January 8 – Stocks have traded both sides of unchanged today, with the major indexes all peeking back narrowly into the green at the time of writing. Meanwhile, the VIX has had an eventful day, pushing as high as 19.3 earlier in the session before now falling back below the 18 level. The U.S. dollar is surging today, nearing last Thursday’s two-plus-year high as it traded above 109.2 before settling back down near 108.9 at mid-day and providing headwinds to the commodity markets. Treasuries have had a strong day as well, with 10-year yields pushing to eight-month highs earlier in the session before cooling a bit to trade at 4.69%, while the inverse grows with 2-year yields now slightly in the red at 4.28%. Crude oil is weaker today with the higher dollar and a largely bearish DOE report weighing, as the nearby WTI contract falls back to trade around $73.40/barrel. The ags are lower almost across the board, save for some strength in lean hogs.
Traders will get to parse through the minutes of the FOMC’s December meeting when they’re released later this afternoon, providing fresh insight into the potential re-shaping of their strategy with the new administration taking office. Expectations in the market have certainly shifted more hawkish of recent, with this week’s largely stronger than expected U.S. economic data adding to that sentiment. After another 25-basis point cut in December, capping off a full percentage point of cuts in 2024, the Fed projected a more cautious 2025 with only 50 basis points worth of cuts in total, halving their previous September projections. With the hawkish shift seen in the last few weeks, Fed fund futures are now pricing in the highest odds of only one 25 basis point cut by the end of 2025. Recent comments from Fed members have largely pointed to uncertainty in the year ahead, which likely translates to caution. Also of interest in today’s minutes is insight into the winding down of the Fed’s efforts to shrink the central bank’s balance sheet. After trimming roughly $2 trillion from their bond holdings since 2022, expectations are to see this tightening end at some point in the year ahead.
U.S. crude oil stocks fell by 0.96 million barrels to 414.64 million, excluding the SPR, on the week ending 1/3. This was a bit less of a drop than market expectations, while the refined products saw much larger than expected builds. Gasoline stocks rose by 6.33 million barrels week-on-week, now marking seven consecutive weekly builds. This was largely driven by a second consecutive week of muted demand, though it did rise by 2% from the week prior to reach 9.324 million. Distillate stocks saw a 6.07-million-barrel weekly build to reach their highest level since last winter at 128.94 million, with this being the traditional season of stocks reaching their highs. This was driven in large part by estimated distillate demand hitting a 10-month low at only 4.537 million barrels.
It seems we get a fresh headline everyday regarding a new plan of the incoming Trump administration that whipsaws the markets as traders adjust positions accordingly. Today, that headline comes from a CNN report that Trump is reportedly considering declaring a national economic emergency in order to provide the legal justification to push through his tariff plans via the International Economic Emergency Powers Act. In just three days this week, we’ve seen reports of the Trump administration potentially softening their tariff plans, the next day denying said softening, and the following day potentially considering a more extreme measure to implement them... At the end of the day, we don’t know what the plan will actually look like until rubber meets road. That uncertainty is likely to become the norm going forward, though, with subsequent volatility likely to follow. The general inclination towards tax cuts, de-regulation, and tariffs from the new administration all point to less room for rate cuts in the year ahead given the ongoing strength in the U.S. economy, however. This, coupled with other major economies around the world facing their own issues, has allowed the U.S. dollar index to rally ~5.5% since election day, as can be seen below, with cascading effects throughout the broader markets.
