Morning Minutes 11/29/2018

Fedspeak Sparks Big Moves in Stocks and Bonds, WTI Tests $50.00

November 29, 2018
8:45 am EDT

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

Yesterday’s big afternoon relief rally continued through overnight trading but seems to be running out of steam this morning. In his High Noon speech Wednesday, Fed Chair Powell appeared to have blinked as he indicated US interest rates were approaching their neutral rate, a change from two months ago when he indicated that US rates were far from their neutral rate. Investors took this to suggest that the Fed could be preparing to pause or slow its rate hike program sometime in 2019, a less hawkish outlook than before his comments. With Chair Powell speaking again this morning, a number of Regional Fed Presidents speaking at a conference today and minutes of the last FOMC meeting out this afternoon, the outlook for US interest rates may continue to drive trading activity.

Yesterday, 2-3% gains for US indices including a 617-point gain for the Dow Industrials captured a lot of attention. This morning, US index futures are down moderately with Dow futures down 46 points as investors digest the big rally. Today’s big test looks to be in the 10-year treasury yield, which has dropped back toward the 3.00% level. The breakout by the 10-year yield over 3.00% a few weeks back was one of the triggers of the October US stock selloff. A drop back under that key psychological level could spark renewed interest in both stocks and bonds, and take the wind out of the US Dollar’s sails.

Canadian bank earnings continue to come in mixed. TD Bank posted a positive report with EPS rising 20% over year to $1.63, exceeding the $1.62 street estimate. Growth was driven by a 44% increase in income from its US retail banking division. CIBC, on the other hand, disappointed somewhat, reporting EPS of $3.00 for the October quarter, up 8% over year but short of the $3.04 the street had been expecting.

A big support test is also underway today for WTI crude oil. Overnight WTI dipped under $50.00 briefly but has since caught fire and rallied back up toward $51.00, a 1.6% gain so far today. With the G-20 meeting tomorrow and OPEC meeting next week, the potential impact of trade wars on energy demand and haggling between Saudi Arabia and Russia over a potential supply cut could drive significant swings in the oil price over the next week.

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