It’s Fed day, and all eyes are likely glued on the 2 p.m. ET rate decision. The futures market shows a less than 25% chance of the Fed cutting rates today.
Figure 1: CATCHING THE WAVE: Two closely-watched metrics that had been slow on the uptake of this month’s rally have joined it in a big way the last couple of days. This chart shows how FAANGs (candlestick) and semiconductors (purple line) have started to pop back. Data Sources: NYSE, Philadelphia Stock Exchange. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
More Fed Pondering: Amid investor hopes of the Fed sounding more dovish today, it might be worth considering a couple of reasons for caution going into the press conference and statement. The futures market predicts low odds of an actual cut, but futures prices can’t tell us what the Fed might say. There’s a growing sense that Fed Chair Jerome Powell might sound willing to ease up on the brake pedal, but there are arguments against that as well.
For one, some analysts think the Fed might want to get a look at what happens at G-20 next week before leaning toward a more dovish direction. There’s also the argument that by forecasting a willingness to lower rates, the Fed would essentially be admitting it made a mistake last December when it raised rates for the fourth time in 2018. It’s unclear if the Fed would be eager to do that, though it could cite weakening conditions abroad as the reason. In addition, a move toward lower rates might also make the Fed look like it’s yielding to pressure from the White House. The Fed is an independent body, but more than one president has expressed frustration with it over the years, including the current one. That was loud and clear as recently as Tuesday.
A Max By Any Other Name: This week, Boeing’s (BA) CFO said in an interview that he’s open to a brand change for the grounded 737 Max. Though BA started its history with planes named by number (707, 727, 737, 747), it’s more recently been giving planes names like “Dreamliner” and “Max.” If it wants to go back to a number for the Max, the question might be how it would differentiate the plane from its other 737s. Assuming BA does change the name, it wouldn’t be the first major company to try new branding for a product that came under scrutiny. Back in the 1980s, for instance, when people started getting more anxious about nutrition, a major cereal maker substituted the word “honey” for “sugar” in some product names. Whether kids noticed the difference or got any healthier is an open question.
However, other companies persisted with certain brand names even after issues with the products. One that comes to mind is the DC-10 airliner. Once that plane’s 1979 post-crash grounding ended (and it followed earlier incidents with the model), major airlines flew DC-10s for nearly 30 years with no name change and without seeming to lose passenger confidence. However, McDonnell Douglas, the airplane’s manufacturer, stopped making DC-10s in the early 1980s, citing lack of orders.
Commodities Carved Up: Crude jumped sharply on Tuesday on the positive trade news. However, it remains in a rut compared to recent highs, as do many other commodities. Sometimes weak commodities can reflect falling consumer and producer demand, especially for metals like copper that go into so many industrial products today. In that sense, copper is kind of a barometer for the global economy. Copper recently fell near its low for the year as stockpiles climbed, The Wall Street Journal reported. Coffee, the paper said, is near its lowest point in a decade amid a supply glut, and cotton prices are down sharply, too.
The article noted that commodities assets under management by active funds, including commodity trading advisers, or CTAs, fell nearly $15 billion last month to roughly $80 billion. That’s down from a January 2018 peak of $184 billion. Fewer assets allocated to CTAs could help explain some of the volatile commodity futures market action lately.
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