Morning MoneyBeat is the Journal’s pre-market primer packed with market updates, insights and must-read news links. Send us tips, suggestions and complaints: steven.russolillo@wsj.com
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MARKET SNAP: At 6:00 a.m. ET, S&P 500 futures down 0.2%. 10-Year Treasury yield lower at 2.58%. Nymex up 67 cents at $103.33. Gold 0.1% higher at $1246. In Europe, FTSE 100 down 0.3%, DAX down 0.4% and CAC 40 down 0.6%. In Asia, Nikkei 225 up 0.2% and Hang Seng down 0.6%.
WATCH FOR: May ADP Jobs Survey (8:15 a.m. Eastern Time): seen +210K; previously +220K. April US Trade Deficit (8:30): seen $40.9B; previously $40.4B. First Quarter Productivity (8:30, second read): seen -3.1%; previously -1.7%. First Quarter Unit Labor Costs (8:30, second read): seen +5.5%: previously +4.2%. May ISM Non-Manufacturing PMI (10:00): seen 55.2; previously 55.2. Analogic(ALOG), Ciena(CIEN), Cooper, Diamond Foods(DMND), J.M. Smucker(SJM), Joy Global(JOY), Piedmont Natural Gas(PNY), UTi Worldwide, Vail Resorts, Vera Bradley(VRA) and VeriFone(PAY) are among companies scheduled to report quarterly results.
THE BREAKFAST BRIEFINGFinancial markets are calm, almost too calm for the liking of some Fed officials.
Measures of risk aversion and market volatility show an especially striking sense of investor calm, or complacency. The worry at the Federal Reserve, according to WSJ's Jon Hilsenrath, is that when investors become unafraid of risk, they start taking more of it, which could lead to trouble down the road.
"When you get complacency you're bound to be surprised at some point," Richard Fisher, president of the Federal Reserve Bank of Dallas, told the WSJ.
Stocks and bonds have rallied this year while volatility and trading volumes have declined sharply.
The market's so-called fear gauge, the VIX, finished Tuesday at 11.87. It has gone 74 straight weeks below its long-run average—a run of steadiness not seen since before the financial crisis in 2006 and 2007.
The S&P 500 has climbed higher to a 4.1% year-to-date gain after last year's 30% surge. The market hasn't suffered a 10% decline since the second half of 2011, a rally that some say has lulled investors back into the market and could make them susceptible to future declines.
It's one thing for market participants to be concerned about low volatility, but it's a different ballgame when Fed officials worry about the current environment. The Fed's easy-money policies and its unprecedented bond-buying program have pushed investors into risky assets and have helped thrust asset prices higher. But now, some central bankers are worried about the unintended consequences stemming from those accommodative policies.
Few are bailing on stocks at current levels. The economy is slowly recovering following a tough first quarter, a lackluster earnings season wasn't as bad as some feared and few fear a recession is around the corner.
"When we talk to clients, they're just not that worried about the risk of equities," Bruce McCain, chief investment strategist at Cleveland's Key Private Bank, which oversees more than $20 billion, said in a chat with MoneyBeat.
He described the current trading environment as "a bubble in complacency," one that could leave the market susceptible to tougher times ahead.
"I just don't really get the sense that people are overly concerned about anything," he said. "That makes me a little nervous…We're clearly at a point where there's a level of calm that does leave us vulnerable to a selloff."
Morning MoneyBeat Daily Factoid: On this day 25 years ago, China’s Communist Party leaders sent heavily armed forces into Beijing to end peaceful pro-democracy protests. Tune in here as current and former WSJ reporters will recall covering Tiananmen Square in 1989 and the subsequent government crackdown that killed hundreds.
-By Steven Russolillo; follow him on Twitter @srussolillo.
STOCKS TO WATCHHovnanian is projected to report second-quarter earnings of 3 cents a share, according to a consensus survey by FactSet. Analysts at MKM Partners last week maintained their neutral rating on the stock due to uncertainty over housing demand and pricing.
