Oil Falls But Equities Push Higher As Fed Figures

The Dow and the S&P 500 both rose by more than 0.60% today with the NASDAQ lagging a bit at +0.45% on the session.

Yet crude oil took a small, sharp beating after the failure of OPEC and non-OPEC producers who met Sunday in Doha to come to an agreement on a production freeze. Although it seemed rather obvious that they would fail, traders had pushed oil up prior to the doomed get-together.

The consequent drop in oil was not the determining factor in U.S. (and European) equities trading today, however.

Two Federal Reserve heavyweights issued statements in the last few business days that strongly indicate that no interest rate hike should be expected any time soon.

William Dudley said at the New York Fed Conference on Monday that, "Monetary policy adjustments are likely to be gradual and cautious, as we continue to face significant uncertainties and the headwinds to growth from the financial crisis have not fully abated."

Dudley, who is the president of the New York Federal Reserve Bank and arguably one of the three most important people on the Federal Open Market Committee, did seem to temper his strong remarks. He said there were many favorable elements in the U.S. economy and that employment was particularly strong.

He did cite weak inflation in the U.S. and in Europe as a problem and asserted that the central banks of both huge economies are working to boost it a bit.

James Bullard, President of the St. Louis Fed, made comments on Friday that more or less paralleled Dudley’s. “The jobs report we got was very strong but the GDP tracking has moved down substantially for the first quarter and to some extent for the second quarter,” he said. “We are on track to continue normalizing [rates] this year, but it certainly gives us room for maneuver and we can be patient and go gradually.”

On Thursday, Dennis Lockhart, head of the Atlanta Fed he would not be pushing for a rate hike anytime soon because of low spending data for March and, of course, only minor inflation.

Fighting against this and other news today, gold prices are softer. That is in spite of a solid assist from a weaker U.S. dollar, which, of course, was reacting to the Fed commentaries mentioned above.

In general it was a risk-off day. The yield on U.S. 10-year bonds rose slightly. The higher yield and lower face price did not seem to cause any sort of stampede into the government paper.

Circling round to the U.S. economy to end up today’s fundamentals outlook, Citigroup revised its forecasts for the rest of this year and into 2017 for the world’s largest economy.

Yet, in the same breath, Citi said that unemployment would dip to 4.7% this year and 4.5% next year. Inflation, it said, would remain subdued.

We are wondering if the spate of minimum wage laws being passed – raising the wage to $15 – will have any effect on inflation. We hope so.

Simply put, you can’t grow your economy much when inflation is treading water around 1.3 to 1.6%.

Wishing you as always, good trading,