Welcome to Fed week. Markets around the world look tepid to start things off, with most focus around the Fed decision Wednesday, as well as its statement and press conference.
Figure 1: 14-CARAT-HIGH: Gold (candlestick) hit a 14-month (or should we say 14-carat?) high on Friday, getting a lift in part from geopolitical concerns as the U.S. and Iran butted heads over shipping attacks in the Persian Gulf. The dollar (purple line), which often is weak when gold is solid, also held its ground. That could be a sign that some investors continue to be on the defensive. Data Sources: ICE, CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Many Meetings: This week’s Fed meeting hogs the front page, but two additional potentially market-moving meetings loom before the end of the month. There’s the G20 meeting on June 28-29 in Japan, and before that the OPEC meeting in Vienna on June 25-26. These two meetings—perhaps even more than the Fed gathering—could put a major exclamation point on June and help determine where markets go in July. Some analysts even argue that one reason the Fed isn’t widely expected to change rates in June is because Fed officials might want to wait and see what comes out of the G20 before making a move.
President Trump has said he plans to meet Chinese President Xi at the G20 meeting, but so far there’s been no confirmation of that from China. Even a statement from China that such a one-on-one might take place could conceivably help revive market spirits that flagged a bit after the early June rally. However, trade experts quoted in the media say it’s very unlikely Trump and Xi would be able to hammer out any sort of tariff agreement on the sidelines of G20. Instead, it might just reset the menu and maybe put together a framework for more talks. It looks like there’s still a long road ahead, and that could mean more range-bound trade going into earnings season next month.
On to Vienna: The OPEC meeting comes after the organization canceled a previously scheduled one in April. Things haven’t really gone OPEC’s way since then, with crude down about 15% from its April highs even with the little blip last week amid tensions between Iran and the U.S.
As OPEC prepares to meet, its members’ production has fallen to five-year lows below 30 million barrels a day, the cartel recently said. OPEC has been restraining production over the last two-and-a-half years in an effort to support prices, but it arguably hasn’t worked. Crude continues to sputter along at around $52 a barrel in the U.S., basically flat compared with where it was in January 2017 when the OPEC cuts first took effect. Analysts think OPEC is likely to keep those cuts in place at the meeting, especially considering its recent statement noting a slide in world demand growth and higher non-OPEC production. The question, as we often see with OPEC, is whether its many members can hold themselves to the lower production much longer considering many of them—notably Iran and Venezuela—face economic struggles.
Where Next, Energy? Weak crude, as we mentioned last week, could be helpful for transit stocks like airlines, but generally hurts Energy stocks. Looking ahead, some analysts are divided on how Q2 earnings might come in for Energy companies. The Energy sector is expected to see earnings per share fall about 0.4%, according to research by S&P Global Intelligence. However, FactSet sees EPS growing 2.7% for the sector, led by strength in sub-sectors like Oil and Gas Drilling and Oil and Gas Storage and Transportation. Ironically, despite FactSet ramping up its earnings expectations for Energy, the sector is the second-worst performer from a price standpoint of all 11 S&P 500 sectors so far this year, up 5.5%. Only Health Care has done worse.
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