Daily Morning Report

Thursday, September 19–Jim Wyckoff’s Morning Markets Report

Asian and European stock markets were mostly up in trading overnight. U.S. stock indexes are pointed toward weaker openings when the New York day session begins. The marketplace is presently not as anxious as earlier this week, in the wake of the weekend terrorist attack on Saudi oil installations.

Traders and investors are still digesting the Federal Reserve’s Open Market Committee (FOMC) meeting that ended Wednesday afternoon and raised U.S. interest rates (the “Fed funds” rate) by 0.25%, to 1.75% to 2%. The move was expected by the marketplace. However, the FOMC members were split on the move, voting 7 to 3 in favor of the cut. Seven of 17 FOMC members expect just one more interest rate cut this year. The marketplace deemed the FOMC statement as not so easy on U.S. monetary policy as many had expected, despite the rate cut. “A divided Fed” is the term many are now using to describe the U.S. central bank’s monetary posture.

Overnight the Bank of Japan and held its monetary policy steady, while the Swiss National Bank did the same. The Bank of England is also meeting and its results are due out this morning.

The Paris-based OECD think tank has forecast global economic growth in 2019 at 2.9%, which is the slowest pace in 10 years. The OECD cited the U.S.-China trade war and Brexit fears as culprits for the slowing world economic growth pace.

Nymex crude oil prices are higher and trading around $59.00 a barrel. Reports this week said the damaged Saudi oil installations would be back on line by the end of this month, which is much sooner than initially expected.

The other key outside market today sees the U.S. dollar index trading lower.

U.S. economic data due for release Thursday includes the weekly jobless claims report, the Philadelphia Fed business survey, existing home sales, and leading economic indicators.

–Jim

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Wednesday, September 18–Jim Wyckoff’s Morning Markets Report

Asian and European stock markets were mixed in quieter trading overnight. U.S. stock indexes are pointed toward weaker openings when the New York day session begins. At mid-week the marketplace is not as anxious as earlier this week, in the wake of the weekend terrorist attack on Saudi oil installations. Still, traders and investors are wondering when “the next shoe will drop” on this matter.

The big U.S. economic event this week is the meeting of the Federal Reserve’s Open Market Committee (FOMC) that began Tuesday morning and ends Wednesday afternoon with a statement. It’s widely believed the FOMC will lower U.S. interest rates by 0.25% today. Traders also hope they will get some forward guidance on U.S. monetary policy from Fed Chairman Powell’s press conference today. President Trump has been berating the Fed to more aggressively lower interest rates to make the U.S. more competitive with other nations on trade.

After a spike up in very short term lending rates on Tuesday, the overnight rates returned to normal levels Wednesday, after the Federal Reserve injected liquidity into the financial system. While some traders and institutions were rattled by the matter, the overall marketplace was not impacted.

Nymex crude oil prices are weaker and trading around $59.00 a barrel. Reports surfaced Tuesday that the damaged Saudi oil installations could be back on line sooner than expected.

The other key outside market today sees the U.S. dollar index trading up.

In overnight news, the Euro zone August consumer price index was reported up 0.1% from July and up 1.0%, year-on-year.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, new residential construction and the weekly DOE liquid energy stocks report.

–Jim

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The Nymex crude oil futures market has spiked higher this week as 6% of the world’s oil production was knocked off line by the weekend drone attack on Saudi oil installations. This is a game-changer, regarding the “war premium” added to the price of a barrel of oil. Up to last weekend it can be argued there was little to no war premium at all in the price of crude. In years past the war premium for oil was significant, arguably above $20 a barrel at times of heightened tensions in the Middle East. But then booming U.S. shale oil production reduced U.S. dependence on Persian Gulf oil. Now, traders and investors worldwide see how vulnerable the Persian Gulf oil producers are to terrorist attacks disrupting oil production. While the Middle East is not the 800-pound gorilla it once was in the global oil market, it’s still a heavyweight provider of oil for major countries in Europe and China. Going forward, look for crude oil prices to carry a significant war premium of probably at least $5.00 a barrel. That suggests the days of Nymex crude oil prices below $50.00 a barrel may be over. Stay tuned!–Jim

Tuesday, September 17–Jim Wyckoff’s Morning Markets Report

Asian and European stock markets were mixed to mostly down overnight. U.S. stock indexes are pointed toward lower openings when the New York day session begins. Risk aversion is still keen in the marketplace Tuesday, following the weekend terrorist drone attacks on Saudi Arabian oil installations. The U.S. says the attacks were launched by Iran. The attack was the biggest hit to global crude oil production in modern history. Now, the world awaits the response from the U.S. It seems unlikely President Trump will let Iran get way with the attack without serious U.S. military impunity. U.S. officials are headed to Saudi Arabia to confer with the Kingdom.

