Oil waiting on central bank actions, inventory confirmation

Quote of the Day

Without deviation from the norm, progress is not possible.

Frank Zappa

Today at 2:15 PM EST the first shot over the bow will hit as the US FOMC meeting outcome is announced. The easy one... short term interest rates will remain low for an extended period of time. The more difficult one to call... no QE3 at this point in time but the Fed will reiterate all tools are available and elaborate on forward guidance. They are likely to go on to say that they may have to consider additional steps if the loss of momentum in the economy continues. They already extended Operation Twist at the June meeting and they may possibly lower the interest rate the Fed pays on bank reserves from 0.25% to bring down the short-term borrowing cost. If the outcome is as presented the markets will likely be disappointing as many are assuming that QE3 will be the outcome.

I am not sure the disappointment will result in a strong round of selling as there is still the ECB meeting tomorrow. Also there is what I consider the long shot outcome today and that is the Fed simply embarks on QE3 and does not wait for any further signs that the US economy is faltering. The markets should remain relatively quiet and stable until the outcome is announced. As I said yesterday the main price driver for all risk asset markets will be today's FOMC announcement followed by tomorrow's ECB outcome. Everything else is a secondary price driver in the short term.

In spite of all of the uncertainty and volatility July turned out to be a positive month for the bulls. For the first time in two years most commodities, equities,bonds and the US dollar gained ground across the month. So far this has been an interesting investing/trading year with most risk asset markets gaining ground during the first seven months of the year with the exception of some of the oils. With the first seven months of the year now in the history books the clear winner in the commodities category continues to be the grains and in particular Soybeans which are all surging as a strong heat wave envelops the mid-section of the US or the heart of the agricultural center resulting in one of the most severe droughts in many years. As shown in the EMI Investment Leader Board below WTI was the biggest loser on the board with the Nymex RBOB gasoline contract showing the only gain in the oil complex after the first seven months of 2012.  Nat Gas has made a strong recovery over the last month and is now in positive territory for the year to date.  Metals were marginally higher with Gold the leader in this commodity sector while equities were higher in most places around the world but with uneven gains depending on location and the sector of the economy.

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