Stocks, Oil Await Big Ben's Decision
Dow – Stock index futures are flat to slightly lower in pre-open trading, as traders nervously await the FOMC rate decision this afternoon. The market is expecting the central bank to lower rates an additional 50 basis points. If the committee leaves rates unchanged or only cuts a quarter point, it could embolden bears and lead to selling pressure in late afternoon trading. Traders will have to digest the 4th quarter GDP and chain deflator data at 7:30 AM CST, expected to show economic growth for the quarter falling to 1.2 percent and the chain deflator rising to 2.6 percent. Traders may focus on the deflator figure, as a surprise jump in inflation may prohibit aggressive rate cut policies by the Fed going forward. There are a number of high-profile companies reporting earnings today – including Amazon, Kraft, Kellogg and Starbucks – which could result in high volatility, and the market may not find direction until well after the FOMC releases its policy statement. March Dow futures rallied yesterday to test nearby resistance at 12,500, but the market has initially rejected these advances. Rallies beyond 12,500 and more importantly the key 13,000 mark could turn the tide in the bulls' favor. Momentum remains in negative territory but has recovered substantially and now shows some bullish divergence from the RSI, which is somewhat encouraging for bulls in the near term. Support comes in at 12372, 12273 and 12207, while resistance can be found at 12537, 12603 and 12702.
Crude Oil – The petroleum market is little changed this morning ahead of weekly inventory figures and key economic data. Consensus estimates show a rise of 2.3 million barrels of Crude Oil, but it would not at all be surprising to see the figure come in closer to 2.7 million barrels. Gasoline is also expected to show a build of 1.9 million barrels, while distillates are forecast to show a draw of 1.6 million barrels for the week. The market has reluctantly rallied over the past week despite a plethora of bullish factors, such as the declining U.S. Dollar and strong commodity prices. Funds seemed to be diversifying away from the petroleum sector and into more underperforming commodities. This is not only due to skepticism over future demand, but also because asset allocations were too heavily geared toward energies. Judging from the price action over the past two weeks, it seems that Oil traders may have more conservative estimates on the size of the Fed rate cut. It looks as though OPEC will probably leave output levels unchanged due to its current precarious position – a rise in output could create a supply glut which might lead to a price collapse, wile a cut in output would send prices higher in the short term, but could quash future demand. March Crude has rallied to an area offering stout resistance between 92.00 and 95.00. Advances beyond the $95 mark could spark buying interest, while declines below 91.50 could indicate range-bound or bearish conditions. Momentum has moved incrementally higher despite the market trading higher for the fifth consecutive session, which suggests a neutral to bearish bias for the near term. Support comes in at 90.50, 89.37 and 88.41, while resistance can be found at 92.60, 93.55 and 94.69.
Rob Kurzatkowski, Commodity Analyst