Pre-open sentiment remains positive as the markets wait for
Janet Yellen's first news conference as the Fed Chairwoman this
afternoon. The weak start to the Q1 earnings season with
underwhelming reports from
) will also attract some attention.
We will get three things at the conclusion of the FOMC meeting
this afternoon - the official statement, the committee's economic
projections and the Chairwoman's press conference. No major
surprises are expected on the Taper question or the projections,
though given the recent downtrend in the unemployment rate, the
committee's projections for year-end 2014 and 2015 will likely
come down to match private-sector consensus expectations. All
indications are that they will continue with the recent $10
billion reduction pace on the Taper front.
The only major question is whether the FOMC will change the
unemployment threshold for its forward guidance. The current
threshold is 6.5%, not that far from the current unemployment
rate if 6.7%. The last official FOMC statement and public
comments from Fed officials have been emphasizing that they don't
intend to make any changes to monetary policy even 'well past'
the unemployment rate reaches that level. The committee would
prefer to replace the hard numerical threshold with something
more qualitative without disturbing current market expectations
in any negative way. The market expects interest rates to start
rising in the second half of 2015, as reflected in the Fed Funds
futures market. It wouldn't be easy for the Fed to remove the
unemployment threshold without disturbing market expectations,
but that's the key challenge.
Beyond Fed related matters, the 2014 Q1 earnings season got
underway with the Oracle and Adobe results after the close on
Tuesday (we count all companies with fiscal quarters ending in
February as part of our Q1 tally). While Adobe beat expectations,
Oracle came up short. This morning's results from FedEx and
General Mills were also on the weak side, with both companies
blaming weather for their weak results.
Overall expectations for Q1 remain low, having come down quite
a bit over the last three months. Total earnings for companies in
the S&P 500 are expected to be down -1.6% in Q1, a material
drop from the +2.3% growth expected in early January. We
should probably get used to the 'reason' cited by FedEx and
General Mills this morning, as weather will likely appear
repeatedly this reporting season.
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