Wall Street Breakfast: Wait-And-See

While a refunding announcement from the U.S. Treasury will be closely watched by the market this morning, the latest monetary policy stance at the Federal Reserve is also on the radar this afternoon. The FOMC is widely expected to hold its policy rate at 5.25%-5.50% for the second straight meeting, but is also likely to keep the door open for further tightening if needed. The wait-and-see approach has led many investors to put a strong emphasis on incoming economic data, but there won't be any new economic projections at this meeting, putting a bigger spotlight on Fed Chair Jay Powell's policy statement and press conference. Snapshot: A U.S. economy that's continuing to exert surprising strength combined with geopolitical risks complicates the Federal Reserve's job of bringing down price pressures. Less than two weeks ago, Powell indicated that persistently strong economic growth could lead to resurging inflation and require further tightening, but he's also aware that the rate hikes the central bank has already implemented haven't achieved their full impact yet. In addition, long-term Treasury yields have surged in recent weeks, doing some of the heavy lifting for the Fed. Some are also questioning whether and how conventional economic models like growth-fueled inflation still apply. "Holding to the simple historical correlations of what growth and labor market conditions mean for inflation in the face of positive supply developments is a recipe for overshooting and causing an unnecessary downturn," said Chicago Fed President and FOMC member Austan Goolsbee. Another reason why the traditionalist perspective on the current underlying economic environment "may miss the mark is the role of central bank credibility in keeping inflation expectations anchored now versus in past periods of high inflation." SA commentary: "The only problem with the 'data-dependent' approach is that the data does not support the hold," writes SA analyst Damir Tokic. He cites the GDP growth rate for Q3 Q/Q at 4.9%, full employment, an extremely tight labor market, and widespread labor strikes that are inflationary. Tokic also flags the current core CPI inflation rate at 4.1%, which is double the Fed's 2% inflation target, as well as a host of elevated global tensions. "So, this is not a data-dependent approach, this is really a 'wait-and-see' approach or even better a 'wait-and-hope' approach." (34 comments)

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Top News Wait-and-see Getty Images While a refunding announcement from the U.S. Treasury will be closely watched by the market this morning, the latest monetary policy stance at the Federal Reserve is also on the radar this afternoon. The FOMC is widely expected to hold its policy rate at 5.25%-5.50% for the second straight meeting, but is also likely to keep the door open for further tightening if needed. The wait-and-see approach has led many investors to put a strong emphasis on incoming economic data, but there won't be any new economic projections at this meeting, putting a bigger spotlight on Fed Chair Jay Powell's policy statement and press conference. Snapshot: A U.S. economy that's continuing to exert surprising strength combined with geopolitical risks complicates the Federal Reserve's job of bringing down price pressures. Less than two weeks ago, Powell indicated that persistently strong economic growth could lead to resurging inflation and require further tightening, but he's also aware that the rate hikes the central bank has already implemented haven't achieved their full impact yet. In addition, long-term Treasury yields have surged in recent weeks, doing some of the heavy lifting for the Fed. Some are also questioning whether and how conventional economic models like growth-fueled inflation still apply. "Holding to the simple historical correlations of what growth and labor market conditions mean for inflation in the face of positive supply developments is a recipe for overshooting and causing an unnecessary downturn," said Chicago Fed President and FOMC member Austan Goolsbee. Another reason why the traditionalist perspective on the current underlying economic environment "may miss the mark is the role of central bank credibility in keeping inflation expectations anchored now versus in past periods of high inflation." SA commentary: "The only problem