Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day
In the news…
Today we have the Federal Reserve Open Market Committee (FOMC) eagerly anticipated monetary policy statement delivered 2PM ET. The market looks at three events associated with FOMC:
- Changes to monetary policy statement.
- Changes to FED forecast dot plot where FOMC members guess the number of interest rates they feel are required for the next two years including timing of future interest rates.
- Chair Yellen’s press conference held at 2:30PM ET…especially question and answer.
You might as well schedule an extra long lunch Wednesday since history shows markets go extremely tight and quiet during lunch and leading into the 2PM ET statement. The earth quake waiting to occur is any reference discussion of the FED’s 4.5 trillion dollar balance sheet…especially the 1.76 trillion dollar FED holdings of mortgage backed securities.
I caution against seeking out event trading unless you are really nimble and have experience. You are going against very smart people and of course algorithmic trading programs. Any action occurring at statement release can easily come undone in the Yellen press conference…or exacerbated. Just be careful. The market is on pins and needles wondering if any additional potential interest rate hikes shall be indicated.
Bonds, US dollar, Euro, Gold (and by extension Silver), are most sensitive, along with equity index futures.
Crude – OPEC – Saudi Arabia re-affirmed commitment to reduced crude production after financial press suggested the Saudis pumped more crude in order to squash other producers not adhering to the quota. OPEC pulling out the “talk” in order to save crude from a deeper drop. If Russia weighs in with crude “talk,” especially any suggestion or hint of extra cuts to agreed production, then we would expect a 6% rally in crude as traders fall over themselves in a short-cover rally.
I think we should watch crude for evidence “smart” money has re-entered long after last week’s wash out.
Crude is also rising from the American Petroleum Institute saying U.S. oil inventories fell by a surprising 530,000 barrels in the week ended March 10. The API report also showed a drop of 3.9 million barrels in gasoline stocks, while distillate stocks declined 4.1 million barrels.
Contrast the API report to market expectations for today’s crude report: U.S. Energy Information Administration (EIA) expected to show a 3.2 million barrel gain in crude stocks, while gasoline supplies fell by 1.98 million barrels and distillates declined 1.5 million barrels at the end of last week.
Thus, the table is set…if we see the 10:30AM ET crude report anywhere near the API report…we look for a big day in crude moving us back over $50.00. Currently crude trades at 48.76 as I write. Short-cover rally. Obviously, if the EIA report is more accurate…we are looking for lower crude.
Now, let’s carry this further. ES is starved for helpful market news that might push ES higher. IF we get a rally in crude, I would expect ES will rise taking up YM/NQ/TF. Traders will latch onto the idea the energy sector of the S&P 500 is serving as a much needed support. Just be aware.
I still expect a quiet period of trading in equity index futures and currencies in front of FOMC after 11AM ET.
Dutch elections today with results in the early hours of Thursday.
Good structural news from Eurozone from FT.com…
Steady economic growth and helpful credit conditions have been coupled with falling unemployment in the eurozone over the last year. Overall joblessness has now fallen to its lowest since 2009 at 9.8 per cent.
UK unemployment hits 12 year low. Good news. Remember all the warnings of the world coming to an end in Britain when BREXIT was debated? Sky is not falling as experts in the establishment and media reported would occur.
Beyond this…not much overnight news…
- MBA Mortgage Applications – 7:00 AM ET
- Consumer Price Index – 8:30 AM ET
- Retail Sales – 8:30 AM ET
- Empire State Mfg Survey – 8:30 AM ET
- Business Inventories – 10:00 AM ET
- Housing Market Index – 10:00 AM ET
- EIA Petroleum Status Report – 10:30 AM ET
- FOMC Meeting Announcement – 2:00 PM ET
- FOMC Forecasts – 2:00 PM ET
- Fed Chair Press Conference – 2:30 PM ET
- Treasury International Capital – 4:00 PM ET
Equity index futures we follow…DAX, STOXX 50, Nikkei 225, ES, YM, NQ, TF…all moving tight range incrementally awaiting USA open. With FED day we expect quiet trading, but crude report could alter this opinion.
Crude traded below $48.00, then kicked up on API. Bulls are desperate for any positive news of inventory draw down even though in the very big picture…nothing special. One cannot apply logic with crude…USA professionals are emotional and are attempting to ride a normally UP seasonal tendency.
Natural Gas we are watching carefully looking for the last major winter storm to pass and drop Natty on warmer weather.
Gold and silver incremental. Careful here today.
Grains are higher and should move even higher if crude pops based on Soybean bio-diesel and Corn ethanol. Wheat just tags along for the ride.
Softs quiet and mixed.
Bonds higher going into the FOMC…go figure.
US dollar incrementally lower as Euro rises on employment report cited above. Yen incrementally higher.
Canadian dollar higher with crude. Aussie higher incrementally.
The market is on the verge of a “risk-on” day, which in my opinion stems largely on the idea crude may rise.
To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.