OPENING CALL
Stock futures edged lower on Wednesday and benchmark Treasury yields held near the top of their four-month range as investors waited for the Federal Reserve's monetary policy decision and forecasts.
Markets are pricing in a 99% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50%, according to the CME FedWatch tool. No change is expected at the next meeting in May, either.
Consequently, traders are focused on what the central bank says about the economy and whether FOMC members have shifted their views on the timing of interest rate cuts.
Santander said the dot plot was the most important issue for the markets.
"Of the 11 FOMC members whose dots were at 4 5/8% or lower, two would have to move up to at least 4 7/8% to shift the median dot from three cuts for the year down to two."
Santander sees this as a plausible risk, but expects the median to remain at 4 5/8%, signaling three quarter-point moves in 2024.
Premarket Movers
Amcor was down 3.3% after the Australia-based company said its chief executive will be leaving the company for health reasons.
Chipotle Mexican Grill approved a 50-for-1 split of the fast-casual restaurant chain's common stock. Shares were rising 5.8%.
HealthEquity swung to a profit in the fourth quarter, and adjusted earnings of 63 cents a share beat analysts' estimates of 57 cents. The stock rose 1.8%.
JetBlue Airways said it plans to exit several cities and would be reducing flights out of Los Angeles as the carrier focuses on its better-performing routes. Shares fell 2.4%.
Nvidia's CEO said at the company's GTC conference that there were about $1 trillion of installed data centers in the world, and the chip maker expects to take a larger share of the roughly $250 billion spent a year for data center infrastructure. Nvidia shares fell 0.4% after closing 1.1% higher on Tuesday.
Riot Platforms rose 1.7% after its shares were upgraded to Overweight from Neutral and the price target was left unchanged at $15.
Post-Close Movers
Harrow reported a wider-than-expected loss in the fourth quarter despite revenue rising nearly 80% from a year earlier. The eye care pharmaceutical company said in a letter to shareholders that its 2024 guidance was still intact, but it expected quarterly revenue fluctuations. Shares dropped 13%.
Moleculin Biotech said it would enact a 1-for-15 reverse stock split to regain compliance with Nasdaq's listing standards. The company expects shares to begin trading on a reverse split-adjusted basis March 22. Shares rose 5%.
Taysha Gene Therapies said its trial of a treatment for Rett syndrome didn't show any serious adverse events. The company said it had received approval from an independent data monitoring committee to dose escalate immediately and proceed into cohort two of the trial. Shares rose 26%.
Watch For:
FOMC concludes two-day meeting, Federal Reserve decision on interest rates, economic projections
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MARKET WRAPS
Forex:
The dollar was higher ahead of the Federal Reserve decision on speculation that the central bank could tweak forecasts to signal just two rather than three rate cuts this year following recent strong inflation data.
However, the dollar's gains could be curtailed if the Fed doesn't accompany any changed forecasts with a "marked shift in tone" away from Jerome Powell's recent statement that policymakers are "not far" from cutting rates, MUFG said.
A "reasonably balanced Fed communication," as MUFG expects, "should help curtail further U.S. dollar buying and weaken the current positive momentum," particularly if rate forecasts are unchanged.
Sterling could weaken on Thursday if those Bank of England policymakers who voted to raise rates last month switch to voting for unchanged rates, potentially increasing the chance of a rate cut as early as June, Ebury said.
"With markets not fully pricing in the first rate cut until August, this could pave the way for some weakness in sterling, as investors mull a start to easing at the bank's June meeting."
Ebury expects another three-way split, with one vote for a cut, two for a hike and the rest for no change. However, there's a "distinct possibility" of no votes for a hike this time.
Bonds:
The lack of momentum of Treasurys and Bunds at the yield highs suggests that markets are reluctant to renew rate-cut euphoria in the absence of notable downside surprises in inflation data, Commerzbank Research said.
"Markets will get their first impulse this morning form U.K inflation data, where a sizable decline is expected, while today's European Central Bank Watchers Conference or FOMC meeting seem unlikely to revive the momentum," Commerzbank said.
