Today is fed day and it has become a forgone conclusion the committee hikes by 25-basis points at 1:00 pm CT, states Bill Baruch, President of BlueLineFutures.com.
Their economic projections and Dot Plot will be watched closely for clues as the probability for a 50-basis point hike in May mounts to 54.5%. The Russia-Ukraine conflicts has raised uncertainties but ushered added layers of inflation. The committee will have to thread the needle, and we will not be surprised to see our Jekyll and Hyde narrative play out. Given that the probability of seven hikes this year stands at 74%, the Dot Plot is not likely to shock markets. In this case, it means a less hawkish statement that evades a balance sheet runoff discussion. However, we would then expect the committee to begin sounding more hawkish in the aftermath. This could come as soon as Fed Chair Powell’s press conference. We would also expect such from individual speakers such as St. Louis Fed President Bullard, who loves to talk Friday mornings after Fed decisions.
Global equity benchmarks are surging ahead of the decision, due to several tailwinds. Front and center, Beijing promised to support financial markets and boost economic growth. The bludgeoned Hang Sang roared higher by 9.08% on the day but is still down 11.56% on the month and 35.6% from last February’s peak, as policymakers crackdown on China-Tech. KWEB, the China internet ETF is up 23% premarket, pinning it back to where it was just last Thursday. Progress on the Russia-Ukraine conflict has also brought a bullish tailwind overnight. Both sides appear to be finding some common ground amid diplomatic talks with Ukraine President Zelenskiy saying, “Russia’s position sounds more realistic,” and Russia’s Lavrov saying, “there are certain hopes for compromise.”
One solution being pushed by Russia is a neutral state modeled after Austria, with an army. Lastly, we cannot ignore the little discussed reasoning behind yesterday’s late session surge. President Biden’s pick for the Federal Reserve’s top banking regulator, Sarah Bloom Raskin, withdrew from consideration. Raskin has been an extremely controversial pick from the onset, as someone who has aided backdoor deals for a fintech company to receive a Federal Reserve master account and wants to freeze credit on Oil producers.
Retail Sales data for February was released at 7:30 am CT and whiffed. However, January’s robust read was revised even higher, cushioning the impact from February’s MoM miss on Core (0.2% versus +0.9% expected).
Technicals: US benchmarks are sharply higher from yesterday’s early morning low, and retesting what has become the upper end of the recent range. For the S&P, this is our rare major four-star resistance at 4319.25-4327.25, and for the NQ it did not quite get to the 13,839-13,899—it tested Friday but has slowed at major three-star resistance at 13,721-13,734. With price action coming in slightly ahead of the open, we look to several layers of strong key support that can help buoy the tape, all detailed below.
Crude Oil (CL=F)
Yesterday’s close: Settled at 96.44, down 6.57
Fundamentals: After its precipitous fall, Crude Oil is attempting to stabilize ahead of today’s EIA inventory data. It is also battling crosswinds from China and the IEA. Per our discussion above, China lifted risk-assets sharply overnight when Beijing promised to support financial markets and boost economic growth. The IEA released their Monthly Report and revised lower their demand growth forecast by 950,000 bpd. However, they added that three mbpd of Russian Oil could be shut in next month. Expectations for today’s EIA data are -1.375 mb Crude, -1.579 mb Gasoline, and -1.826 mb of Distillates. Remember, inventories at Cushing have taken out the September 2018 low and are testing that from August 2018; traders must keep a pulse on this headline as it exudes tightness across the physical market.
Technicals: Price action is holding ground out above a series of higher lows from yesterday’s 93.53. Previous support at 96.17-96.47 remains our Pivot and point of balance. Continued action above here would be seen as supportive for a continued rebound, however, we see significant headwind beginning at the psychological $100 market with resistance at 99.76 keeping early rally attempts in check.
Gold (GC=F) / Silver (SL=F)
Gold, yesterday’s close: Settled at 1929.7, down 31.1
Silver, yesterday’s close: Settled at 25.158, down 0.14
Fundamentals: Gold and Silver are struggling to find footing despite the whiff on Retail Sales for February. This begins to exude how returns in precious metals were pulled forward and the technical damage coupled with today’s Fed policy announce are keeping buyers from wanting to step in. Per our conversation in the S&P/NQ section:
"It is a forgone conclusion the committee hikes by 25-basis points at 1:00 pm CT. Their economic projections and Dot Plot will be watched closely for clues as the probability for a 50-basis point hike in May mounts to 54.5%. The Russia-Ukraine conflicts has raised uncertainties but ushered added layers of inflation. The committee will have to thread the needle, and we will not be surprised to see our Jekyll and Hyde narrative play out. Given that the probability of seven hikes this year stands at 74%, the Dot Plot is not likely to shock markets. In this case, it means a less hawkish statement that evades a balance sheet runoff discussion. However, we would then expect the committee to begin sounding more hawkish in the aftermath. This could come as soon as Fed Chair Powell’s press conference. We would also expect such from individual speakers such as St. Louis Fed President Bullard, who loves to talk Friday mornings after Fed decisions."
At the end of the day, we will be watching the reaction from Bonds and the US Dollar. Last June, the Fed surprised and was more hawkish than expected, however, Bonds rallied due to their hawkishness reining in the inflation narrative and slowing growth.
At that time, Gold was bludgeoned. We do believe it is more likely that Gold can hold ground after whipsawing in such an environment. This comes in part due to Gold proving its steadfast capability as a true safe haven in recent months and as a hedge to prospects of slowing growth.
Technicals: We remain cautiously optimistic due to our longer-term expectations for Gold. However, it must prove itself through today and the close of the week. Yesterday, it found footing from a session low of 1908.1 and settled within rare major four-star support at 1923.7-1931.5, clinging to some construction. Similarly, Silver rebounded from a session low of 24.75 to settle at the 25.17 mark. Traders must keep a pulse on these marks and a failure to hold ground would quickly open the door to demise.
Learn more about Bill Baruch at Blue Line Futures.