Gold prices were weaker overnight after a moderate rally on Monday on safe-haven demand.

The other big markets event taking place this week is the meeting of the Federal Reserve’s Open Market Committee (FOMC) that begins Tuesday morning and ends Wednesday afternoon with a statement. It’s widely believed the FOMC will lower U.S. interest rates by 0.25%. President Trump has been brow-beating the Fed recently to get on the stick and lower interest rates, to make the U.S. more competitive with other nations on trade. The spike up in oil prices this week may throw a monkey wrench into central banks’ monetary policies, which had heretofore been leaning very easy. Sharply higher oil prices immediately raise the specter of rising inflation, which could hamstring central banks’ monetary policy easing in efforts to jumpstart or sustain their economic growth.

The marketplace was somewhat disappointed China’s central bank did not move more aggressively to ease its monetary policy Tuesday, following some weak economic data the country released this week. However, China’s central bank could soon follow any U.S. rate cut with one of its own.

Nymex crude oil prices are weaker and trading around $62.00 a barrel. The other key outside market today sees the U.S. dollar index slightly up.

U.S. economic data due for release Tuesday includes the weekly Goldman Sachs and Johnson Redbook retail sales reports, industrial production and capacity utilization, and the NAHB housing market index.

–Jim

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Monday, September 16–Jim Wyckoff’s Morning Markets Report

Asian and European stock markets were mixed to mostly down overnight. U.S. stock indexes are pointed toward lower openings when the New York day session begins. Risk aversion is very keen in the marketplace to start the trading week, following the weekend terrorist drone attacks on Saudi Arabian oil installations that have quickly taken nearly 6 million barrels a day of oil production off the market. That amounts to about 5% of world crude oil production. The U.S. has blamed Iranian-backed terrorists and Iran, itself. President Trump said the U.S. is “locked and loaded” to respond to the situation.

Safe-haven assets like gold, silver, the U.S. dollar, U.S. Treasuries and the Japanese yen are all in rally mode Monday.

Nymex crude oil prices are sharply higher and trading up around $4.50 a barrel near $59.50. October Nymex crude oil futures hit a high of $63.34 overnight. Brent crude oil jumped to a high of $71.95 a barrel, up nearly 20%, at one point in early trading Monday, but prices have backed well down from that level. President Trump has authorized the release of oil from the U.S. strategic petroleum reserve, which totals more than 600 million barrels. This is the biggest geopolitical flashpoint to impact the world marketplace in quite some time.

Sharply higher oil prices may throw a monkey wrench into central banks’ monetary policies, which had heretofore been leaning very easy. Sharply higher oil prices immediately raise the specter of rising inflation, which could hamstring central banks’ monetary policy easing in efforts to jumpstart global economic growth. The Federal Reserve’s FOMC meets this week and is expected to slightly lower U.S. interest rates.

There was also violence in Hong Kong over the weekend as the civil unrest there has escalated. However, the drone strikes in Saudi Arabia have overshadowed this news.

There was also weak industrial output data coming out of China Monday, continuing a string of downbeat economic numbers coming out of the world’s second-largest economy.

U.S. economic data due for release Monday is light and includes the Empire State manufacturing survey.

–Jim

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The U.S. Treasury bond and notes futures markets have sold off markedly this week, which has seen near-term price uptrends negated. Both markets were also headed toward bearish weekly low closes on Friday. The near-term technical postures for the T-Bonds and T-Notes futures have weakened the past two weeks, which suggests still a bit more price pressure in the near term. However, it’s my bias that U.S. Treasury futures prices will coming roaring back, based upon global market fundamentals that still fully favor the U.S. Treasury market bulls. Stay tuned!–Jim