Markets Ahead of the Fed
The market puts more than a 90% chance on a rate hike at tomorrow's FOMC meeting. So far, about 24% of stocks in the S&P 500 (SPY) trade in the green. Energy leads as oil moves higher, and information technology is trying to hold up in positive territory. Materials sit just below, down about 0.3%.
Gold stands out. A rate hike plus a hawkish Fed tone could actually help gold. If the Fed signals another hike this year, that adds to the bullish case. The Fed watch tool shows the market pricing in two hikes of 25 basis points each. That pricing keeps the 10-year yield near 5% and pressures equities.
Retail Sales as the Wild Card
Tomorrow's retail sales report is the big unknown. A negative month-over-month print in core retail sales would raise worry that the consumer is weakening. There have already been two months of negative prints. A third could shift the tone for many Fed members, making it a game-time decision based on that data point. Still, it is highly unusual for the Fed to deviate from what the market has priced in.
Oil Testing $105
WTI crude trades above $100 and is trying to test the $105 level. Over the last four trading sessions it has come close but has not broken through. The next target above $105 would be $120.
The overnight move came from geopolitics. Trump said Russia and Ukraine agreed to stop hitting each other's energy infrastructure, and blamed the rise in diesel prices on Ukraine striking Russian refineries. About five to six hours later, both countries struck energy infrastructure in the other country anyway, which pushed prices higher.
A second question is the east-west pipeline and how long it stays out of commission - whether it is only 3 weeks or up to two months. Two months would make it very hard for the market to hold oil at current levels and would likely push prices higher. Watch whether $105 holds.
Bitcoin and the Clarity Act
The Senate is set to vote on advancing the Clarity Act, and Bitcoin (BTC) is lower ahead of it. The vote is still a tossup. Language was updated over the weekend to try to bring some Democrats on board, and the bill needs 60 votes to pass.
Much of this may already be priced in. The Clarity Act has been discussed for the last year to year and a half, so passage may not create a big rally in Bitcoin.
On the charts, the 50-week moving average acted as support for the last three years and now acts as resistance. Even if Bitcoin falls to around 69,000, a move back up to retest the 50-week moving average would form a higher low, giving more confidence that buyers are stepping in. The MACD is also in a bullish formation. Passage is unlikely to be a huge headline mover given how long the act has been in play.
