time for $42 billion in 5-year notes. Wednesday's data is light, with just the January new home sales, reported at 10 a.m.
Treasury Secretary Tim Geithner testifies before the House Budget Committee at 11 a.m. President Obama meets with the Business Council.
Earnings reports are expected in the morning from Thomson Reuters, TJX, Toll Brothers, Transocean, Washington Post, Dollar Tree and RR Donnelly. Limited Brands, Salesforce.com and Express Scripts report after the bell.