Colin Cieszynski
The Before the Bell report is compiled by editors of The Globe and Mail and is updated throughout the morning to reflect latest developments. Colin Cieszynski, Chartered Financial Analyst and Chartered Market Technician, is chief market strategist with CMC Markets.
It's a busy day for trading news around the world, with particular focus on the U.S., with disclosures on the FOMC meeting and consumer prices, as well as on the U.K., where there is an employment report and national Budget. The crude oil market is also a key focus, with inventory data due amid continued rumours about meetings involving key global producers.
Stock markets have been steady so far, with U.S. index futures up marginally while London's FTSE and Germany's DAX are down less than 0.5 per cent. Traders don't seem to be interested in getting too far out on a limb ahead of big news, but this feels like the calm before a storm with the potential for significant moves later in the day.
Having held $35.00 per barrel support Tuesday, West Texas intermediate crude oil appear to have completed a trading correction, recovering its recovery trend. The rebound started when U.S. American Petroleum Institute oil inventories rose less than expected. It has been helped along by reports in the press that the big meeting to discuss a production freeze is likely to happen in mid-April, could involve 15 countries and may proceed with or without Iran, which is still in the process of restoring its production to pre-sanction levels. Oil could be active through the morning.
The U.K. is also in focus this morning following a mixed employment report that saw jobless claims and weekly earnings come in better than expected, but three-month job creation was a disappointment. The British pound is falling again on the news, but today's decline against the U.S. dollar of 0.3 per cent is moderate and similar to other major currencies like the Japanese yen. U.K. markets could be active around today's budget speech, which could be particularly significant coming within the Brexit campaign. It will be interesting to see if Chancellor George Osborne joins Governor Mark Carney in trying to steer a neutral policy course, or if the budget speech tries to take sides.
As the day progresses, focus crosses the pond to North America where the main event is this afternoon's FOMC interest rate decision, monetary policy statement and member projections, all due at 2 p.m. (ET), with Chair Janet Yellen's press conference at 230 p.m.
The U.S. central bank is generally not expected to raise rates this meeting, but with inflation pressures growing and the U.S. economy still strong, the Fed is likely to use the statement, forecasts and press conference to signal another hike is likely in the spring (April most likely).
There are currently three factions at the Fed setting up the potential for a big showdown today. The dovish camp is worried about recent volatility and thinks the Fed should slow down; the hawkish camp realizes volatility is normal when the Fed changes direction, expects the recent storm to blow over and thinks the Fed should keep to its original plan of 4 rate hikes this year. The neutral camp thinks the Fed should keep its options open and see how the markets and data play out.
Because of this, what happens to the Fed's inflation forecast may be particularly significant, as an increase would point toward an imminent rate hike with the Fed not wanting to fall behind the curve and have to scramble to catch up later. The forecast could be influenced by this morning's consumer price report and rising oil prices, and the recent rise in core PCE inflation, the indicator the Fed uses.
With markets on the rise and U.S. data mostly coming in better than expected since the last Fed meeting in late January, the dovish case has weakened but the fence sitters could convince the hawks to wait for one more meeting before pulling the trigger on another increase.
The infamous "dot plot" of member projections on the Fed funds rate at the end of this year may also be significant. After today, the Fed has six meetings left in 2016 with September and October likely out for a move due to the election campaign. A downshift in the party line from four hikes this year to two or three appears most likely - less than that would be seen as highly dovish. The number of planned rate hikes could send a significant signal to the markets about the Fed's confidence in the U.S. economy and the prospects for corporate earnings.
Heading into the meeting, the U.S. dollar is still pricing in multiple rate increases this year. Bonds have been pricing in no hike this month but the chances of an increase in April and June have been steadily rising over the last month. I think there's a 20 per cent chance of a hike today (low but it can't be ruled out). A decision to hold rates steady could bring out at least two hawkish dissenters.
For the hour following the news and through the press conference, we could see significant swings in both directions as traders digest the developments and sort out their implications.
Hawkish news or signals may boost the U.S. dollar and could send stocks initially lower, then higher, as a signal of tighter monetary policy driven by a stronger economy. Neutral to dovish news or signals could undermine confidence in the U.S. economy and stock market while also sending the U.S. dollar lower.