PVH is forecast to earn $1.49 a share in the first quarter. "The turnaround efforts for the CK jeans and underwear segments are well under way. We believe PVH's strategy remains intact, with a framework in place to drive long-term growth in both its Calvin Klein and Tommy Hilfiger businesses," Robert Drbul, an analyst at Nomura, said in a report.
Five Below is likely to post first-quarter earnings of 6 cents a share.
Late Tuesday, Tibco Software(TIBX) said it expects second-quarter per share earnings between break even and a penny and revenue of $250 million to $252 million. On an adjusted basis, it forecast per-share earnings of 12 cents to 13 cents, significantly below analysts' estimate of 21 cents a share. Shares of Tibco fell 13% in after-hours trading.
MUST READS (LINKS)Taliban Video Shows POW’s Release: The Afghan Taliban released a propaganda video showing the handover of U.S. Army Sgt. Bowe Bergdahl, held captive for nearly five years, to U.S. Special Operations Forces in a remote part of eastern Khost province.
France Moves to Defy Allies on Sale of Warship to Russia: “France is preparing to train hundreds of Russian seamen aboard a powerful French-made warship this month, defying calls from the U.S. and other Western allies to keep the vessel out of the Kremlin’s hands, say people familiar with the matter.”
Fed Officials Growing Wary of Market Complacency: “Federal Reserve officials, looking out at mostly calm financial markets, are starting to wonder whether tranquility itself is something to worry about.”
ECB Seen Ready to Tackle Low Inflation: “The European Central Bank is poised to act against very low inflation after months of delay, amid mounting evidence that weak prices are undermining the euro zone’s recovery from its debt crisis.”
Ahead of the Tape: ECB Takes Shot at a Weaker Euro: “The European Central Bank is poised to join the currency wars. But investors shouldn’t expect a shock-and-awe campaign.”
ECB Anxious Over U.S. Fines on Banks: “The ECB, anxious about potentially massive U.S. penalties against BNP Paribas(BNP.FR) and other banks, is considering adding an element to financial-health exams to try to estimate the possible damage.”
Ex-Rivals, Brothers Team to Shake Up M&A: “Yoel and Michael Zaoui spent more than two decades on Wall Street working for different investment banks. Now, their firm, Zaoui & Co., has shot to prominence by advising on some of Europe’s biggest deals this year.”
KCG Holdings Suspects Its Trading Code Was Stolen: “The Manhattan district attorney’s office is investigating whether a former technology executive stole computer code from a high-profile trading firm and used it to benefit a rival, according to people briefed on the probe.”
Judge Rules in Favor of States in Suit Against S&P: “A U.S. federal judge ruled Tuesday that financial-crisis related lawsuits filed by more than a dozen states against Standard & Poor’s Ratings Services should be heard separately in state courts, a setback for the world’s largest credit-rating firm that was pushing for the cases to be merged into one.”
Coffee-Bean Prices Mean More Expensive Cup: “A spike in the cost of coffee beans in the futures market earlier this year is trickling down to consumers.”
Heard on the Street: Cisco Sa(CSCO)ils Into the Wave of the Future: “Cisco’s stock seems to have stabilized. Now comes the hard part: changing the business model to beat the competition and spark growth.”
Dueling Indexes: A Big Name Is No. 2 in Returns: “The Russell 2000 is the go-to metric for most investors tracking small stocks. But the S&P SmallCap 600 has been showing better returns.”
Obama Meets Ukraine President: “President Barack Obama met Ukraine’s President-elect Petro Poroshenko, his first face-to-face talk with Kiev’s new leader.”
Ex-Guantanamo Detainees Return to Violence: “A decade ago, the U.S. released three hardened Moroccan militants from Guantanamo and turned them over to the Moroccan government. They wound up leading one of the most violent Islamist groups in Syria’s civil war.”
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