MacroView

For all that the Federal Reserve put out to the markets on Wednesday, including some tease about a looming QE3 regime, the markets were seemingly subdued, yesterday. Perhaps, as we noted, the Fed's conclusion that conditions remain so dim that the very actions announced are necessary, weighed on the minds of investors. The Fed's case that the economy is under-performing was bolstered by this morning's Q4 GDP reading, which registered 2.8%, short of 3.0% consensus. With all the excitement over consumer spending over the holidays, this is a disappointment. Not that consumers did not dig deep: the savings rate was down noticeably for the quarter. Much of the growth, however, is attributable to an increase in business inventories, which covered 1.94% of the growth. The markets have taken the report as negative, with S&P futures turning down, along with oil and gold. The World Economic Forum looks to be ending with not much of an impact. We continue to await a resolution of the Greek debt situation. The New York Times reported, yesterday, that hedge funds look to be capitulating, and trying to sell their holdings at fire sale prices -- to no avail or buyers. The equity market rally looks tired, and the GDP reading is a reminder of the less-than-great economic conditions out there. Growth by inventory stocking is hard to embrace.
 

Petroleum Markets

Crude oil prices are holding to the upper reaches of the week's price action, a consequence of a surprisingly strong euro exerting downward pressure on the dollar and the Iran situation adding geopolitical risk to the equation. However, a tightening of the Brent/WTI spread is probably indicative of an assessment supply disruption associated with an embargo of Iranian crude is likely to be little more than a logistics exercise. Just yesterday, Iranian President Ahmadinejad said Iran is ready for talks with the West. Additionally, while perception may be evolving of a more positive outcome in Europe, as expressed by the strong euro, fruition remains elusive. Talks will continue over the weekend, but a sudden epiphany on the part of banks, hedge funds and policymakers is doubtful. Lack of economic growth though under austerity is certain, so euro strength/ dollar weakness can not last, with the obvious outcome for oil prices.


Petroleum Tech Talk  
   
Price action has carried to the upper portion of the range. The high of the week, posted yesterday, has so far been unchallenged. posted already, this session. Wednesday's low just touched trendline support before bouncing off. Settlement lat night was again below the 13-day EMA. The longer resistance at the 103.37-74 band is not breached, the stronger it becomes. So a break above might produce enough momentum to carry to a congestion zone near 105.. and perhaps to the previous high near 115.00. A move below 90.50 though will retarget the lows at 74.99.


Natural Gas    
        
Gas posted a stunning about face yesterday, made all the more extraordinary as it came almost immediately following EIA's posting of the largest pull form stocks this season. Certainly there will be more production cutbacks like those already announced, but it will take more time to work its way into being part of the market's overall structure, than there is for substantively impacting the burgeoning surplus. This is particularly so with shale making such a significant contribution to total output. NOAA's outlook for the weather shows no cooperation from that quarter out through February 9th, at least, so successive weekly stockpile reports should be expected to keep underperforming relative to averages, despite yesterday' miniscule narrowing.


Natural Gas Tech Talk  
               
Clearly, the slope of the upturn was unsustainable. The abruptness of the reversal, coming as it did after a particularly bearish bit of fundamental data, show that re-armed bears were waiting in the wings. Prices might linger near Monday's highs, but surrendering almost all of Tuesday's gains makes us shift out bias for lower. Attaining 3.00 now will require an extraneous event of significant import. Former support, turned resistance, and now support again at 2.409, will be the next key level as the market heads back down, targeting the 2002 low below 2.00.

source: KilduffReport.Com