Fed faces decision; Storm brewing

What is the poor Fed going to do now? Despite the Fed's best efforts the jobs report was a dismal reminder that the economy and commodity prices still need some help. As non-farm payrolls fell by a larger-than-expected 131,000 last month, the odds that the Fed, instead of reducing its balance sheet and hanging onto some of that paper money that they created out of thin air, will instead begin to reinvest that money or put it back out in the market place. The goal is to try to inspire some type of economic enterprise. Despite the signs of some rebound in the economy, new health care programs and new financial regulation bills are leading to uncertainty and economic immobility.

The Fed is worried about another deflationary spiral that seemed to be gaining momentum as the market anticipated a reduction of the Fed balance sheet. The Fed fears that if they start to remove this stimulus, then it is possible that this nascent recovery may roll over and die. Of course it is clear that the Fed cannot do this alone. Down in Washington it's still politics over common sense as the recovery falters.

For oil this means the market is expecting more commodity price inflation. On Friday oil again tried to focus on the fact that the country has the biggest glut of oil since the late 90s when prices seemed to struggle to stay above $10 a barrel. Now of course oil bulls can find comfort in the fact that the Fed won’t let prices break without a fight. Of course if the Fed fails to talk about a movement towards a more natural stance as in reinvesting its money, then oil could be in for a major break. Come on, even the most ardent oil bulls at this point now realize that their fortune is the result of printed money. And to maintain these prices against a backdrop of lousy demand and glutinous supply they need the Fed to keep the printing presses going.

Wave Watch!

There is a third tropical wave down in the Atlantic according to the NHC that has a 70% chance of becoming a cyclone. The NHC says a, “WELL-DEFINED LOW PRESSURE SYSTEM LOCATED ABOUT 1000 MILESEAST-NORTHEAST OF THE LEEWARD ISLANDS IS MOVING WEST-NORTHWESTWARD AT 10 TO 15 MPH. ALTHOUGH SHOWER AND THUNDERSTORM ACTIVITY REMAINS LIMITED AND DISORGANIZED, ENVIRONMENTAL CONDITIONS MAY BECOME A LITTLE MORE CONDUCIVE FOR A TROPICAL DEPRESSION TO FORM DURING THE NEXT COUPLE OF DAYS. THERE IS A HIGH CHANCE, 70%, OF THIS SYSTEM BECOMING A TROPICAL CYCLONE DURING THE NEXT 48 HOURS."

One spoiler after another. The AFP is reporting that the Indian coastguard was trying on Monday to contain oil from a badly listing container ship that collided with another vessel near the city of Mumbai, a defense ministry spokesman said. Six coastguard ships were working to minimize the impact of the spill from the Panamanian-registered MSC Chitra, while a coastguard helicopter dropped oil-dispersal spray on the slick, Capt. M. Nambiar said. Environmental emergency teams have been put on alert to mobilize for a cleanup operation, while fishermen have been told not to put to sea until the all-clear has been given. Oil had spread around the ship and could be carried further depending on the tide and current.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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