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All Eyes on Fed's Yellen: What’s Her Take on Economy?

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March 29, 2016

(Tuesday Pre-Market) Today, all eyes will be on the Federal Reserve—really on its chairwoman Janet Yellen, who is speaking at the Economic Club of New York. What’s Yellen’s take on the economy?

That’s interest rates we’re talking about here. On March 16, the Fed decided to stand pat on rates, and Yellen acknowledged to reporters later that she’s worried that the economy is still a little unhinged and doesn’t understand why wages haven’t been on the upswing as unemployment dips. A handful of Fed members and a flurry of Wall Street analysts came out last week and said those fears are overrated. Hawkish Fed members said in speeches that a rate hike could be on the table as soon as the Fed’s April meeting. The markets don’t see that, according to the CME’s FedWatch tool, which is tracking lower on rate hikes in April and June. 

Yellen might be able to offer more insight to that, considering that we’re starting to get a clearer picture of what’s really going on in the economy with this week’s boatload of economic reports. And the real proof in the economic pudding could come with Friday’s non-farm payroll reports, a highlight of the jam-packed schedule.

Meanwhile, consumer spending has been zigzagging for months now. On Friday, the Commerce Department raised its Q4 2015 gross domestic product reading to an annual pace of 1.4%. It revised consumer spending growth to 2.4%, which fueled the GDP projection to 1.4% from 1%.

But Monday’s economic data cast a long shadow on the strength of the economy. The Commerce Department released reports that showed the economy is growing at a lackluster pace below 1% for the first quarter. The 0.6% annualized pace now on the radar for the first three months of the year is a reflection of slowing consumer spending, which generates two-thirds of the U.S. GDP, according to the data. In February, consumer spending barely budged at 0.1%, which matched anemic gains in January and December. Personal incomes in February also slowed to a 0.2% rise compared with January’s 0.5% increase. How did that happen? Wages and salaries dipped 0.1%—their first decline since September. That prompted the Atlanta Fed to trim its GDP forecast on consumer spending to an increase of 1.8%, down from an earlier projection of 2.5% for the quarter.

Also on the docket today is consumer confidence data. Do consumers feel the angst that the data is showing?

The markets were mostly muted Monday amid slow trading. The shutdown of the U.S. Capitol after shots rang out from a lone gunman triggered a mini retreat into negative territory but the Dow and the Nasdaq managed to climb into positive ground just barely by 0.1% on both at the close. The S&P 500 ended its three-day losing streak to close up 0.05%. Crude oil prices stayed below $40, losing a penny on the day, and safe-haven gold added $2 by the close.

S&P 500

FIGURE 1: MARKETS AWAIT YELLEN SPEECH.

The S&P 500 (SPX), plotted here through Monday on the TD Ameritrade thinkorswim® platform, was a little weaker early Tuesday ahead a key speech by Fed Chair Janet Yellen. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Justice Department Got into Terrorist’s iPhone. And that ended the legal clash between Apple (AAPL) and the U.S. government. Without giving details, the Justice Department said late Monday that it was dropping the legal action that would have forced AAPL to compromise its own security. Someone else apparently did, according to Justice, which wanted to see emails, text messages, phone logs, and anything else on the iPhone of Syed Rizwan Farook. He was the gunman in the mass shooting in San Bernardino, Calif. “The government has now successfully accessed the data stored on Farook’s iPhone and therefore no longer requires the assistance from Apple,” the Justice Department said in court papers. Game over? Probably not. Apple wants to know how the iPhone was hacked. IPhone users want to know if the government—or anyone else, for that matter—can break into their phones. What’s more, The Wall Street Journal opines, “It leaves unresolved the future of reasonable searches under the Fourth Amendment.” Stay tuned.

Who Wants Starwood? That’s the $64 million question of the day. Anbang Insurance Group, a complicated conglomerate of corporate shareholders, upped the bidding Monday to a $14 billion all-cash offer for Starwood Hotels & Resorts. Marriott, meanwhile, stays pat on its $13.6 billion offer in a bidding war that has been going on for almost a month. Anbang already has made three unsuccessful offers last year to buy the chain, according to The Wall Street Journal. The last offer was withdrawn in early November, in the middle of a meeting no less, after Starwood bankers pressed Anbang on the nuts and bolts of how it would pay for the hotel giant. Anbang told the WSJ that it is owned by more than 30 investors. And it’s that opaque web that appears to worry Wall Street, according to the WSJ.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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