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Fed boosts equities - mostly; Oil and Trump don't mix

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Fed boosts equities - mostly

By Arnaud Masset

US Federal Reserve Bank Chairman Jerome Powell yesterday told the US Senate’s Banking Committee that the Fed has definitely changed its monetary policy: it will now be “data dependent” and “patient”. Sounding rather like his predecessor Janet Yellen, Powell emphasized that the Fed is unlikely to hike raise interest rate anytime soon and is ready to “adjust” details of its balance sheet run-off. He maintained optimism on the economy, though he acknowledged slowing and warned of risks such as volatile financial markets and uncertainties generated by the trade war.

This turnaround from the Fed has boosted equities over the last few weeks. Market participants moved back to thinking “bad news is good news”, i.e. bad news on the economy means the Fed will keep flooding market with liquidity). However, investors are not 100% confident the storm is over. Equity markets need their “Fed fix” to keep grinding higher and this is no more guaranteed. On Wednesday, equities are down across the board.

Oil and Trump don’t mix

By Vincent-Frédéric Mivelaz

Rising 30% since lows of December, crude oil has gained following the last OPEC meeting of last year. Production was curbed 1.53 million barrels per day in January, as Saudi Arabia cut supply, despite the USA production peak of 12 million bpd. We remain positive on oil prices under current settings. Currently trading at 65.66, Brent Crude is heading along 66 short-term.

US inventories remain at 454.5 million barrels, a level not seen since November 2017, while American Petroleum Institute estimates suggest a drop in US inventories of 4.2 million barrels in the week to 22 February. The US Energy Information Administration projects only 2.94 million. Consolidation of gains will largely depend on global economic health and stable geopolitics. The OPEC + group plans to maintain cuts through the first half of 2019, with perhaps some easing in H2. The threat of a US congressional NOPEC bill – that would allow OPEC to be sued under antitrust law – could disrupt. Additionally, the discord between India (world’s 3rd largest oil buyer) and Pakistan might hit demand if it escalates.

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