The Day So Far
A quiet morning in comparison to how yesterday finished where US indices once again touched fresh record highs. In fact the seventh consecutive up day in the S&P marks the longest streak of gains since September 2013, this despite the VIX seeing only its second double-digit gain since November of 2016. The talk of the town is now will the Fed move rates again as early as March. In the last four days alone we have seen the probability of a 25bps hike increase from 30% to 46% following a combination of a hawkish Yellen, promise of a phenomenal tax plan from Trump, and now with inflation nearing target and consumer spending remaining robust. The case then for more imminent action is building but my view remains the same; without more clarity on fiscal policies I think the Fed will not move until the summer. Although they could hypothetically move in May I think this would not make sense from a delivery point of view given June’s update in the Summary of Economic Projections and with the press conference with Janet Yellen. There is also the ability to keep May as a live meeting so that should inflation suddenly shoot higher the Fed has the option to act. The other supporting factors for my June call is that I anticipate any Trump policies to take some time to be heard, repealed, amended, which would delay the speed in which any changes could happen. There is also the external timeline in that by June we will know the outcome of the French elections and also able to see how Brexit negotiations are progressing. It is these factors that make me believe that the recent hawkish tones from the Fed Chair are simply a play to keep every possible option open rather than a credible threat from a governor who is typically cautious by nature.
Elsewhere, the other story of note from this morning has come from OPEC sources who have suggested that the cartel could extend its oil supply pact with non-OPEC nations or even apply deeper cuts if global crude inventories fail to drop to a targeted level, according to Reuters. The news did cause a blip higher in prices with crude still sitting relatively mid-range in its price band of $51.22 to $54.34 seen since the beginning of January.
The Day Ahead
Today’s strategy is a repeat in direction for the third day running so no surprises I’m afraid. The recent Reuters sources on OPEC coupled with the “buy the build” mantra keep us satisfied with a long in crude with equities likely to stay close to if not print fresh record highs once again. Looking at the S&P and Dow futures the pivot level looks interesting but we look to yesterday morning’s high (2340.00) as the entry with a stop just below S1. Although Treasuries have crept higher this morning given our bullish view on equities we look to short from R1 (124.09) which was also the high from Wednesday morning.