Morning Minutes 09/26/2018

Morning Minutes

Big Interest Rate Retest Underway; FOMC and RBNZ Meeting Previews

September 26, 2018
10:00 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

US equity traders are sitting on their hands this morning watching for the outcome today’s FOMC meeting and interest rate moves. In Canada, the S&P/TSX is up 0.3%. Sector action has been mixed with Energy climbing at a slower pace of 0.5%, and metals turning back down 1.0%.

US treasury yields have been climbing in recent sessions and today are retesting their May highs near 3.12% for the 10-year, and 3.24% for the 30-year yield. Treasury yields have had a significant impact on US stock markets so far this year. Recall back in February when the 30-year yield broke out over 3.00%, stock markets plunged and remained choppy as rates continued to climb into the spring. When yields came back down a bit in the summer, US indices rallied to new all-time highs. Yields turning down from here could support stocks, but if they break out again, stocks could be vulnerable.

The Fed’s two-day meeting wraps up with this afternoon’s interest rate decision, statement, member projections and press conference. The Fed is widely expected to raise interest rates by 0.25% again, a failure to do so at this point would be a big surprise that could have negative implications for confidence. The US Dollar is creeping up ahead of the news. Traders may look to the additional information for signs of how long and how far the Fed plans to continue its program of quarterly rate hikes. Currently another four increases over the next year looks likely, any difference from that could move the markets.

Oil prices have leveled off after API reported a 2.9 mmbbl increase in US oil inventories, a second straight week of increases. DOE inventories are due mid-morning. Last week, DOE rejected API and posted a 2.0 mmbbl drawdown. This week the street is expecting a 1.25 mmbbl DOE drawdown but the rise of a surprise build has increased.

Late this afternoon, the Reserve Bank of New Zealand is meeting with a rate decision due at 5:00 pm EDT. The RBNZ is expected to hold its overnight cash rate at 1.75%. The Kiwi Dollar has been under pressure since May and China-sensitive markets have been struggling so a rate hike looks highly unlikely. A surprise rate cut is possible I suppose but also unlikely as the falling Dollar has probably taken the pressure off the dovish case as well.

SIA Wealth in the Media:
Colin Cieszynski was quoted by Dow Jones in Marketwatch.com weighing in debate on what impact tomorrow’s Kavanaugh hearing in Congress may have on the markets.
https://www.marketwatch.com/story/stock-market-could-grind-down-to-half-its-average-volume-during-kavanaugh-hearing-strategist-speculates-2018-09-26

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