Friday, April 1, 2016
While there was talk earlier in the month that rather "hawkish" comments coming from some Federal Reserve officials could signal that an interest rate hike was not off the table for the April 27 Federal Open Market Committee Meeting. Traders in Fed Fund futures are telling a different story with the April 2016 futures pricing in only a 7% chance of an interest rate hike. In fact, you have to go out to the December futures to see an over 50% probability of a rate hike. This view is more in line with comments from Fed Chair Janet Yellen of a more deliberate approach to interest rate hikes this year.
Federal Reserve Chair Janet Yellen further clarified that the Fed was going to be deliberate in regards to further rate hikes this year in a statement made on Tuesday to the Economic Club of New York. Citing concerns on global growth, in particular Chinese growth, and sluggish commodity prices, Ms. Yellen justified the revised outlook for interest rates that was first announced following the March Federal Open Market Committee meeting. Ms. Yellen stated that while the U.S. jobs and housing markets were a boost to the economic outlook, she was not concerned that recent signs of rising inflation were sustainable given pressures seen in manufacturing and exports which are anchors on economic growth. While the Fed continues to remain "data dependent" on the timing of any further interest rate increases, we will get another glimpse on the U.S. labor market this morning when the March non-farm payrolls and unemployment data are released. Once again, analysts are looking for a moderate increase in payrolls of 200,000 jobs created in March. A number that is good but not great in terms of absorbing those looking for employment. The unemployment rate is expected to remain unchanged at 4.9%, although traders will focus on the labor force participation rate which has held stubbornly at lows not seen since the 1970's. ADP released its estimate for private sector payrolls on Wednesday showing 200,000 jobs created in March vs. 214,000 in February. Of the jobs created, 191,000 were in the service providing sector with only 3,000 jobs created in manufacturing which appears in line with current estimates for the government's employment figures to be released this morning.
Looking at the weekly continuation chart for the E-mini S&P 500 futures, we notice prices moving back above the 20-week moving average, following what appears to be a double bottom formation. For now we have to say the market has moved into a consolidation phase, until either we see a weekly close above 2100.00 or a drop below the recent lows of 1802.50. The 14-week RSI has started to show some strength, with a current reading of 57.14. Near-term resistance is seen at 2075.00, with near-term support found at 1991.00.
Mike Zarembski, Senior Commodity Analyst