Good morning. Here’s what you need to know.
- Asian markets were mixed. Japan’s Nikkei was up 1.35%; Korea’s KOSPI down 0.39%; and Hong Kong’s Hang Seng down 0.27%. European markets were all up, and U.S. futures were pointing higher.
- Today at 2:00 P.M., the Federal Reserve’s FOMC will conclude its two-day meeting and release a statement on the central bank’s monetary policy plans. Economists are expecting the Fed to keep its benchmark interest rate unchanged at near-0%. They are also expecting the bank to “taper” quantitative easing, its monthly purchasing program of $US45 billion worth of Treasury bonds and $US40 billion worth of mortgage bonds.
- Many economists believe the Fed will announce a “taper lite” — a reduction in bond purchases of around $US10 billion (bringing the total to $US75 billion per month) as opposed to the originally expected reduction to $US70 billion. In addition, the bank may offer more forward guidance on interest rates (a “dovish taper”) in order to mitigate the damage a reduction in the program might have in the stock and bond markets.
- On the size of the taper, SocGen currency strategist Kit Juckes writes to clients, “Unless there is a shock and they delay, the actual size matters little. We expect them to finish tapering in March, in time for the unemployment rate to fall below 7%.”
- According to UBS’ Drew Matus, “We believe that the taper could be accompanied by the Fed lowering the 6.5% ‘threshold’ unemployment rate for the first rate hike. A new threshold of 6.0- 6.25% is possible. This accomplishes two things: 1) It would distinguish between the beginning of the end of easing (how the Fed views the taper) and the tightening (rate hikes) currently forecast for 2015. 2) It would more closely align the FOMC’s central tendency unemployment forecasts with the committee’s expectations for rate hikes.”
- In a new to clients, Bank of America Merrill Lynch’s Ting Lu writes that China is largely “immune” to the Fed taper, citing six main reasons. China’s “sustained current account surplus; low foreign debt; huge foreign exchange reserves; high savings, high investment and high capacity in manufacturing; capital control; a large economy with limited dependence on exports; and a government which does not need to ramp up subsidies to maintain its ruling.”
- Today at 8:30 A.M. we’ll get new data on U.S. housing that will provide a glimpse into whether rising mortgage rates are impacting the housing recovery. Economists are expecting housing starts to have increased 2.3% in August, lower than July’s 5.9% print.
- FedEx will announce earnings today. The company’s earnings are seen as a bellwether of overall economic health (businesses tend to ship more when times are good). Analysts are expecting relatively modest figures, in part thanks to cost-cutting from its customers.
- Last night, Starbucks CEO Howard Schultz wrote an open letter asking customers to no longer bring guns into his stores, even in states where it’s legal to do so. “For those who champion ‘open carry,’ please respect that Starbucks stores are places where everyone should feel relaxed and comfortable,” he wrote. “The presence of a weapon in our stores is unsettling and upsetting for many of our customers.”
- As Greece continues to see worse and worse unemployment figures, writer Nikos Xydakis argues that the country has reached its “Red Line.” The “destabilizing” rule of law, Xydakis argues in Greek newspaper Ekathimerini, has crippled the country. The column comes as thousands take to the streets over a young activist/rapper’s murder allegedly by a member of the country’s Neo-Nazi Golden Dawn Party.
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