Daily Markets: Fed Day and Rate Cut Timing Expectations

Today’s Big Picture

Asia-Pacific equity markets finished the day higher except for Taiwan’s TAIEX, which fell 0.37%, and Australia’s ASX All Ordinaries, which ended the day flat, down a mere 0.04%. Hong Kong’s Hang Seng also came close to flat, up 0.08%. India’s SENSEX rose 0.12%, China’s Shanghai Composite added 0.55% and South Korea’s KOSPI closed 1.28% higher led by Health Technology names. Japan’s markets are closed today as the country marks the Vernal Equinox. European markets are mixed in midday trading and U.S. equity futures are mixed as Nasdaq 100 futures are the only contracts solidly higher this morning.

The market’s attention will be focused primarily on the outcome of today’s Fed meeting, which will generate a fresh policy statement and an updated set of economic projections at 2 PM ET. While no change in policy is expected today, investors will be reading Fed tea leaves for clues as to when the central bank may begin a long-expected rate cutting cycle. Complicating that timing, recent metrics and other data, including copper, lumber, oil and gas prices, reveal inflation pressures persist.

Our expectation is that will lead to a sobering tone from the Fed and Fed Chair Powell, with the Fed reiterating it will not relent until its job to bring inflation toward its 2% target is achieved. However, with 9 months left in 2024 and four policy meetings in 2H 2024, we do not expect the Fed’s updated economic projections to show fewer rate cuts than the three it telegraphed back in December.

Those forecasts, however, are likely to show upward revisions for GDP and inflation figures at least for this year. That will signal the Fed keeping its options open when it comes to rate cuts, but we also expect Powell to maintain that the central bank does indeed remain “data dependent.” 

Our thinking is that means that, at least for now, rate cut expectations will need to slide into 3Q 2024. Even though the upward GDP revisions that we expect to see support the current market narrative, we could see some market turbulence as expectations for 2H 2024 are re-evaluated. 

Data Download

International Economy

Producer prices in Germany shrank by 4.1% YoY in February, following a 4.4% fall in January and compared with market expectations of a 3.8% decline. The February decline marked the eighth consecutive month of producer deflation, driven largely by a slump in energy costs.

European Central Bank chief Christine Lagarde reiterated that June is the month in which policymakers will consider bringing interest rates lower. “By June we will have a new set of projections that will confirm whether the inflation path we foresaw in our March forecast remains valid.”

The UK's inflation rate dropped to 3.4% YoY in February, down from 4% recorded in both January and December and below the market expectation of 3.5%. The annual core inflation rate, which excludes volatile items such as energy and food, fell to 4.5%, the lowest rate since January 2022 and slightly below the market consensus of 4.6%.

Domestic Economy

The lone data point to watch this morning will be the next print for the weekly MBA Mortgage Applications Index. 

The Biden administration is softening fuel economy standards, which will slow the transition to electric vehicles from gas-powered ones. Separately, the Environmental Protection Agency will announce revised requirements for 2027-2032 vehicle emissions, easing them through 2030 and then ramping up through 2032. The EPA's original proposal would've led to battery EVs accounting for a whopping 60% by 2030 and 67% by 2032 of total vehicle sales, compared to the current ~8%. The revised rules will likely let automakers build 50% EVs by 2030.

Markets

Energy led sectors yesterday, rising 1.14% as markets were broadly higher save Materials (0.01%), Real Estate (0.00%), and Communication Services (-0.02%), which were flat. The remaining sectors ranged from 0.37% (Consumer Staples) to 0.89% (Utilities). Relative weakness in broad market indexes came from the Nasdaq Composite in the form of a down day from Alphabet (GOOG, GOOGL) and Meta Platforms (META), which weighed on the index. The Russell 2000 and the S&P 500 both rose around 0.55%, and the Dow closed 0.83% higher.

Shares of International Paper (IP) jumped 10.96% on news of a new CEO which has prompted analysts at Citigroup to raise their price target and change their rating from “Neutral” to “Buy.” Here’s how the major market indicators stack up year-to-date: 

• Dow Jones Industrial Average: 3.77%
• S&P 500: 8.57%
• Nasdaq Composite: 7.70%
• Russell 2000: 0.43%
• Bitcoin (BTC-USD): 47.93%
• Ether (ETH-USD): 38.21%

Stocks to Watch

General Mills (GIS), Kingsoft Cloud (KC), Ollie’s Bargain Outlet (OLLI), and Signet Jewelers (SIG) are expected to release quarterly earnings before equities begin trading later this morning. 

Pre-market breadth is lighter today as 224 names in the S&P 500 have traded hands so far this morning with 78 gainers and 146 decliners. Despite that fact that Chipotle Mexican Grill’s (CMG) stock split announcement yesterday (more below) has no impact on the company’s ability to execute its stated mission, those shares are poised to open close to 7% higher this morning, followed by Intel (INTC) (more below). Higher volume decliners this morning include Nasdaq Inc (NDAQ), Boeing Corp (BA) and Super Micro Computer (SMCI).

The U.S. government is awarding Intel (INTC) about $20 billion in grants and potential loans, as the Biden administration aims to ramp up domestic manufacturing of semiconductors. The U.S. Department of Commerce has proposed up to $8.5 billion in direct funding through the CHIPS and Science Act to advance Intel's commercial semiconductor projects in Arizona, New Mexico, Ohio and Oregon. Under the preliminary memorandum of terms, Intel would also have the option to draw upon federal loans of up to $11 billion.

Chipotle Mexican Grill (CMG) shared its board had approved a 50-for-one split of its common stock. The company's shares are expected to begin trading on a post-split basis at the market open on Wednesday, June 26.

ConocoPhillips (COP) CEO Ryan Lance commented that U.S. crude oil production is poised to surpass 14 million barrels per day before plateauing later in this decade, and then staying there "for a long time."

Gildan Activewear (GIL) confirmed that it had received expressions of interest from various parties regarding a potential transaction after a media report earlier in the day said that the Canadian clothing maker had got a takeover approach and was being circled by private equity firms.

Reports suggest Saudi Arabia is creating a fund worth about $40 billion to invest in artificial intelligence.

After Today’s Market Close

Blackberry (BB), Chewy (CHWY), Five Below (FIVE), and KB Home (KBH) are expected to report quarterly results after equities stop trading today. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar. 

On the Horizon

Thursday, March 21

• Eurozone: New Car Registrations - February
• Eurozone: HCOB Flash Manufacturing & Services PMI - March
• UK: S&P Global Flash Manufacturing & Services PMI - March
• UK: Bank of England Interest Rate Decision
• US: Weekly Initial & Continuing Jobless Claims 
• US: S&P Global Flash Manufacturing & Services PMI - March 
• US: Existing Home Sales - February
• US: Leading Indicators - February 

Friday, March 22

• UK: Retail Sales - February

Thought for the Day

'We are all broken, that's how the light gets in.' – Ernest Hemingway

Disclosures

• Blackberry (BB) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Intel (INTC) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index
• Ollie’s Bargain Outlet (OLLI) is a constituent of the Tematica BITA Big Spenders & Savers Index 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Central Banks Economy Stocks Earnings