S&P 500 Traders Are Waiting For Fed Speakers Today

The market has been mostly flat as investors continue to debate Federal Reserve policy and digest various international headlines.

Fed Speakers

Several Federal Reserve officials kicked off the week with comments saying more work is needed in regard to battling inflation. The Devil is obviously going to be in the details and exactly how the Fed intends to “work” on inflation in the months ahead.

Bulls really aren’t getting much traction from the idea of lower rate hikes, though, as Wall Street already widely expects the Fed will step down from 75-basis points to 50-basis points at the December 13-14 meeting.

What is more important to investors now is where the Fed’s benchmark rate ultimately ends up by the time its tightening cycle ends. It is currently set in a range between 3.75% and 4%. In September, Fed officials predicted that the rate will peak at about 4.6% next year, although Fed Chair Jerome Powell warned earlier this month that the Fed may need to go further than expected.

Most on Wall Street are penciling a Fed target rate of around +5% by mid-2023. That consensus of course could begin to sink lower if inflation and employment reads continue to trend in the right direction.

On the inflation front, energy prices and China Covid policies remain two of the bigger wild cards.

Oil Market

The oil markets have started the week on a volatile note following a Wall Street Journal report that OPEC was considering a production increase of up to +500,000 barrels per day, though Saudi Arabia later denied the claims.

Oil has already erased all the gains made since OPEC agreed to cut production by -2 million barrels per day last month as the global demand outlook has faded somewhat amid worries about a global economic downturn as well as China’s Covid policies.

At the same time, worries remain about global supplies ahead of the EU’s looming ban on Russian seaborne oil flows as well as a “price-cap” plan by the “Group of Seven” nations.

Both plans could be revealed as soon as this Wednesday, so stay tuned. China’s Covid policies are also raising fears about another round of supply chain dislocations.

Several cities in China have reinstated lockdowns or other restrictions on movement. However, supply chain experts say that a lot of US companies have already reduced their reliance on China and/or have bulked up inventories enough that any manufacturing or shipping interruptions won’t have nearly the same impact as they did earlier in the pandemic.

The ongoing damage that China’s Covid policy is having on its economy, however, is likely to continue creating headwinds for multinational companies that have been counting on the Chinese consumer market for growth.

Data to Watch

Today, the only economic data on the calendar is Richmond Fed Manufacturing. Earnings results could be a headline generator with several key companies reporting today, including Analog Devices, Best Buy, Burlington Stores, Cracker Barrel, Dollar Tree, HP, Medtronic, Nordstrom, VMWare, and Warner Music.