A relatively tame inflation number and no mean surprises in Lehman Brothers earnings this morning is giving support to stocks ahead of the Fed's momentous decision today. Traders are also watching oil prices crack yet another record level.
Producer prices fell 1.4% in August, slightly more than expected but core inflation, minus food and energy, rose 0.2%, also a bit higher than some expected.
First Look at Wall Street's Books
Lehman Brothers said its profits fell three percent to $887 million, or $1.54 per share, a bit better than Wall Street's expectations. The firm's equities trading and investment banking helped make up for some losses from subprime loans.
Lehman provides the first look at the impact of the subprime-generated credit crunch on brokers earnings report, an event Wall Street has been anxiously awaiting. Brokerage stocks sold off Monday in anticipation of this week's brokerage industry profit reports and are indicated higher today. Other reports due this week include results Morgan Stanley on Wednesday, and Goldman Sachs and Bear Stearns on Thursday.
Trading for the most part was relatively quiet Monday with the Dow slipping 39 points to 13,403. Overnight, Asian markets were mostly lower, and Europe's stock markets moved higher with the U.S. market. Lehman has a 10 a.m. conference call. CNBC's Mary Thompson will be reporting on the numbers and the firm's statements which will be closely watched.
Not such good news came from E*TRADE late yesterday. The company lobbed a bombshell when it revealed profits would come in 31% below its latest profit guidance because of its mortgage business. Earnings are now expected to be $1.10 per share, down from the expected $1.60 when the company reports next month.
On the other hand, consumer electronics retailer Best Buy delivered higher profits this morning and raised its full year outlook. Profits were $250 million for the second quarter and it beat analysts per share expectations. Best Buy is watched not only for the health of the electronics business but the consumer's willingness to buy big ticket items like TVs and computers.
Handicapping the Fed
One of Wall Street's favorite past times these last few weeks has been crystal ball gazing and trying to read the collective mind of the Bernanke Fed. To get the latest read, CNBC has conducted a spot survey of economists and strategists that will be reported at 11 a.m. Tuesday.
CNBC's senior economic correspondent Steve Liesman will report the findings which will reveal the latest thinking of the Street. For the most part, Wall Street has been expecting a 0.25% cut to the Fed funds target rate, but many are hoping for a 0.50% cut to the 5.25% Fed funds rate. A cut to the discount rate, the short term borrowing rate the Fed gives banks, is also expected to be trimmed and that cut could potentially be even larger then the cut to the Fed funds rate.
The comments from the Fed will also be watched closely and there's a debate about whether the Fed would introduce any new comment on inflation. Fed Chairman Ben Bernanke "has a finite number of points he can move, but he's got an infinite amount of words he can use," said Liesman.
CNBC's Rick Santelli says the cut to Fed funds could be 0. 25% with a discount rate cut of possibly 0.50% or 0.75%. "A 100% of the people I talk to say that, but 20% also believe the Fed shouldn't cut..there's still a silent minority that's thinking he's making a big mistake, but they don't trade that way," said Santelli.
The pressure on oil prices continues today and the price is moving up to the $81 per barrel range, after hitting a new high of $81.24 overnight.
Those who are worrying about inflation are keeping a close eye on the energy markets. Look at the activity there in what was another record setting session Monday. Crude jumped another 1.9%, to a record $80.57 per barrel. Oil and other commodities rose on expectations the Fed will cut rates, and thereby help the economy and demand.
Month-to-date, oil is 8.8% higher, and it has risen 32% year-to-date. Gasoline prices rose $0.78 Monday or 0.4% to $2.0442, up 27.6% for the year but virtually flat for the month. NYMEX heating oil also roared to a new record, leaping 1% to $2.2287 per gallon. Natural gas rose 37.4 cents per million BTUs to $6.653, up 21.7% for the month.
A French official over weekend suggested war could be one outcome of Iran's nuclear ambitions. "The statements from the French (foreign minister) over the weekend were really arresting and very strong even though there's been a little calming down," said Cambridge Energy Research Chairman Dan Yergin.
"It put Iran back at the top of the agenda in peoples' minds. We don't see oil supported at this level by the physical fundamentals but expectations and sentiment are very strong and that could carry it further," said Yergin, CNBC's global energy analyst. "Another disruption of any kind would give it another upward push. The oil market, like everybody else, is waiting to see what the Fed does. It's so attuned to the question of whether economic growth slows down around the world and that would certainly shape demand and prices."
Other data points due Tuesday the National Association of Home Builders Survey. Another real estate gauge we'll be following is the National Association of Realtors report on commercial real estate, expected at 10 a.m. CNBC's real estate correspondent Diana Olick will be reporting on the surveys.
Countrywide Financial Chairman Angelo Mozilo speaks Tuesday at Bank of America's conference in San Francisco. Media industry leaders will be speaking in New York at Goldman Sachs Communicopia conference. Speakers include Barry Diller and Rupert Murdoch.