Central Bank Meetings This Week To Produce Stagnation In Markets

On a day that seems tailor made for safe-haven investment, silver fizzled and gold is up modestly, mostly on the back of a lower U.S. dollar.

Where are those seeking shelter from the storm? Waiting for the central banks to speak.

Crude oil was down on longer-term analysis of demand-side forces as well as the 800-pound gorilla in the room called North American Production. West Texas Intermediate was down not quite 2.5% today, looking as if it will settle in the $42.60 per barrel range.

Genscape, a market-intelligence company reported stockpiles at the Cushing, Oklahoma, delivery point for U.S. crude futures rose by 1.5 million barrels in the week through April 22.

Barclays said it was "not yet convinced that prices will remain here or go even higher."

"Still-elevated inventory levels, the return of some disrupted supply, further boosts to Saudi and Iranian supply, and increased non-OECD product exports all have the potential to move prices lower over the next several months, especially if broader macro sentiment shifts," the financial giant wrote.

Investors may chatter all they want about shifting sentiment, but fundamental facts are in place. Many overly optimistic observers are calling for $50 or even $55 per barrel in the near term. Absent an extraordinarily negative news event, that will not happen. It should be noted that the weaker dollar was pushing oil up even as it wanted to trade to the downside in regular trading.

As crude approaches $50 per barrel, U.S. and Canadian producers will spring into action. At $55, the flow will become a flood and we will see prices crash right back down.

The only sturdy haven play today was the Japanese yen, which is up about ½ of a percent against the greenback.

Bond yields were static.

All this haven inaction was in the face of a round-the-world, across-the-board decline in equities.

There are two meetings holding equities traders back right now.

Both the Bank of Japan and the Federal Reserve have meetings that will disclose upcoming interest-rate strategies.

The BoJ is holding back Asian stocks because of that country’s precarious negative –rate tactics. But it is surprising the FOMC meeting of Tuesday and Wednesday would be affecting markets so severely. We speculate that traders are holding back on a sort of splitting-of-hairs concern.

It’s not a question of whether the Fed statement that will follow the close of meeting on Wednesday will be dovish. It certainly will. The question rather is whether the statement will be dovish enough.

That is, how many hedges and caveats will there be couched in the statement? How will the Fed portray the American economy as both in need of continued low-interest crutches and as an economy that is leading the world and doing wonderful, marvelous things?

A hard trick to pull off. Then again, we’re thinking the Fed is getting used to working at least small miracle.

Wishing you as always, good trading,