...As is now standard practice in the “new normal” of the post-Lehman world, all eyes are now on Washington where the Fed is currently engaged in the first FOMC meeting of the year.
Markets across the board from the Dow Jones to the S&P 500 to the FTSE 100 tumbled early this week on a slew of bad data from companies across the board. These bleak earning reports combined with a drop in durable-goods orders to shave off some of the post-Draghi QE euphoria.
Blue chip firms from Pfizer to DuPont to P&G reported poor earnings or lowered future guidance on Monday, while Caterpillar's stock dropped 7.2% on lowered energy industry demand, Microsoft plunged 8.8% on reduced software license sales, and United Technologies Corp fell 1.9% on lowered earning expectations due to the strong dollar.
These stock plunges aren't just important in and of themselves; they're signs that the deflationary undertow of dropping oil prices is spreading to other parts of the economy. In a market hungry for forward guidance, this is contributing to a sell-off. As Peter Jankovskis of OakBrook Investments LLC told Bloomberg yesterday: “Everybody is aware of weakness in crude oil, but you’re seeing spillover into large, industrial companies like Caterpillar and that may be giving people pause. And certainly Microsoft is a bellwether of the tech industry, and that’s another cause that’s having people pulling back.”
This “pull back” was threatening to become a rout on Tuesday, which is perhaps why the NYSE took the unusual step of invoking “Rule 48,” a Lehman-era rule that waves market makers' obligation to disseminate price indications ahead of trading on days that are expected to be particularly volatile. As ValueWalk.com euphemistically put it, the invocation of Rule 48 is “an effort by the management of the NYSE to try and stay ahead of the downdraft.” As one ZeroHedge user more accurately described it, it's “Calvinball,” the game played by popular comic strip character Calvin of Calvin & Hobbes where the player gets to make up the rules as he goes along.
And as is now standard practice in the “new normal” of the post-Lehman world, all eyes are now on Washington where the Fed is currently engaged in the first FOMC meeting of the year. Although there will be no press conference by Fed Chair Yellen, markets will be eager for any indication from meeting participants as to whether the larger-than-expected Euro QE program or the recent surprise rate cut by the Bank of Canada might reduce the Fed's expectations for the US economy this year or even stall plans to raise interest rates later in the year.
But why the markets are waiting for the Federal Reserve to confirm the plainly obvious economic reality right under their noses is another matter altogether...