Watching Like Hawk. Russia vs. Ukraine. Commodities. Energy ETF Inflow

09/26/2018 11:35 am EST

Focus: MARKETS

Nell Sloane

Principal, Capital Trading Group

Stocks remain in a narrow range Wednesday near their all-time highs as the trade awaits the announcements from the two-day Fed meeting. Most traders are expecting another small rate hike announced following the meeting around 2:00 pm EDT, writes Nell Sloane Wednesday.

In addition, Fed Chair Jerome Powell will be holding a post-meeting press conference and hopefully add a bit of color to longer-term direction.

Many traders are curious and will be closely monitoring the Fed's reaction towards the economic impact of trade negotiations, tariffs, and emerging market uncertainties. There's also speculation that the Fed could be viewed as a bit more hawkish if they remove the word “accommodative” from their current rhetoric.

As usual, the devil will be in the detail.

I should note, the odds of another interest rate hike happening in December currently stands at around 80%.

Further out on the horizon, but something we need to have on our radar is the escalating tension between Russia and Ukraine, especially those of us in the commodity space, as it could have larger implications.

From what I understand, tensions in eastern Ukraine have been escalating, and we are now seeing increased contention in Sea of Azov.

The Sea of Azov is of great importance to Ukraine, since about 80% of the country’s exports now pass through the body of water. Until just recently, most all of the conflicts have taken place on the ground in eastern Ukraine. Recent developments, however, suggest the conflict is perhaps intensifying and moving to sea, which adds a much larger twist.

In recent weeks, both nations have deployed portions of their navy forces into this area and tensions are starting to flare. I hear a lot of this new tension stems from Russia opening a bridge back in May, that they built across the Kerch Strait connecting mainland Russia to the Crimean Peninsula.

The Kerch Strait is the only water passageway from the Black Sea to the Sea of Azov. For that reason, all maritime traffic now has to pass under Russia’s new bridge.

As you can imagine, things quickly became much more complicated. Russian officials swiftly moved to limit the tonnage of ships passing through the Kerch Strait. That lead to a spike in the Russian Navy boarding ships and exerting power that hadn't been in play.

I'm also keeping a close eye on oil prices.

Do you realize oil prices are up more this year than the S&P 500 (SPX), NASDAQ (IXIC) or Dow (DJI)? It’s the rapid rate of change that worries me most.

I also recognize that many in the ag space aren’t currently in a position to handle $100 per barrel oil. Many other U.S. consumers might also find it extremely difficult to swallow.

We are not near that level yet, but I believe we need to be paying very close attention to this market.

For what it’s worth, Energy sector ETFs had been experiencing massive receptions, but in just the past five trading sessions the sector has seen close to +$500 million in inflows...something is clearly happening. Pay attention!

Cheers,

Nell

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