Morning Update

Barely Escaping the Red Awaiting the Fed

The equity markets are continuing the recent theme of subdued action as traders are digesting some inflation and housing data in morning trading, while treading cautiously before the Federal Reserve announces its monetary policy decision in the afternoon. Separate reports on the morning’s economic docket showed housing starts and building permits declined by smaller amounts than forecasted, while import prices posted a slightly larger drop than anticipated. Treasuries remain lower following the data. The relatively light equity news is adding to the modest move in early trading, with Dow member Intel Corp. unveiling its new line of processors and Limited Brands Inc. announcing a special dividend and a share repurchase program. Overseas, Asia was mixed and Europe is moving higher on eased fears toward Greece and a smaller-than-expected decline in German investor confidence.

As of 8:49 a.m. ET, the June S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 2 points above fair value, and the DJIA is 12 points above fair value. Crude oil is up $0.42 at $80.22 per barrel, and the Bloomberg gold spot price is up $7.20 at $1,115.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% to 80.01.

Dow member Intel Corp. (INTC $21) launched its Intel Xeon Processor 5600 series, which are the first server and workstation chips based on the Intel 32nm logic technology to increase speed and decrease energy consumption. The company said the chips deliver 60% greater performance than the previous generation processor.

Limited Brands Inc. (LTD $24) announced that its Board of Directors has declared a special dividend of $1.00 per share and has authorized a $200 million share repurchase program. The dividend will be paid on April 19, 2010 to shareholders of record at the close of business on April 5, 2010.

Housing starts and building permits decline, import prices fall, Fed decision lies ahead

Housing starts for February were reported, showing starts fell 5.9% month-over-month (m/m) to an annual rate of 575,000 units, from an upwardly revised 611,000 last month, and compared to economists’ expectations of an decline to 570,000. Meanwhile, building permits declined, falling about 1.6% m/m to an annual rate of 612,000 from last month’s upwardly revised 622,000. The expectation was for a decrease to 601,000 units.

Meanwhile, the Import Price Index declined 0.3% m/m for February, compared to the expectation of economists, which called for the index to decrease by 0.2%. Year-over-year, import prices are higher by 11.2%, versus the 11.3% forecast of economists. Treasuries remain lower after the housing and import price reports.

However the keynote economic event will take place this afternoon as the Federal Open Market Committee (FOMC) will conclude its monetary policy meeting and issue its statement at 2:15 p.m. ET. The policy statement is expected to offer no surprises on the fed funds rate policy, and market participants will continue to dissect the Fed’s language with regard to the “extended period” for keeping rates at an exceptionally low rate, particularly in light of a dissenting vote to keeping the “pre-commitment” language at the last meeting, and the increase in the discount rate inter-meeting. Also, traders will likely closely scrutinize the Fed’s language for signs of changes to the looming expiration of the mortgage-backed security (MBS) purchase program at the end of the month.

Greece plan agreement and German investor confidence report help Europe advance

Stocks in Europe are higher in afternoon action, led by financials on eased fears about the possible default by Greece’s government after European finance ministers announced that they have agreed upon a plan to provide emergency financial aid to the debt-ridden nation if it were deemed necessary. However, no details of the plan were made available. A statement from the euro-zone meeting of finance ministers said, “The objective would not be to provide financing at average euro-zone interest rates, but to safeguard financial stability in the euro-area as a whole,” and that the agreement enabled a decision on coordinated action in the case of need. Meanwhile, basic materials are also among the biggest winners across the pond, aided by a report on investor confidence in Germany, Europe’s largest economy. The German ZEW Survey of Economic Sentiment was released today, and although the gauge of investor confidence has declined for six-straight months, March’s reading came in at level above what economists were anticipating. The index declined from 45.1 in February to 44.5 in March, compared to the decline to 43.5 that was forecasted.

Other economic data in the euro-area was geared toward inflation, headlined by a report that showed consumer prices in the euro-zone increased 0.3% m/m in February, matching expectations. Elsewhere, separate reports showed French consumer prices rose more than anticipated m/m in February, while Italian consumer prices were left unchanged m/m in February, inline with forecasts.

In equity news, shares of Lindt & Spruengli (COCXF $22,825) are nicely higher after the Swiss chocolate maker offered an upbeat outlook for 2011 and its organic growth in 2010, while saying its plans to increase its dividend, which overshadowed its subdued 2009 profit report.

Britain’s FTSE 100 Index is 0.3% higher, France’s CAC-40 Index is up 0.8%, Germany’s DAX Index advancing 0.7%, and Italy’s FTSE MIB Index is 0.8% in the green.

Asia mixed ahead of central bank announcements

Stocks in Asia finished mixed in cautious trading ahead of the US Federal Reserve’s monetary policy meeting later today and before the conclusion of the Bank of Japan’s monetary policy meeting. Japan’s Nikkei 225 Index traded 0.3% lower in lackluster trading amid the aforementioned caution, with traders waiting to see if the BoJ will make any changes to its monetary policy, with expectations increasing that the central bank with announce further measures to ease its stance, with its 10 trillion yen ($110.5 billion) fund supply operation in focus for any changes. A stronger yen, which hampers the outlook for revenues of export issues, also weighed on trading in Japan. Elsewhere, stocks in China finished mixed, with the Shanghai Composite Index increasing 0.5%, while Hong Kong’s Hang Seng Index declined 0.3%. Meanwhile, Australia’s S&P/ASX 200 Index rose 0.3%, paring gains after its central bank released the minutes from its last monetary policy meeting—where it hiked its benchmark interest rate for the fourth time in five meetings—which showed policymakers were not as upbeat about the economy as some anticipated. Rounding out the day, South Korea’s Kospi Index was 0.1% lower, Taiwan’s Taiex Index rose 0.8%, and India’s BSE Sensex 30 Index was one of the best performers in the region, posting a 1.3% advance.