J.P. Morgan Research stays neutral on U.S. duration outright and long in five-year/30-year steepener positions, and it sees risks for the dollar skewing moderately higher ahead of the Federal Reserve's monetary policy meeting.
Little change is expected in the FOMC meeting statement, but risks are skewed to a hawkish delivery on the projections that raise the risk of 2024 and long-run medium dots moving higher, JPM said.
Energy:
Oil prices slipped after a strong session on Tuesday, likely due to profit taking as the dollar gains strength and yields rise.
As Brent prices have now already reached Goldman Sachs's summer peak forecast of $87 a barrel and modestly overshot its estimate of fair value by around $4, the bank expects spot prices to consolidate.
"We do however still see value in oil and especially oil products given the attractive 10% annualized Brent roll return, and the geopolitical hedging benefits [highlighted by disruptions to Russian refineries]."
Metals:
Metals were mixed with the strong dollar ahead of the Fed meeting prompting something of a correction across the base complex, providing much needed relief following a rally in prices in recent days, Sucden Financial said.
TODAY'S TOP HEADLINES
Apple Looks to External Partners to Boost AI Efforts
Apple is looking to outside companies to help its artificial intelligence efforts.
Apple has held discussions with Google and other AI software providers about using their technology to power the iPhone maker's mobile features, said people familiar with the matter. The tech giant has talked to startups including Cohere and OpenAI as part of the discussions, some of the people said.
The big tech rally is living on borrowed time, says UBS
The big tech rally is living on borrowed time.
That's according to strategists at UBS, who actually say valuation isn't the big issue. What they call the Big Six - sorry, Tesla TSLA- are still 16% cheaper now than they were at their Dec. 2021 high. Plus, earnings expectations for the tech giants are much greater than the remainder of the market.
Singh's Take: Housing Construction Ramps Up After January Slowdown
A measure of U.S. home-building rose more than economists expected in February, signaling that January's declines may have just been a blip.
Any growth in supply is welcome news in today's tight housing market, but new houses are only a small part of the picture, so there's only so much they can do to help, especially with mortgage rates still high. And February's housing starts gains may be largely attributable to improved weather conditions compared with January, when cold temperatures dragged on economic activity.
ECB Could Cut Rates in June if Inflation Continues Easing, Lagarde Says
The European Central Bank will be able to lower its key interest rate in June if forthcoming data on inflation and wages comes in line with its projections, President Christine Lagarde said Wednesday.
Inflation rates are falling around the world after a postpandemic surge. Unusually, this hasn't come at the cost of a big decline in economic output or a jump in unemployment, leaving central banks wary of rushing into rate cuts that may prove premature.
China's Benchmark Lending Rates Held Steady
China's benchmark lending rates were kept steady after the central bank held its key policy rates unchanged this month, official data showed Wednesday.
The one-year loan prime rate was steady at 3.45%, while the five-year LPR was the same as the last release at 3.95%, according to the People's Bank of China. The longer-term benchmark was lowered by the largest amount on record last month.
Trump Claims 2024 Will Be Rigged, Putting Republican Turnout at Risk
After making years of unfounded claims that the 2020 presidential election was stolen from him, Donald Trump is dialing up warnings that there could be an even bigger theft this time around, a tactic that threatens to complicate Republican turnout efforts.
"Too Big to Rig." That is the phrase Trump began unveiling in recent weeks, including in an appearance in Greensboro, N.C. His campaign also has printed signs with the slogan to hand out to supporters. The idea behind the pitch is this: Trump needs a lead so large that no one can take it away.
Border Enforcement in Disarray as Courts Debate Texas Power to Arrest, Deport Immigrants
WASHINGTON-The immigration rules governing the southern U.S. border seesawed dramatically Tuesday when the Supreme Court allowed Texas to begin arresting and deporting noncitizens on its own-only for another court to step in hours later and block any such state efforts for now.
The rapidly shifting landscape comes thanks to a legal showdown between Texas and the Biden administration, which argues that states can't interfere with federal authority over the border.
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03-20-24 0621ET
