The Day Ahead: Bernanke On Capitol Hill, Treasury Auction, Inventories, Beige Book
Global markets were mixed overnight but domestic stock futures are higher as investors wait for the latest economic assessment from Federal Reserve chairman Ben Bernanke.
Ninety minutes before the opening bell, Dow futures are up 51 points to 9,965 and S&P 500 futures are 7.50 points higher at 1,066.75. The 2-year Treasury note is 2 basis points higher in yield at 0.766% while the benchmark 10-year note yield up 3.1 basis points to 3.222%.
WTI crude oil is up $0.82 to $71.81 per barrel, but Spot Gold is down $0.48 to $1,236.07.
China’s Shanghai index closed up 2.78%, but Japan’s Nikkei fell 1.04%. In Europe, stocks are mostly higher with London’s FTSE 100 up 0.28%, the CAC up 0.86%, and the DAX +0.90%
Last night, Kansas City Fed President Thomas Hoenig said the central bank should raise interest rates to 1.00% from their current range of 0.0% to 0.25% by the end of September. He said the economy is undergoing a modest, sustained recovery with “some stabilization” in the troubled domestic real estate sector.
Meanwhile, the IMF warned that risks to the global economy have “risen significantly.” It said: “a key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.”
Key Events Today:
10:00 ―Fed Chairman Ben Bernanke testifies before Congress on the economy and federal budget.
Economists at BMO Capital Markets commented: “Since the next policy meeting is only two weeks away (June 22-23) he may refrain from repeating the long-held mantra that rates should stay low for an ‘extended period’, but nothing in his speech should discourage the view that that is exactly what policymakers (except one) will agree to at the meeting.”
10:00 ― Wholesale Inventories in March rose for the third straight month with a 0.4% advance after the 0.6% gain in February. Wholesale sales have been also ticking up recently,rising by 2.4% in March and 1.2% in February. Both indicators point to broad economic momentum.
No consensus on economist’s forecasts were available, but analysts at Nomura predict a 0.6% gain in inventories.
“The ratio of inventories to sales in the wholesale sector is now quite low, and firms likely need to continue building stocks,” they wrote. “Moreover, wholesale inventories tend to move in line with factory-level inventories, and manufacturers built inventories during the month.”
2:00 ― The Federal Reserve’s Beige Book, an anecdotal summary of economic conditions released by each of the central bank’s 12 regional branches, is expected to continue in the vein of cautious optimism.
After the last report was issued mid-April, economists at BMO Capital Markets summarized it as: “Activity around the U.S. is improving, which is good news as it shows the recovery is spreading out. But the pace of recovery doesn't appear to be picking up much momentum and the same pockets of weakness remain.”
For this report, analysts at Nomura said the report should show overall expansion, albeit at a slow pace.
“We do not expect the report to use adjectives associated with accelerating or especially rapid growth,” they wrote. “We expect the report to say that the manufacturing sector continues to recover faster than other areas of the economy. Respondents are likely to indicate limited cost pressures, except for scattered increases in commodity prices.”
4:00 ― Ben Bernanke, chairman of the Federal Reserve, speaks on employment trends at the Richmond Federal Reserve Bank forum in Virginia.
Treasury Auctions:
- 1:00 ― 10-Year Notes