Existential Hours As We Wait For The Fed To Hand Down The Law

This is a perfect day to look at bond yields and what they might be telling us about the FOMOC meeting scheduled for tomorrow and ending Wednesday.

Yet we have to take this snapshot with a grain of salt because today, European Central Bank chief Mario Draghi again hinted quite strongly that Europe-wide rate cutting is over with (as he did on Friday).

On Friday, the yield on U.S. 10-year bonds finished at 1.977%, an indicator that demand was slow and face price would go lower in opposition to yield rise. This ought to be read as a risk-on scenario and indeed, we saw equities stronger in New York.

Over the weekend apparently some investors reconsidered and yields have now been pushed down into the 1.96 range as some began to get butterflies about the Fed. So, there is a bit of risk-off current running through the investing community.

However over in the precious metals complex, risk is completely off with gold falling about 1.35%. The rest of the precious metals are off but not quite so severely.

Currencies are a bit harder to gauge because the U.S. dollar and yen are engaged in a seesaw battle for gains today with the yen just minutes ago (at 3PM in New York) having gained the upper hand for the moment. But the greenback is solidly higher against the Swiss franc, euro and British pound.

With that kind of inclination in the other currencies, we expect the dollar-yen play to also go in the dollar’s favor as the close approaches.

Equities have been struggling for some time to uncouple from the sway of crude oil, which is down significantly today. West Texas Intermediate is down over 3.00%. Brent North Sea is down about 2.00%. They succeeded today, perhaps a sign of things to come.

Stocks were higher across Asia and Europe and are mostly higher in New York, although the S&P is struggling a tiny bit. That is for a very good reason.

Tomorrow we will receive data on February consumer discretionary spending from the U.S. government. The S&P 500 has a much higher percentage of consumer companies amongst its many components than do the Dow and NASDAQ. So, that wait-and-see is weighing on the S&P until the news actually breaks tomorrow morning.

Oil was down on a pair of news reads. The first is that it seems as if Russia is abandoning its attempts to co-ordinate a production freeze among OPEC and other oil producers outside the cartel. In fact, today, Russia had encouraging words for Iranian prospects after the lifting of sanctions has allowed that country to produce its head off. As we know, Russia is very erratic in its economic approach.

Then there was news on inventory, production and demand. There was an inventory build of 585,854 barrels in Cushing, Oklahoma, pushing the delivery hub for U.S. crude futures much closer to capacity.

OPEC said global demand this year for crude produced by its members, including Saudi Arabia, Iraq and Iran, will be weaker than previously thought due to competing non-OPEC supply. OPEC’s supply will likely exceed demand by about 760,000 barrels per day, up from 720,000 bpd measured earlier.

Morgan Stanley said price has peaked for this cycle and will settle into a $20 to $45 range. Morgan also said that there is a 30% chance of global recession this year. Hard to square those two positions, isn’t it?

Wishing you as always, good trading,