Stock futures are recovering a portion of yesterday's losses this morning after a sharp sell-off in the final hour of trading Tuesday. No major economic data is scheduled for release, so investors will be devoting their attention to events in Europe until the Federal Reserve releases its latest monetary policy statement in the mid-afternoon.
Two hours ahead of the opening bell, Dow futures are up 28 points to 10,983 and S&P 500 futures are trading 3.75 points higher at 1,184.75. The 2 year Treasury note is -0-02 at 99-30 yielding 1.028% and the 10 year note is -0-11 at 99-03 yielding 3.734%.
Commodities, by contrast, are pointing downwards: WTI crude oil is off 38 cents to $82.06 per barrel, while Spot Gold is off $3.95 to $1,163.90.
In yesterday’s session, the Dow shed 213 points and the S&P 500 dropped 28.3 points. The market’s final minutes were key as investors reacted to Standard & Poor's slashing the credit ratings of Greece and Portugal.
“Greece's economic and fiscal prospects lead us to conclude that the sovereign's creditworthiness is no longer compatible with an investment-grade rating,” said S&P as it placed Greek debt into junk status. Meantime, Portuguese debt was cut two notches and left with a negative outlook.
Earlier today in the European session, Greek regulator banned short-selling on the Athens stock exchange for a period of two months starting today. That alone will keep attention on Greece this morning.
Meanwhile, a flight-to-quality is sending cash to the US dollar, which has risen in 9 of the past 10 sessions.
The FOMC meeting announcement later today is unlikely to produce any major revelations. In a speech yesterday, chairman Ben Bernanke focused on fiscal responsibility.
“The reality is that the Congress, the Administration, and the American people will have to choose among making modifications to entitlement programs such as Medicare and Social Security, restraining federal spending on everything else, accepting higher taxes, or some combination thereof,” he said.
Key Events Today:
1:00 ― The Treasury will auction $42 billion 5 year notes. This maturity is more influential over mortgage valuations than yesterday's 2 year note auction.
2:15 ― The FOMC Meeting Announcement should deliver more of the same. Few economists are predicting a rate hike in the coming months, so the question for this meeting is whether the Fed will continue to say that rates will remain low “for an extended period.” Also of interest will be whether there is growing dissent from within the Fed regarding asset purchases (MBS specifically)
“With core inflation falling and substantial excess capacity in both the production sector and labor markets, there is no compelling reason for any change in the Fed's current stance on monetary policy,” said economist from IHS Global Insight. “Long-term yields in recent weeks have been under pressure due to increased sovereign risk perceptions, and that has put some mild upward pressure on mortgage rates. The Fed needs to keep a steady hand on the tiller in order to forestall any sudden reaction from the market that could send yields even higher and upset the nascent recovery in the housing market.”
Eric Green, economist at TD Securities, said not to expect a rate hike anytime this year.
“In the best of all possible worlds the Fed may prefer to have rates around 1.0% if only to have more policy options down the road. However, economic conditions remain too fragile, the outlook too uncertain, and political realities too stark to make higher rates a high probability event this year.”
