Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold and Crude markets today as the FOMC announces rates, key reports are out in energy today, the PPI and later today China reports retail. Follow his reports Monday-Friday on MoneyShow.com.
E-mini S&P (September)
Tuesday close: Settled at 2788.25, up 1.50
Fundamentals: It is Fed day and they are expected to raise interest rates a quarter point. What’s unknown though is the tone in which they will do such.
There was a report Tuesday that Fed Chair Powell wants to hold a press conference after each meeting. The dollar jumped, Treasuries ticked down and equity markets hit a midday snag. Doing this would essentially make each meeting live, giving the FOMC additional opportunities to hike.
This is something traders want to keep an eye out for today and if this is announced it will be seen as hawkish.
Economic data has gained positive traction over the last two weeks and inflation is essentially at the Fed’s 2% objective. However, wages remain a concern. All in all, it is a foregone conclusion that the Fed hikes rates today.
At their last meeting, they took a more dovish approach by speaking of “symmetrical inflation” targeting. This means that they are willing to allow inflation to run hot without forcing them to move quicker on rates. Some could argue the catalyst for this direction was slow wage growth despite PCE and CPI hitting that 2%.
Others could say geopolitical headwinds, fears of transitory growth on the heels of tax-reform or even volatility in equity markets encouraged this phrase.
While all these surely had something to do with it, we believe the main reason was a divergence in global central bank policies. The Fed could not allow themselves to become too hawkish while the ECB was becoming more dovish. In January, not only did the ECB announce they will soon look to make a policy change giving a firmer timeline to tapering but the Bank of Japan was moving along the same path.
Slow growth, geopolitical hurdles and softening prices kept both of these central banks on the sidelines into midyear. Until now.
Last week, ECB chief economist Praet said they will discuss making this policy change at their meeting Thursday. Now, a more hawkish Federal Reserve would not be diverging against other central banks.
In fact, we believe currency markets have not priced in a potentially more hawkish ECB and this gives the Fed leeway.
What does this all mean? We expect to see a more hawkish Fed statement and Dot Plot today and while we have been extremely bullish in bias for the largest chunk of this stock market rally, the meat in the middle, we raise caution in the near-term.
In other news Wednesday morning, equity markets aboard are quiet to unchanged. Except for China, the Hang Seng is down 1.5% and after paring losses from the May 30 low, selling seems to have reinvigorated. Wednesday night, Fixed Asset Investment, Industrial Production and Retail Sales are due out of China at 10 pm EDT.
Headlines Wednesday morning point President Trump having to face questioning from Special Counsel Mueller; traders need to keep an ear to the ground on these developments. Industrial Production data in the Eurozone slowed Wednesday morning but markets are holding ground well. U.S PPI demand rose 0.5% in May, released Wednesday morning, report here
Bias: Neutral
Crude Oil (July)
Tuesday close: Settled at 66.36, up 0.26
Fundamentals: Crude Oil lost about 70 cents after API reported only a small draw of 730,000 barrels. Additionally, builds of 2.33 mb of Gasoline and 2.1 mb of Distillates weighed on the tape.
The IEA released its Monthly Report this morning and Crude has bounced back from a session low of 65.52 to regain the $66 mark. They said that due to increased sanction by the U.S, Iran and Venezuela will lose 30% of their output. However, they pointed to increased supply from U.S shale would make up the difference.
Reuters: trump, Iran spar over oil prices Wednesday ahead of OPEC meeting.
Spare capacity will become the key talking point. The IEA said, “If the supply-gap is plugged, the market will be balanced next year.” They also expressed concern that any disruption to supply would send prices higher.
Expectations for Wednesday’s EIA report are: 1.44 mb Crude, +0.443 mb Gasoline and +0.20 mb Distillates.
Lastly, traders should not underestimate the effect today’s Fed meeting can and will have on the price of Crude.
Bias: Bullish/Neutral
Gold (August)
Tuesday close: Settled at 1299.4, down 3.8
Fundamentals: Gold held very well Tuesday given the solid to marginally better than expected CPI read ahead of today’s FOMC meeting. We discussed Tuesday that the risk in the near-term for Gold is to the downside as it is very likely we could see the dollar increase after they hike rates today in a more hawkish manner than expected.
However, we see that risk as limited as we expect the euro (EUR) to finish the week stronger following the ECB policy meeting early Thursday morning. Essentially, patience should win out and dips are a buying opportunity.
PPI data due at 8:30 am EDT here, the Fed releases their policy statement at noon and Fed Chair Powell follows with a press conference at 12:30 pm.
Bias: Bullish/Neutral
Email at info@BlueLineFutures.com or call 312-278-0500
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
