Fed meeting finesse

The Federal Reserve takes center stage, but the decision could well be a dud for a market that's been hyping up big macro events lately. This is certainly the most important FOMC meeting since, well, the last FOMC meeting. But if Chairman Jay Powell and company avoid taper talk and keep rate forecasts steady, Wall Street could shrug it off, like recent jobs and inflation reports. While nobody expects a rate hike when the statement arrives, there's plenty for the FOMC to try and finesse in its statement and for Powell to address at his Q&A.

The "Fed has to navigate desire to taper asset purchases through land mines of uncertainties about the economy and the risks posed by variants, debt ceiling politics, China & inflation," Diane Swonk, chief economist at Grant Thornton, tweeted yesterday. Stock index futures are higher after dip-buying faded yesterday and the broader market closed lower again. The 10-year Treasury yield is up 1 basis point to 1.33%. There is some speculation that the recent market selloff, with the S&P looking at its worst monthly performance in a year, could make Fed members gun-shy about a hawkish tilt. But Renaissance Macro Research says the current selloff is "not even close to having the Fed shift course."

The "S&P 500 (SP500) (NYSEARCA:SPY) is basically flat since the Fed’s July 28 confab," RenMac tweets. "When we think about the last few times China was the source of the concern 2015/2016, the US equity decline was far more pronounced."

Asset purchase tapering: Calls for the Fed to trim its $120B per month in asset purchases are growing as inflation heats up. But the consensus is that there will be no official announcement today. Two-thirds of 52 economists surveyed by Bloomberg expect a November announcement, with more than half expecting the Fed to start the taper in December. Still, Powell has been adamant he will give ample notice for any moves. The August jobs report gave "the doves on the Federal Reserve’s board, essentially where we think the Chair resides today, some fodder for postponing a tapering of the QE asset purchase program, though we think this would be a mistake," BlackRock's Rick Rieder writes. "Yet, we do believe that we will learn more details in September from the FOMC meeting, relative to what the Fed’s schedule for tapering will be."

A change in the wording of the statement may be where the market gets that signal. "If the Fed signals any change, expect different language in the third paragraph of its statement, where the committee may update the risk to the outlook as balanced, which may signal tapering before the end of the year," economist Joseph Brusuelas writes in his Real Economy Blog. "In 2013, before its previous round of tapering, the Fed used its statement to signal coming policy action, so it may choose to take that approach this week." Mohamed El-Erian says the Fed needs to act as the window to tapering is closing.

Dissecting the dot plot: The latest dot plot chart of Fed member interest rate projections, which caused a stir last time, will also be closely watched, much to the chagrin of Powell. The "sole purpose" of the "fabled dot plot ... is to increase confusion and misunderstanding in financial markets," UBS Chief Economist Paul Donovan writes. The dot plot is meant to illustrate where individual members see rates going, but not where they will or necessarily want them to go and the Fed chief has said it is not a great forecaster. But if three members raise their 2022 dots, the new median will be for a quarter-point hike that year, and Wall Street banks have been aggressively marketing short-term interest rate derivatives that would pay off with tightening pulled forward, Bloomberg reports. "Watch the dots - likely will see initial rate hike pulled into 2022 with more in 2023," Kathy Jones, chief fixed income strategist for Schwab, tweets. "Look out for (jobless) projections - (that) will indicate what Fed sees as 'full employment.'"

Ethics questions: Beyond monetary policy, Powell may face some difficult questions about the recent controversy of the asset portfolios of Fed governors. Dallas Fed President Robert Kaplan's trading in individual stocks last year, including several megacaps that tend to benefit from lower interest rates, prompted the Fed chairman to open an ethics review. And Powell and two other Fed members owned securities that the central bank was buying last year. (8 comments)

Permian purchase

ConocoPhillips (NYSE:COP) will become the second-largest oil and gas producer in the Lower 48 U.S. states following its $9.5B acquisition of Shell's assets in the Permian Basin, as the pecking order is reshuffled among top U.S. shale drillers.

Adding an estimated 200K boe/day will put Conoco within striking distance of leader Exxon Mobil (NYSE:XOM), which is expected to produce about 1M boe/day from the Lower 48 this year.

Conoco's deal will propel it past Chevron (NYSE:CVX), EQT Corp. (NYSE:EQT), Occidental Petroleum (NYSE:OXY) and EOG Resources (NYSE:EOG), according to consulting firm Rystad Energy. (20 comments)

Cashing in on shorts

AMC Entertainment (NYSE:AMC) and Blackstone (NYSE:BX) top the list of stocks that short sellers might be tempted to cash in on.

S3 Partners' Ihor Dusaniwsky breaks down the one-day return for stocks with a short interest level of over $1B as he factors in the gains on a percentage basis. The mark-to-market gains are seen making those stocks more likely to be cashed in by short sellers. (29 comments)

Adobe earnings

Adobe (NASDAQ:ADBE) fell in extended-hours trading after it reported fiscal third-quarter earnings where it beat consensus on top and bottom lines and guided above expectations for the current quarter.

Revenue rose 22% to a record $3.94 billion, with gains spread broadly. Gross profit jumped to $3.47 billion from $2.8B, a year ago. Non-GAAP operating income came to $1.81 billion. (25 comments)

Toast IPO

Toast (NYSE:TOST), a restaurant-specific software platform priced its IPO of 21.7M common shares at $40/share, significantly above its expected range of $34-$36, upped from the previous price of $30-$33.

The company will raise $869.6M for a valuation of about $20B. Shares are set to begin trading Wednesday on NYSE. Founded in 2011, Toast makes software for restaurants to manage functions like business operations, online ordering and delivery, and integrated payments. (1 comment)

Evergrande interest payments

Bloomberg reports that Hengda Real Estate - the main unit of troubled Chinese property developer Evergrande - will make its Thursday bond coupon payment.

This hardly means Evergrande is out of the woods. Indeed, a restructuring at some point still remains likely. But a disorderly unwind seems off the table at the moment. (68 comments)

Today's Markets

In Asia, Japan -0.67%. Hong Kong Closed. China +0.4%. India -0.13%.
In Europe, at midday, London +1.17%. Paris +1.10%. Frankfurt +0.58%.
Futures at 6:20, Dow +0.59%. S&P +0.55%. Nasdaq +0.34%. Crude +1.59% at $71.61. Gold +0.1% at $1775. Bitcoin -3.1% at $42103.
Ten-year Treasury Yield +1.2 bps to 1.336%

Today's Economic Calendar

7:00 MBA Mortgage Applications
10:00 Existing Home Sales
10:30 EIA Petroleum Inventories
11:30 Results of $26B, 2-Year FRN Auction
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference

Companies reporting earnings today »

What else is happening...

Morgan Stanley (NYSE:MS) eyes a correction, S&P 500 (SP500) falling as much as 20%.

QuantumScape (NYSE:QS) soars after another deal with 'top ten' automaker.

Freshworks (FRSH) prices 28.5M-share IPO above range at $36.

U.S. nat gas (NG1:COM) slides to two-week low on more bearish weather outlook.

Facebook (NASDAQ:FB) debuts new portable Portal video device.

AT&T's (NYSE:T) Stankey: HBO Max deserved value unlock; Cost cuts one-third complete.

DOJ, six states sue American Airlines (NASDAQ:AAL), JetBlue (NASDAQ:JBLU) over alleged anticompetitive partnership.

Office REIT stocks make headway after Google's (GOOG, GOOGL) $2.1B office deal reported.