The Weekend Is Upon Us And So Is The Wait For The Fed

Reversing field, equities worldwide today latched back onto the positive side of the sayings of Chairman Draghi of the European Central Bank and to a very modest rise in the price of oil.

But the modest rise in crude came on the back of the International Energy Agency’s (IEA) prediction that the bottom had been reached in the commodity and the long dark night of the soul was over for producers. 

We believe the bottom may have been touched. We don’t believe that means a normalization of prices will be achieved.

Oilfield services firm Baker Hughes reported the number of rigs drilling for oil in the United States fell by 6 to a total of 386. At this time last year, the oilrig count stood at 866. The IEA said U.S. and non-OPEC crude output was beginning to fall quickly and increases in Iranian supply had been less than dramatic. (The agency coordinates energy policies of industrialized nations.)

We feel the production glut is still in place and is going to get worse. We aren’t 100% certain exactly where, but there is a price at which North American shale and coal tar producers will jump back in with a vengeance.

Regardless of the future, today oil helped drag the S&P, Dow and NASDAQ up. Europe and Asia were also up, the DAX and CAC being the two biggest winners on the day.

The FTSE fell on more Brexit worries. Britain has the shotgun aimed at its foot. It only has to pull the trigger now to complete the pullout from the European Union. Very bad move.

Traders in Europe woke up (if slowly) to the substance of the ECB’s move. They began figuring it would be terrific for banks and financial institutions, and would stimulate consumer spending

The banking sector, quite understandably, led the markets there higher.

Gold’s 1.00% fall today is easily assigned to a risk-on trading day in equities and some commodities.

Aside from the ECB easing and asset-purchase programs announced yesterday, gold traders (all traders, actually), are facing the prospects of this coming Tuesday’s Federal Open Market Committee meeting.

We venture to say that the drop in gold due to regular trading activity, (as opposed to dollar strength), is a tacit acknowledgement of the economic climate in Europe and the central bank’s rock-bottom rates.

When you pair that with a growing consensus that the Fed is not going to raise rates in the U.S, well, you pretty much have a neutral to negative climate for an instrument like gold.  Nevertheless, gold ended its second straight week in positive territory.

Supportive of a stand-pat stance by the Fed, come next week, U.S. import prices fell in February for an eighth straight month, led downward by declining costs for energy.

Indeed, import prices have decreased in 18 of the last 20 months, a statistic that reflects a robust dollar and plunging oil prices. (However, both those indicators may well be turning around.)

Regarding havens, U.S. 10-year bond yields rose and the yen found plenty of investment interest, denoting a desire for safety, even if just for the weekend. Investors may rethink things over the next two days and come back with a new game plan.

Wishing you as always, good trading,