March 9, 2017

Crude Plunges Below $49, Dragging Markets Lower; All Eyes On Draghi

While traders will be focused on the ECB, and Mario Draghi, early Thursday, it is unlikely that the European central bank will announce anything overly dramatic (see preview in a subsequent post), and instead the attention will be on the ECB's inflation forecast for hints of when the ECB may accelerate tapering after its December 2016 QE cut, as Draghi scrambles to catch up with commodity inflation, if not so much core CPI, which has remained subdued.

However, a more pressing development as US traders get to their desks today, will be the ongoing collapse in WTI, which after crashing 5.5% yesterday, has plunged as much as 3% this morning, sliding not only below $50 for the first time since December 1, but also dropped under $49, and was trading $48.90 at last check, as a near record number of net long spec positions suddenly rush to unwind their exposure.

After resisting oil's gravitational drag earlier, S&P futures snapped, and were trading lower by 0.2% at 2,357. Should the drop persist, this would be the longest losing streak for the index in five weeks.

Elsewhere, European and Asian stocks fell, ahead of the European Central Bank’s meeting while the Bloomberg Dollar Spot Index headed for its best back-to-back weeks since December, rising after yesterday's blockbuster ADP report and expectations that tomorrow's NFP will not derail the Fed's March reta hike, the euro and yen dropped. Speaking of the ADP report, RBC chief economist Tom Porcellisaid the report was so strong it meant the payrolls report on Friday would have to be unbelievably dire to deter the Fed from hiking next week.

"There is almost no number that would stop them," said Porcelli. "It would take an extreme event for the Fed to take a pass at this point."

Indeed, he noted the ADP surprise meant there was a real chance payrolls could beat expectations, perhaps by a lot. "On the face of it, ADP is consistent with private payrolls of about 340,000," he said. The current median forecast is for a rise of 190,000.

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