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Oil Slump, Greece Grind Blamed for Lost Fed Buzz

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February 19, 2015

The Federal Reserve’s stock market gift was chucked aside early Thursday, sullied by drops for crude prices and related energy shares, as well as slowed progress between Greece and its creditors. It may prove hard for the stock market to cover much ground in either direction shackled to the supply uncertainty in the oil patch and as Germany reportedly says Athens doesn’t deserve a loan extension because reform falls short.

Even the Fed has had to take a bit of a backseat. Dovish-sounding January Fed meeting minutes unveiled on Wednesday pushed back market expectations for a June interest-rate hike to September or later. At first, stock bulls cheered this development but the broader market chopped its way into a sloppy close, keeping the S&P 500 (SPX) near the psychologically significant 2100 line where it’s churned for a few sessions and could hang for a few more. The Fed inspired gold bulls, too, and the shiny stuff roared back to clear $1,200 an ounce in its biggest one-day gain this month.

FIGURE 1: PAUSE AT THE TOP? The S&P 500 (SPX) has chopped near its record high just above 2100 as global headlines compete with Wall Street’s interest-rate watch. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Oily Build-Up. Some analysts are calling the latest heavy American Petroleum Institute supply data a shock for markets—even those who’d gotten pretty used to big numbers. U.S. crude-oil supplies added a whopping 14.3 million barrels from a week earlier, the trade group reported, according to news reports and various sources. For comparison, analysts polled by Platts expected 3.1 million barrels for the week. I’ve double and triple checked that disparity. In reaction, U.S.-traded crude futures dropped back below $50 then took back a bit of that slide. Energy shares are tracking some 1%-3% lower in early trading. The market will have to wait for confirmation from the U.S. Energy Information Administration, which will release its weekly petroleum supply figures at 11 a.m. Eastern time. Supply data are delayed by a day this week due to the Presidents’ Day holiday. Analysts say much of this big build in crude stocks is taking place in the Midwest. But they’re also wondering if West Coast port closures due to strikes could be holding back some demand short term. Let’s keep watching these developments.

Setback for Greece? News reports say Germany has rejected Greece’s request for a six-month loan extension agreement, noting that their application is “not a substantial proposal for a solution.” The Greek government had formally asked for a six-month extension to its loan agreement, sending stocks higher in Athens; broader European stocks are lower. Senior euro-zone finance ministers are expected to meet later on Thursday to discuss the request as the anti-austerity leadership has sought to distinguish a loan agreement from a continuation of the full bailout program. Germany, apparently, isn’t buying it.

Wal-Mart’s Forecast Falls Short.  Shares tip lower as disappointing guidance trumps an okay quarter. Wal-Mart (WMT) said Q4 profit ex-items was $1.61 a share, beating FactSet consensus estimate of $1.54 a share. Sales rose to $131.6 billion from $129.7 billion, just shy of Street expectations. The market cared more about what’s to come.  WMT expects Q1 profit of $0.95 to $1.10 a share and $4.70 to $5.05 for the year. Analysts surveyed by FactSet were looking for profit of $1.14 and $5.20, respectively. After a court battle, the company said it will give raises to about 500,000 full-time and part time employees and ensure hourly employees earn at least $9 an hour, $1.75 above federal minimum wage. By Feb. 1, 2016, current employees will earn at least $10 an hour. In other earnings, travel deal site Priceline (PCLN) shot higher in early action after a solid beat. What’s interesting here, bulls seem to be giving it a pass on its softer outlook.

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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