Rooster Call: Nothing New from the FED

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

FED Summary

Janet Yellen spoke yesterday basically saying nothing new. I honestly cannot remember a time when the FED rose rates in March. Why is this? Well, simple…the money is too big being made hand over fist by the large institutions this time of year. So Yellen made her appearance saying all the right things…

  • On track for raising interest rates in 2017
  • The USA economy shows promising improving fundamentals
  • Any infrastructure program is welcome (takes the heat of the FED being responsible for job creation)

And of course the BIG statement: The FED will continue re-investing bond proceeds into the purchase of debt instruments, i.e. bonds, and government backed securities. Mark my words…the day the FED ends reinvestment of bond proceeds…well, a very dark day for bonds.

The next shoe to drop eventually is when the FED says they want to sell some of their massive bond holdings. I honestly do not think this will happen in our life time. You would have to have an incredible supportive economy.

Back to Yellen – Mission accomplished, lady, you pushed equity index futures higher…once again. Later, some FED minions soothed any concern of a rate hike. And this is what they do this time of the year. Yellen speaks to the House of Representatives today. Nothing new expected. She might insist today’s economic reports are confirmation of what the FED looks for, yet is a possible aberration and they will continue monitoring data points. The woman was dovish yesterday.

Crude Report Review

Did you catch the API crude report yesterday? I wrote this last night to clients with their nightly video…

Crude remains a basket case in side-way action. Nothing for position traders yet. Crude oil inventories again see a build up rising 9.94 million barrels the end of last week, more than expected, according to estimates from the American Petroleum Institute (API) on Tuesday. Gasoline stocks rose 700,000 barrels and distillate stocks increased by 1.5 million barrels. Recall last week the government said crude stocks rose 13.8 million barrels. Crude report is today 10:30AM ET.

Consumer Report

Consumer prices rose 0.6% in January, the largest gain since February 2013. Bonds and gold despise this kind of news. If we look at “core” CPI, stripping out energy and food, we see the annual year on year rate through January at 2.3%. This is the FED meeting goal.  As well, fuel for a FED rate increase.  Bonds falling hard. We have support at 149.04. US dollar pops higher at the prospect of fuel for a FED rate increase.

The wheel is in motion…higher US dollar means USA grains are priced at a premium to the world, thus hurting sales. We see grains lower this morning.

Rising US dollar viewed as hurting imports AND hurts overseas profits converted into US dollars. ES thus is lower this morning. Also, as bonds fall, interest rates rise taking money from stocks.

Separately, USA retail sales came in stronger than expected, which is viewed as the consumer having greater confidence in spending today rather than saving for tomorrow.

Forex

Currency war update: Sweden’s central bank today decides they will keep rates at -0.5% (yes, negative). They made no changes to their bond buying program. If you trade currencies, the Krona will start a long rise to normalcy once they stop the negative interest rates.  So when will this happen? Answer: When the ECB raises. Take the time now and explore how you can participate…just so you are prepared.

Economic Events

  • 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
  • Industrial Production – 9:15 AM ET
  • Atlanta Fed Business Inflation Expectations – 10:00 AM ET
  • Business Inventories – 10:00 AM ET
  • Housing Market Index – 10:00 AM ET
  • Janet Yellen Speaks – 10:00 AM ET
  • EIA Petroleum Status Report – 10:30 AM ET
  • Eric Rosengren Speaks – 12:00 PM ET
  • Harker Speaks – 12:45 PM ET
  • Treasury International Capital – 4:00 PM ET
  • William Dudley Speaks – 7:15 PM ET

Markets

USA equity index futures are muted moving incrementally. DAX, STOXX 50, and Nikkei 225 lower. You know the drill…lower in the morning with likely rise in the afternoon. Obviously if Yellen or FED speakers today turn hawkish after today’s data…we could see continued downside movement. With NQ up 8 consecutive days, are we due for a pull-back? Absolutely.  ES up 5 consecutive days. A healthy ES pull back is 2270 (50 day simple moving average) level watched by institutions.

Crude is in shell-shock…oil refuses to rise…OPEC must come to the rescue announcing an extension of the production cut-back beyond six months agreement. They MUST talk this market up because it’s starting too look like quicksand with the crude daily chart. Talk is the only thing capable of moving this market in my opinion. OPEC, get on the phone with Russia, offer a side deal…anything…to get Russia in front of the microphone helping talk up crude.

Softs are mixed. Rising US dollar hurts some. Sugar a basket case highly dangerous for position trading at this point in time.

Bonds are lower.

All currencies lower versus US dollar, “King Dollar.”

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.