Good morning. Here's what you need to know.
Story of the week. The Federal Open Market Committee concludes its first monetary policy meeting today under the leadership of new Federal Reserve Chairwoman Janet Yellen. The FOMC is expected to taper the monthly pace of bond purchases made under quantitative easing by another $10 billion to $55 billion and move toward more qualitative guidance on the likely future path of short-term interest rates. Observers will also be watching for changes to the FOMC's Staff Economic Projections for unemployment, inflation, and the fed funds rate. The FOMC will release a statement detailing its decision and the new projections at 2 PM ET, and Janet Yellen will hold her first FOMC press conference as Fed chairwoman at 2:30 PM.
Yuan nears the danger zone. The Chinese yuan fell to 6.1991 against the U.S. dollar in offshore trading on Wednesday, coming close to the 6.20 "danger zone" flagged by Morgan Stanley analysts as a level that could trigger a more rapid depreciation. The move follows the worst two-day loss for the yuan (on Monday and Tuesday) since December 2008, which comes in the wake of the People's Bank of China's weekend announcement that it would widen the daily trading band in which the yuan is allowed to fluctuate in onshore markets.
Markets are quiet. S&P 500 and U.S. Treasury futures are little changed from Tuesday's closing levels this morning, and the dollar is little changed against the euro and the yen. European indices are up slightly, while most Asian indices closed lower overnight, with the exception of Japan's Nikkei 225.
FedEx earnings. FedEx reported earnings of 1.23 per share in the December-February quarter, below consensus EPS estimates of $1.46. Revenue also missed expectations, coming in at $11.3 billion versus the $11.43 billion consensus estimate. “Historically severe winter weather significantly affected our third-quarter earnings,” said CEO Fred Smith. “On days when the weather was closer to normal seasonal conditions, our volumes were solid and service levels were high. The FedEx strategy of maintaining separate express and ground networks with multiple hubs proved to be an especially important advantage for our package customers during this quarter’s severe weather and peak shipping.”
Japan trade. Japan reported a trade deficit of ¥800.3 billion in February, larger than consensus forecasts for a ¥600.9 billion deficit. Imports rose 9% from a year earlier, while exports were up 9.8%. "Japan’s trade statistics have shown that the import surge caused by the rush demand before the consumption tax hike is peaking but still influencing Japan’s trade account significantly," says Osamu Takashima, a strategist at Citi.
Euro zone construction. Euro zone construction output growth accelerated to 1.5% from the previous month in January from 1.3% in December. On a work-day adjusted year-over-year basis, construction output was up 8.8% following a 0.1% year-over-year decline in December. Across the EU, the highest increases in production in construction were observed in Slovenia (+22.4%), Spain (+5.8%) and Germany (+4.4%), and the largest decreases in Romania (-4.3%), Slovakia (-3.9%) and France (-2.2%).
BoE minutes. The focus was on the recent strength in sterling and the amount of slack left in the labor market at the Bank of England's February meeting, according to minutes of the meeting released today. BoE governors concluded that sterling's strength was accounted for by the U.K.'s growth prospects relative to those elsewhere in the world, and that many of the recent job gains were of a low-productivity nature, reducing the apparent degree of capacity in the labor market.
U.K. employment. 105,000 workers found employment in the three months through January, according to the latest data from the U.K. Office for National Statistics, bringing the total employed to a new record high. The employment gain failed to meet market economists' consensus forecast for a 110,000 gain, however. The unemployment rate remained unchanged at 7.2% in January. In February, U.K. jobless claims fell by 34,600, larger than the 25,000 drop expected by economists.
U.K. budget. Chancellor of the Exchequer George Osborne will present a new budget to parliament at 7:30 AM ET. "The March budget could signal growth supportive measures while the updated OBR projections could highlight that the latest improvement in the U.K. economic fundamentals resulted in improving fiscal outlook," says Citi strategist Valentin Marinov. "The latter could increase bets on potential U.K. rating upgrade and support the pound."
Mortgage applications. The Mortgage Bankers Association said U.S. mortgage applications fell 1.2% from a week earlier in the week through March 14, following a 2.1% decline the week before. Meanwhile, MBA's indexes of refinancing activity and purchases both fell 1%.
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