Now, here is a closer look at key market data, as well as the main corporate and economic news of the morning.
MARKET DATA:
Futures
Dow +0.02 per cent; S&P 500 -0.02 per cent; Nasdaq: +0.03 per cent; TSX 60 -0.03 per cent
Equities
Japan's Nikkei 225 -0.83 per cent per cent
Shanghai composite index +0.21 per cent
Hong Kong's Hang Seng -0.15 per cent
Germany's DAX +0.49 per cent
London's FTSE +0.14 per cent
France's CAC 40 +0.14 per cent
Commodities
WTI crude oil (Nymex April) +2.06 per cent at $37.09 (U.S.) a barrel
Gold (Comex April) +0.15 per cent at $1,232.90 (U.S.) an ounce
Copper (Comex April) +0.16 per cent at $2.237 (U.S.) a pound
Currencies
Canadian dollar -0.0006 at 74.83 cents (U.S.)
U.S. dollar index +0.215 at 96.848
Bonds
U.S. 10-year Treasury yield -0.01 at 1.96 per cent
KEY ECONOMIC RELEASES
New-home construction in the U.S. rose more than economists forecast in February, led by the strongest single-family building in more than eight years, signaling continued confidence in demand for residential real-estate. Housing starts in February climbed 5.2 per cent to a 1.18 million annualized rate from a 1.12 million pace the prior month. The median forecast of 78 economists surveyed by Bloomberg was 1.15 million. Permits, a proxy for future construction, fell, suggesting any additional gains in coming months will be limited.
Consumer prices in the U.S. excluding food and fuel climbed more than forecast in February for a second month, adding to signs inflation is moving closer to the Federal Reserve's target. The overall cost of living fell amid cheaper fuel. The so-called core measure, which strips out volatile food and fuel, rose 0.3 per cent from a month earlier, the same as in January. The overall consumer-price index declined 0.2 per cent, matching the median forecast of economists surveyed by Bloomberg.
U.S. February industrial production fell 0.5 per cent month over month vs. an estimated 0.3 per cent drop.
Still to come:
(10:30 a.m. ET) EIA Petroleum Status Report
(2 p.m. ET) U.S. Federal Open Market Committee (FOMC) announcement and summary of economic projections
(2:30 p.m. ET) U.S. Fed chair Janet Yellen's quarterly press briefing
KEY CORPORATE NEWS
John Cruickshank is stepping down as publisher of Toronto Star. He will also resign as president of Star Media Group.
Valeant shares are down less than 2 per cent in premarket trading, a day after plunging 50 per cent after slashing its 2016 revenue forecast and warning it is facing risk of debt default.
Stella-Jones Inc. will be increasing its next quarterly dividend payment by 25 per cent. The increase to 10 cents per share payable April 29, from eight cents, follows a $33-million net profit in the fourth quarter. That was up $10 million or 43.5 per cent from $23 million in the same period of 2014. Earnings per share increased to 48 cents, from 33 cents, and sales rose to $357.5 million from $289.9 million in the fourth quarter of 2014.
Solar company SunEdison Inc said it had delayed filing its annual report beyond the extended due date after identifying material weaknesses in its financial reporting controls, sending its shares down 20 per cent in premarket trading on Wednesday. SunEdison "yieldco" TerraForm Power Inc, whose shares were down more than 14 per cent, also said it had delayed filing its annual report for the second time. Both reports were due on Tuesday.
Peabody Energy Corp., the largest U.S. coal miner, said it may not be financially strong enough to remain in business in its current form and that the company may seek bankruptcy protection. Peabody plunged 33 percent to $2.70 in pre-market trading.
Earnings today include: Argonaut Gold Inc.; B2Gold Corp.; Bellatrix Exploration Ltd.; Cervus Equipment Corp.; Delphi Energy Corp.; DIRTT Environmental Solutions Ltd.; FedEx Corp.; New Flyer Industries Inc.; Oryx Petroleum Corporation Ltd.; Pacific Exploration and Production Corp.; Progressive Corp.; RMP Energy Inc.; Sandstorm Gold Ltd.; Silver Wheaton Corp.; Williams-Sonoma Inc.
Also see: Wednesday's small-cap stocks to watch
With files from wire services