with the 'data-dependent' approach is that the data does not support the hold," writes SA analyst Damir Tokic. He cites the GDP growth rate for Q3 Q/Q at 4.9%, full employment, an extremely tight labor market, and widespread labor strikes that are inflationary. Tokic also flags the current core CPI inflation rate at 4.1%, which is double the Fed's 2% inflation target, as well as a host of elevated global tensions. "So, this is not a data-dependent approach, this is really a 'wait-and-see' approach or even better a 'wait-and-hope' approach." (34 comments)       Real Estate Commission collusion Digital real estate stocks - including Zillow (Z), Opendoor (OPEN) and Redfin (RDFN) - dove soon after a Missouri jury found powerful realtor groups and brokerages guilty of conspiring to inflate commission rates. Defendants were ordered to pay $1.78B in damages, though a final judgment in the case still needs to be issued before the verdict is finalized. The suit also included Re/Max (RMAX) and Anywhere Real Estate (HOUS) as defendants, whose shares fell on the announcement, though both companies have already reached settlements. It's too early to see how things will play out, but the decision could rewrite the entire real estate model in the U.S. and change the way agents are paid. (12 comments)       Healthcare Xenotransplantation The second person to ever receive a pig heart transplant, Lawrence Faucette, has died close to six weeks after the procedure was carried out. United Therapeutics (UTHR), through its xenotransplantation unit Revivicor, provided the genetically-modified pig heart, while Eledon Pharmaceuticals' (ELDN) investigational anti-CD40 antibody tegoprubart was used to prevent the body from rejecting the organ. During the first month after the surgery, Faucette had been engaged in physical therapy, but the transplanted heart started showing signs of rejection in recent days. David Bennett - the first patient to receive a pig heart transplant - died last year, two months after the landmark surgery.       On The Move WeBankrupt WeWork (WE) continues to plunge, down nearly 40% in premarket trade, on reports that the company will file for Chapter 11 bankruptcy as soon as next week. It underscores the flexible office space firm's dramatic reversal of fortunes over the past four years, with a market cap of $47B in 2019, and now worth just $185M. WeWork flagged going concern risks back in August and had been renegotiating leases on almost all of its locations. SA analyst Pacifica Yield also previously warned that WeWork would need "huge concessions" from lenders and landlords to avoid bankruptcy. (6 comments)       Today's Markets In Asia, Japan +2.4%. Hong Kong -0.1%. China +0.1%. India -0.4%.  In Europe, at midday, London -0.1%. Paris flat. Frankfurt +0.1%. Futures at 7:00, Dow -0.3%. S&P -0.3%. Nasdaq -0.4%. Crude +1.4% to $82.18. Gold -0.2% to $1,991.40. Bitcoin -0.2% to $34,372. Ten-year Treasury Yield +3 bps to 4.90%. Today's Economic Calendar 7:00 MBA Mortgage Applications 8:15 ADP Jobs Report 8:30 Treasury Refunding Announcement 9:45 PMI Manufacturing Index 10:00 ISM Manufacturing Index 10:00 Construction Spending 10:00 Job Openings and Labor Turnover Survey 10:30 EIA Petroleum Inventories 2:00 PM FOMC Announcement 2:30 PM Chairman Press Conference  Companies reporting earnings today » What else is happening... Druckenmiller: Yellen made the worst mistake in Treasury history. Tesla (TSLA) wins Autopilot case in California involving fatal crash. AMD (AMD) slips as ongoing gaming weakness hinders guidance. Gene therapy from CRISPR-Vertex is embraced by FDA panel. BP (BP) boss dismisses takeover speculation, defends Q3 results. EV push: Toyota (TM) to invest $8B in U.S. battery plant. Nvidia's (NVDA) valuation drops below $1T amid China worries. Bayer (OTCPK:BAYZF) ordered to pay $332M in Roundup cancer trial. AB InBev (BUD) gains as pricing actions offset lower beer volumes. Caterpillar (CAT) falls amid investor concerns about future growth. S&P CoreLogic Case-Shiller: Home prices rise more than expected. Seeking Alpha's Wall Street Breakfast Podcast Seeking Alpha's Wall Street Breakfast podcast brings you all the news you need to know for your market day. Released by 8:00 AM ET each morning, it is a quick listen that you can put on as you get ready to start your working day.
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