What Would Janet Do???
The week ahead is highlighted by the Fed statement and the potential to see another interest rate hike. On the economic front, we have Building Permits, CPI, Retail Sales and Michigan Sentiment.
Federal Reserve: On Wednesday (6/14), the Fed will release a statement where everybody will be waiting to see if the Federal Reserve decides to raise interest rates again. Odds for an interest rate hike are above 90% so the markets have already priced it in. If the Fed does raise rates for the second time in 2017, and 3rd since the election, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. However, with Treasury Yields, they have been falling all year as China said they would be buying them again putting downward pressure on yields. A press conference will follow the announcement with FOMC Chair Janet Yellen taking questions. If they were to not hike at this meeting, we could see a temporary reversal with the markets pushing higher, and mortgage rates falling back. This could also put additional pressure on oil pushing it higher, as its priced in US Dollars. We may also potentially hear when they may begin to unwind the Fed’s balance sheet, but will likely just say “later this year.”
Oil and Qatar: It’s very hypocritical for the Saudis, the financiers of 9/11 and ISIS, as saying Qatar funds terrorists while they are acting all innocent. Qatar’s market and currency has crashed since the countries broke off diplomatic ties with them last week. Shippers are seeing their cargo not getting in or out of Qatar which hurts firms such as Maersk. Investors will watch to see if this comes to some conclusion or we could see shippers continue to get hurt the longer this embargo lasts. Oil will likely go lower as an agreement between OPEC members to cut production may likely be in jeopardy adding to the global over supply. Adding to the surprise move by Gulf countries, we are still not even sure if President Trump knows that US Central Command with 10,000 US troops fighting ISIS is commanded out of Qatar which also bewilders the markets potential response.
Policy Statements: Besides the Fed, we are expecting policy statements from the Bank of Japan, Swiss National Bank and the Bank of England all on Thursday (6/15). Investors are not expecting any massive monetary policy shift. However, any unexpected monetary stimulus announced by either bank has the potential to push markets higher not just in their respective countries, but across markets worldwide. This would likely push the US Dollar higher against the respective currencies.
Housing Starts: On Friday (6/16), Housing Starts is scheduled to report. Investors will be looking to see if the report was affected by the recent drop in mortgage rates as Treasury Yields are at year to date lows. If more people took advantage of the lower rates and this number beats, we will see housing stocks and home improvement companies potentially increase.
VIX Down Below 10: Now with all the excitement behind us, what’s a market to do? For the VIX, no place to go but up as volatility risk keeps dropping. The VIX is now at a 23 year low. The VIX spiked in late afternoon trading last Friday after Amazon (AMZN) saw a flash crash from a fat finger. However, broader markets keep hitting new highs, almost on a daily basis. Investors will watch to see if the lack of market moving news push the VIX to an even lower level over the coming days and weeks.
This latest blog is brought to you by the wonderful MTA of NYC. I’d like to thank them for making my 5.7-mile commute home yesterday take 3 trains in 100 minutes. How the board of the MTA is not dragged into the street and shot is beyond comprehension.