The Fed will garner all of the attention today and may steal the thunder from the Energy Information Administration weekly report. The American Petroleum Institute version was rather uninspiring as they reported that U.S. crude oil (NYMEX:CLF14) supply fell 2.50 million barrels while gasoline dropped 481,000 barrels and distillates fell 434.000 barrels. So with a neutral supply report perhaps on tap, the market will focus on how the Fed plans to get out of its QE mess.
The Fed, in laying the groundwork for tapering, will suggest the economy is expanding at a so called moderate pace and that the labor markets seem to be improving. This, of course, would favor a tapering; yet at the same time, the Fed will have to explain why the inflation rate remains low. The Fed has said that inflation persistently below its 2% objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium-term. Yet it has not. The CPI and the PPI came in below expectations and that might be one reason the Fed can’t act at this time.
Yet at the same time with a budget deal in sight, the Fed having to cover for a dysfunctional government becomes less. The Fed said that they took into account lower government spending or federal fiscal retrenchment. The government was one reason the Fed did not taper in its last meeting.
Of course the real reason the Fed did not taper was the bond yields rose (CBOT:ZBH14). The mantra that tapering is not tightening did not sit well with the market because the market knows that if you taper you are closer to raising rates, not further away. The market anticipates it may move too much, but it will move just the same.
Natural gas (NYMEX:NGF14) is bracing for a potential 28o bcf drawdown. After breaking on light volume Sunday night, the market is trying to fill the gap. Cold weather and winter have yet to begin.
with a neutral supply report perhaps on tap, the market will focus on how the Fed plans to get out of its QE mess.