Tuesday Morning Cheat Sheet: 3 Stories Moving Markets

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Markets mostly declined in Asia overnight. The Nikkei lost 0.20 percent on low volume ahead of the Federal Open Market Committee Meeting in the United States. Sony (NYSE:SNE) climbed 4.4 percent following a renewed call from Third Point, the hedge fund run by Dan Loeb that wants the company to spin off its entertainment business. The Hang Seng was flat while the S&P/ASX 200 lost 0.24 percent.

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Markets were mixed in Europe, although the headline remains the FOMC meeting. In mid-day trading, Germany’s DAX was off 0.16 percent, London’s FTSE 100 was up 0.72 percent mostly led by financials, and the STOXX 50 index was off 0.13 percent. Markets in the U.S. leaned toward gains in early morning trading.

U.S. futures at 8:40 a.m.: DJIA: +0.21%, S&P 500: +0.21%, NASDAQ: +0.35%.

Here are three stories to keep an eye on:

1) United Kingdom Inflation Indicators: In the U.K. as in the U.S., inflation is closely monitored by market participants as a gauge of if and when the central bank will edit its monetary policy. Two meetings ago, in the face of strong economic headwinds, the Bank of England reduced the official Bank Rate paid on commercial bank reserves by 0.5 points to 0.5 percent, and increased its asset purchase program from 325 to 375 billion pounds ($508.8 to $587 billion). Policy was unchanged at the last meeting, and the minutes will be released on June 19.

In its latest May inflation report, the BoE stated that the economic recovery in the United Kingdom “remains weak and uneven.” The BoE indicated that inflation in the U.K., as measured by the consumer price index, is expected to remain above 2 percent for the near future before falling to about 2 percent over the next two years.

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New consumer price data, released on Tuesday, came in slightly stronger than expected. Prices increased 0.2 percent on the month (+0.1 percent expected) and 2.7 percent on the year (+2.6 expected). This small jump, led by increases in prices for the transportation and clothing/footwear sectors, is unlikely to pressure the BoE into any action. Producer price data, also released on Tuesday, showed less inflationary pressure than expected in the pipeline, which supports the idea that the BoE won’t take further action based on inflation.

UKCPI

Source: Bank of England

2) Economic Sentiment in Germany Improves: “The financial experts stick to their assessment,” commented ZEW President Prof. Dr. Clemens Fuest in the June report, “the German economy is likely to pick up speed in the second half of 2013.” The ZEW Indicator of Economic Sentiment, which is widely seen as a barometer of overall business conditions, climbed 2.1 points in June to 38.5 points.

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“However,” continued Fuest, “the results of the current survey indicate that the economy will improve rather slowly. Almost half of the survey respondents expect no significant economic impulses in the next six months.”

ZEW_Investor Sentiment

Source: Center for European Economic Research

3) U.S. Economic Indicators: The big news on Tuesday morning is the beginning of the FOMC meeting, where policymakers will evaluate current monetary policy and possibly decide to make changes. Flanking this news is consumer price and housing starts data.

The consumer price index for all urban consumers (CPI-U) increased 0.1 percent on the month in May and 1.4 percent on the year. This is in line with expectations and the overall soft price pressures reported over the past few months.

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CPI-May

Also on tap Tuesday morning are housing starts, which increased 6.8 percent on the month to a seasonally-adjusted annual rate of 914,000. New permits declined 3.1 percent on the month to a SAAR of 974,000. Completions fell 0.9 percent to a SAAR of 690,000.

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