Pre-Market Primer: IBM Bets on Microsoft Alternative; Fed Meeting Begins
Stocks declined worldwide today as investors grow cautious about
the Fed's policy decision.
Today, the Federal Open Market Committee begins its two-day meeting. Chairman Ben Bernanke will hold a press conference on its outcome tomorrow at 2:30 p.m. It is widely believed among investors and economists that the Fed will begin the infamous "taper" this month. Currently, the central bank buys $85 billion in mortgage-backed securities and government bonds. Expectations that it will cut that back by a token amount this month are high, but Bernanke has repeatedly said that scaling back monetary stimulus depends on continued improvement of economic indicators. The disappointing August jobs report, and downward revisions of previous months' job growth, could keep the Fed on a dovish track.
Adding to the dovish case, inflation stayed low last month. The consumer price index rose 0.1% month-over-month in August, missing expectations of a 0.2% rise.
The NAHB homebuilder survey will come out later this morning. Economists expect the index to stay steady at 59 in September, signifying a small decline in homebuilders' outlook on the market.
Stock futures were largely flat this morning following declines on Asian and European indices. Before the opening bell, Dow (INDEXDJX:.DJI) futures were up 0.01% at 15,432. Futures contracts on the S&P 500 (INDEXSP:.INX) fell 0.03% to 1,690.70 and Nasdaq (INDEXNASDAQ:.IXIC) futures gained 0.02% to 3,161.50. Gold was down just 0.01% at $1,317.70/oz. Treasuries rose, and the 10-year yield fell two basis points to 2.84%.
German investor confidence rose this month, according to the ZEW Survey. The index climbed 7.6 points to 49.6 this month on improved outlook for the Eurozone. European car sales fell in August however, sinking 4.9% from the year before.
JPMorgan Chase ( JPM ) shares were off slightly this morning as the megabank was forced to admit wrongdoing in last year's "London Whale" debacle that cost it $6 billion. The bank will pay $800 million in fines to US and UK government agencies to settle questions of whether it misled shareholders about trading risks. In a reversal of regulators' policy, the bank was actually forced to admit fault. This is much more than symbolic, as it exposes JPMorgan to private lawsuits.
IBM ( IBM ) will reportedly make a huge vote of confidence in Linux today. The enterprise tech company will spend $1 billion to convince customers that the open-source operating system is a better choice for powering enterprise data centers. The benefit to Linux is that since it is free and open source, a data center can install it on any number of cloud instances it wishes without paying license fees for installing competing products such as Microsoft's ( MSFT ) Windows Server.
Though Linux servers, usually with support from companies such as Red Hat ( RHT ), have been growing fast, it still only claims 23% of new server purchases, where Windows Server has 49%. In the year ending June 30, Microsoft earned $8.1 billion on $20.3 billion from its server and tools division. Servers make up a larger share of the company's earnings than the Windows division.
Adobe ( ADBE ) shares could see some action today before the company reports earnings after the bell. Analysts expect the software company to report per-share earnings of $0.34 on $1.01 billion in revenue.