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May 3, 2018

THE Wall Street Journal I MoneyBeat Investors Bet on a Faster Fed - May 3, 2018.

The Wall Street Journal
MoneyBeat

Investors Bet on a Faster Fed

By Ben Eisen
Morning MoneyBeat is the Journal’s pre-market primer. To receive the newsletter via email, click here.
Market Snap at 05/03/2018 07:50:01 AM ET
S&P 500 Futures 0.09%
2629.75
DJIA Futures 0.05%
23837
U.S. 10 Year 5/32
2.949%
WSJ Dollar Index -0.27%
86.12
Crude Oil -0.07%
$67.88
Gold 0.52%
$1312.40
Europe
Asia
FTSE 100 -0.07%
Nikkei 225 -0.16%
DAX -0.32%
Hang Seng -1.34%
CAC 40 -0.27%
Shanghai 0.64%

Overnight Developments

  • Stocks in Europe and Asia mostly followed Wall Street lower Thursday after the Federal Reserve’s policy statement. S&P 500 futures pointed to an opening gain of 0.2%.
  • The Stoxx Europe 600 was recently down by 0.3%.
  • Hong Kong’s Hang Seng Index fell 1.3%, led lower by technology and real-estate firms, though benchmarks in Shanghai and Shenzhen posted gains. Markets in Japan were closed for a holiday.
  • The Breakfast Briefing

    Investors are starting to think the Federal Reserve will lift rates faster than indicated.
    Those betting on the path of interest rates in the Fed funds futures market see a 45% chance of at least four increases this year, according to CME Group. That probability, which recently climbed to as high as 51%, had been at just 11% at the beginning of the year, and 30% a month ago.
    The central bank most recently said it planned just three rate increases this year. That included the rate increase in March, though members of the policy committee have been divided about whether to move more quickly.
    The pace of rate hikes is of crucial importance to investors seeking to gauge how fast the Fed will clamp down on the flow of money through the financial system. Expectations of a faster Fed have been a factor in the recent stock swoon and the 10-year Treasury note yield's push above 3%.
    Firming inflation is causing some investors and economists to conclude that the Fed will need to lift rates faster to tamp it down. That's a sharp reversal from recent years, in which the Fed struggled to convince investors that it could stick to its rate-rise plans.
    "We think four hikes are still more likely than three," said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients Wednesday.
    At the conclusion of the Fed's policy meeting on Wednesday, the central bank gave no overt indication that it plans to lift rates faster, but did highlight that inflation was moving closer to its 2% annual target. Both overall and core inflation “have moved close to 2%,” the statement said, replacing language that had highlighted last year’s shortfall.
    Inflation climbed 2% from a year earlier in March, according to the price index for personal-consumption expenditures, the Fed's preferred inflation measure, released this week. That gauge has rarely hit 2% in recent years.
    Do you expect the Fed to pick up the pace of rate increases? Let the author know your thoughts at ben.eisen@wsj.com.

    Daily Factoid

    On this day in 1952, Lt. Col. Joseph Fletcher walked to the exact geographic location of the North Pole, likely the first person in history to do so.

    Key Events

    At 8:30 a.m., data is expected to show the international trade deficit for goods and services narrowed to $50 billion in March from $58 billion the month before as imports declined.
    Jobless claims, also due out then, are expected to have risen last week after hitting a 49-year-low the prior week.
    Rounding out the 8:30 a.m. data rush, U.S. non-farm productivity is expected to have risen 0.9% in the first quarter compared to a flat reading in the prior period. Labor costs are expected to rise 3%.
    At 9:45 a.m., the Purchasing Manager's Index for the U.S. services sector is expected to show growth edged up slightly in April.
    Factory orders, due out at 10 a.m., are expected to show a slight uptick in growth, to 1.3% in March from 1.2% the prior month.
    The Institute For Supply Management's index of non-manufacturing industries--such as services, construction and mining--is forecast to edge down to 58.4 in April. The report will be released at 10 a.m.
    Natural gas storage levels are expected to have risen by 51.5 billion cubic feet of gas during the week ended April 27.  The numbers are due out at 10:30 a.m.

    Stocks to Watch

    Tesla—Down 4.9%: Chief Executive Elon Musk said the electric auto maker is still on pace to make about 5,000 Model 3s in a single week by about the end of the second quarter and said the company should have a profit, excluding noncash stock compensation, in the second half of the year. The projections came alongside data showing Tesla burned through cash at a greater rate than analysts expected during the first quarter.
    Spotify Technology—Down 6.9%: The music-streaming firm's first earnings report and guidance update as a publicly traded company met the company’s own guidance but fell short of analysts’ expectations.
    Apple—Down 0.2%: Shares of the iPhone maker climbed 4.4% Wednesday to cap off their best three-day stretch since September 2016. Apple late Tuesday announced the largest corporate share buyback program ever following a strong quarter.
    AIG—Down 2.6%: The insurance conglomerate posted lower-than-expected first-quarter results as the company’s core business of selling property-casualty insurance to businesses remains a challenge to turn around.

    Number of the Day

     €169 million
    Spotify posted a first-quarter loss of €169 million ($202 million), compared to €173 million in the same period last year. The streaming company has said it is prioritizing growth over profit.

    Must Reads

    The Federal Reserve held rates steady and indicated it remains on track to raise them gradually, including in June.
    Smartphone maker Xiaomi picked Hong Kong for its IPO. The company is seeking to raise at least $10 billion.
    Warren Buffett’s Berkshire Hathaway is coming to a yard sign near you. Berkshire’s residential real-estate unit is No. 2 in the U.S., its name plastered on neighborhood signs across the country—a big change for the conglomerate behind Geico, Dairy Queen and Duracell.
    Japan’s big three auto makers saw U.S. sales decline in April, with Nissan suffering a double-digit drop, as American consumers preferred SUVs to sedans and pickups.
    Cambridge Analytica is closing, following allegations about its misuse of Facebook data and campaign tactics that it pitched to clients. Facebook, meanwhile, fired an employee who had bragged about his access to private user information.