Oil is your trade and the API inventory data brought the happiest news for investors as the drawdown was simply huge. Traders have celebrated that wholeheartedly. If the crude inventory number also plays the same beat, we will not be only crossing the 50 dollar mark for crude, but it will also push us into a new price range ($50-55).
However, the news is not so good if you look at the front page of tomorrow's newspaper. It is not going to tell you a great story if you are a long term oil bull. The government banned all diesel and petrol cars from 2040 onwards, although it is a long way, but if you are a passive investor, it is something which you will have to think about.
Having said that, one can argue that we did hear a ban on nuclear energy when the massive disaster took place in Japan, yet here we are. Nuclear energy seems to be the only reliable future which is cost-efficient and also capable of keeping up with the rising energy demand.
Sterling will also be a closely watched currency as we are going to get the UK Pre GDP q/q reading. The sterling dollar’s upward trend has been strong and traders are consistently trying to push the pair higher. Although a lot of gains are purely due to the weakness in the dollar and partially due to a somewhat stable economic picture in the UK. The bar is set high as the forecast is for 0.3% and matching or beating that number would only create one question; when will the Bank of England move their needle on the monetary policy?
The FOMC minutes are going to be closely watched by the markets and two things which everyone is looking at are; more information about the gradual path of the interest rate hike and when the Fed will start winding down their balance sheet. The market isn’t expecting any surprise but this does not necessarily mean that all players are feeling relaxed about the outcome of this event just because Yellen gave her testimony only a week ago. Look at the two year treasury auction yesterday, the demand was simply huge. The treasury sold $26 billion in two year notes and this shows the demand and supply equation was out of whack. As a result, the yield on the two year treasury note went from 1.395% to 1.401% touching a record level since October 2008.
If the statement shows more focus on the balance sheet part, it is more than likely that the gradual path of interest rate hike may catch some rust. In the next few months, we also have the US debt ceiling, the Jackson Hall meeting, and trump's tax reform, all of these factors would increase the volatility substantially. The equity market is completely oblivious of the US debt ceiling chaos and is moving higher with much lower volatility. But your treasury market is showing that something major is going to happen because the 6 months-3 months yield spread of the curve is backwards.