Posts

What the Fed Rate Cut Means for Markets

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What’s in Today’s Report:

  • FOMC Takeaways (Resistance at 3000 in the S&P 500 Getting Stronger)
  • Oil Market Update (Inventories and latest from Saudi Arabia)

Futures are slightly lower as markets digest a “not as dovish as wanted” Fed decision after a generally quiet night.

The market’s reaction to the Fed meeting is one of mild disappointment as the FOMC did not guarantee more rate cuts, although they signaled they will come if needed.

Economic data was sparse overnight as British Retail Sales met expectations and that number’s not moving markets.

Today there are several notable economic reports, including (in order of importance): Philly Fed (E: 11.3), Jobless Claims (E: 214K), Existing Home Sales (E: 5.375M) and Leading Indicators (E: 0.1%).  The Bank of England is also out with a rate decision this morning but no change is expected.

But, the most important event of the day is the start of the lower level U.S./China trade talks, and any positive “chatter” from these meetings should help stocks offset mild Fed disappointment.

FOMC Takeaways (Dovish Gamechanger?)

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What’s in Today’s Report:

  • Fed Takeaways
  • EIA Analysis and Oil Update

Stock futures are rallying towards all-time highs and gold is up nearly 3% while the dollar and bond yields continued to decline overnight as global investors cheered the dovish Fed and rising prospects of a U.S.-China trade deal.

There were no notable economic, central bank, or trade war headlines since yesterday’s close.

Geopolitically, Iran claimed it shot down a U.S. spy drone overnight which triggered a fear bid in global oil prices. WTI is up nearly 3% on the news.

Looking into today’s session, there are two economic numbers due out ahead of the bell: Jobless Claims (E: 219K) and the Philadelphia Fed Survey (E: 11.0) but neither should materially move markets while no Fed officials are scheduled to speak.

Momentum is clearly higher for stocks right now and investor optimism surrounding this week’s dovish central bank developments and improving prospects for a U.S.-China trade deal very well may help drive the S&P to fresh all-time highs today.

Inflation Update (It’s More Important Than Trade)

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What’s in Today’s Report:

  • Inflation Update (This Is More Important Than the Trade Drama)
  • EIA Analysis and Oil Update

Futures are decidedly weaker this morning following more hawkish trade rhetoric from President Trump overnight.

At a rally in Florida Trump said China “broke” the deal and reiterated his tariff threats.  Importantly though, nothing changed as far as actual negotiations and the Chinese trade delegation still arrives today.

Economically Chinese CPI generally met expectations at 2.5% yoy vs. (E) 2.6%.

Today the market will be held hostage again by trade headlines, but beyond the trade headlines there are two notable economic reports.

First, Jobless Claims (E: 215K) have risen lately and we’ll want to see that roll back over soon, otherwise it could be a negative signal on the jobs market.  Second, PPI (E: 0.3%), while not as important as tomorrow’s CPI, could still move markets given inflation’s new-found importance. Finally, there are three Fed speakers, Powell (8:30 a.m. ET), Bostic (10:45 a.m. ET) and Evans (1:15 p.m. ET), but none of them (including Powell) are expected to move markets.

EIA Report Analysis and Oil Update, September 8, 2017

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Yesterday’s EIA report was taken with a grain of salt, as the effects of Hurricane Harvey badly skewed the data resulting in a print that was basically worthless from a fundamental analysis standpoint. As would be expected with a large number of refinery outages, crude stocks rose +4.6M bbls, but that was slightly less than estimates calling for a +5.0M build.

EIA Report Analysis and Oil Update

Meanwhile, both gasoline and heating oil inventories declined (as refineries runs were way down) by -3.2M bbls and -1.4M bbls, respectively (but both declines were smaller than expected). On balance, the headline prints were largely dismissed. WTI finished the day down 0.22% while RBOB gasoline futures fell 0.98%.

The production portion of the report was a little shocking at first glance, but at the same time, the data made sense when you consider the impact Harvey had on the Gulf Coast oil industry. Lower 48 production declined -783K b/d last week, or 94% of the 2017 output gains.

For perspective, the average weekly change coming into this week was +24K b/d. Like the headlines, the production data was largely overlooked by traders because the data was so badly skewed by Hurricane Harvey.

Looking ahead, it will be very important to watch the production data. If output does not recover in a swift manner that will be a bullish supply side development, as the relentless grind higher in US oil output has been the single-largest headwind for oil prices this year. For now, the outlook for oil is neutral with a bias to the downside, as nothing has changed materially enough to push futures through resistance between $50 and $54/barrel in WTI.

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