Traders await the Fed as Oil attempts to break higher

Summary:

• US stocks gain after Apple and Boeing boost

• FTSE rises back near 50 day SMA

• Crude Oil attempts to break higher after small inventory build

• Will the Fed disappoint markets?

• Major banks preview Fed meeting

There’s been further gains seen in the US indices today with all the benchmarks trading in the green. The main reason for the latest gains seen in the Dow, are a couple of earnings releases that have seen shares in Apple and Boeing both called to open sharply higher. There’s been a strong positive reaction in shares of Apple during after-hours trade following the latest earnings update from the tech giant. The figures were released after Tuesday’s closing bell on Wall Street, and the stock is higher by as much as 5%. Due to the Dow being a price-weighted index, Boeing is actually a far bigger determinant of the benchmark’s price than Apple, with the aircraft manufacturing company accounting for a little over 10% of the index at the last rebalance. This is compared to approximately 4% for Apple. Boeing’s annual sales topped $100 billion for the first time in its 102-year history also delivering an upbeat assessment of future business. Revenue rose to $28.34b, compared to an expected $26.93b in Q4. Core EPS for the 4th quarter came in at $5.48, smashing the median forecast of $4.59 and well above the upper end of the range ($4.36-$4.87).

The FTSE (UK100 on xStation) is once more back around the 50 day SMA as the market attempts to end the downtrend that has been in place since last May.  The market is now not far from the 7000 level once more and as a sign of how broad today’s buying has been only 8 of the 100 stocks that make up the benchmark have ended lower on the day and failed to rise. There’s been two factors really that have contributed to the strong gains seen in the past couple of days; a pullback in the pound and also some notable buying across the Atlantic in the US markets.

The weekly crude oil inventories have shown a smaller than expected rise in US stockpiles and sparked a push higher in the price of crude. The headline build of 0.9M was the second consecutive build, but could be seen as supportive for price given the consensus forecast called for a rise of 3.0M. Last night’s API reading came in at +2.0M and last week’s EIA reading was +8.0M so against these readings, the print is actually relatively low.  Oil.WTI was trading below $54.00 when the inventory figure was released and has since rallied by around 90 ticks to trade close to the $55 handle. If the outlook in the short term has been positive, the rally seen since the release could have greater ramifications for long term traders with the market moving above a potentially key long term resistance level. The region around 54.50 marked the high seen at the start of last week and in moving above there the market could be seen to have broken the neckline in an inverse head and shoulders setup.

This evening at 7PM the Federal Reserve will announce the outcome of their latest monetary policy decision, which will an all likelihood see the central bank keep interest rates unchanged. Since the meeting in December we have seen massive repricing of the Fed’s rate path. While the central bank suggested last month that it expected two rate hikes this year and another one in 2020, markets were much less optimistic. Based on the Fed fund futures there was no rate hikes priced in for 2019. Since then, market expectations have evolved to the downside suggesting that the Fed would stay on hold this year (in the meantime we have seen even a rate cut being on the cards in 2019). For the following year there are odds the US central bank will be forced to slash rate (14% chance it will happen in January 2020). Such disbelief shared among market participants could theoretically limit the downside for the greenback but the problem is the dollar is overvalued from a historical perspective and could find few reasons to rally without more interest rate hikes.

A preview from several major banks of the event can be found here.