Trader Talk

Yellen puts cat in with pigeons, and emerging markets reel

Federal Reserve Board Chair Janet Yellen speaks during a news conference March 19, 2014 at the Federal Reserve Board in Washington, DC.
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It was tough trading day in Asia, with virtually all major exchanges in the red: Indonesia down 2.5 percent, down 1.8 percent (its lowest level since July), Japan down 1.7 percent, down 1.4 percent, and Korea down 0.9 percent.

Little wonder. After yesterday's press conference by freshly minted Federal Reserve chief Janet Yellen, traders—particularly those in emerging markets —left with three takeaways. These are: the dollar will get stronger, interest rates will rise, and less accomodative monetary policies are coming.

This translates into another year of volatile money flow for emerging markets, particularly in countries that have large current account deficits (i.e. imports much bigger than exports) and have done little in the way of structural reforms.

Countries in this camp include Thailand, Turkey, India, and Brazil. A lot, of course, depends on China; if they can weather the current jitters over a potential credit crisis and get through the year with somewhere around 7 percent GDP growth, that will go a long way toward helping their neighbors.

That, however, is problematic. This morning Goldman Sachs cut its 2014 economic growth forecast for China to 7.3 percent from 7.6 percent.

One thing for sure: we are in a brave new world. Very few have noted the strange disparity between a Fed that is lowering the upper end of its growth forecast for the next three years, while at the same time implying a forward shift in rate hikes.

Should the U.S. achieve some kind of "escape velocity," that is, growth north of three percent—and many believe that could happen this year—the Fed may have to get even more aggressive in its rate expectations.

We should have that problem.


1) KB Home was not an outlier. Lennar beat on top and bottom line, with orders up 10 percent (good, but below some expectations) along with an 18 percent increase in average sale prices. Also, they saw a 300 basis point increase in gross margins, to 25.1 percent (excellent).

"We are optimistic that the housing market is continuing to recover," CEO Stuart Miller said. They saw sequential monthly improvement in traffic and new orders.

2) Guess and Cato both gave 2014 guidance well below expectations—I mean about 25 percent below expectations;

Burlington also guided lower. Specialty apparel has been a mess this year: whether male or female, discount, sale, regular--it doesn't matter. Just about every retailer has lowered guidance: Ann Taylor, Ascena, BEBE, L Brands, Ross Stores, and TJX have all guided lower.

The non-affluent consumer is not spending much, and the weather has not helped. If we don't get some kind of pop when the weather improves--if we don't see some kind of pent-up demand in the next month or two--I would be very worried about the future of retail.

However Herman Miller gave 2014 earnings and revenue guidance that was above expectations. We're talking furniture, the one consumer segment—home improvement—that is doing better.

3) The initial public offering flood continues: a) Cloud-based online banking company Q2 Holdings (QTWO) priced 7.7 million shares at $13, above the price talk of $11-$13, and b) severe burn biotech MediWound (MDWD) priced five million shares at $14, low end of the price talk of $1-$16.

By CNBC's Bob Pisani