WEDNESDAY, MAY 13, 2015
Morning Summary: Money Managers are definitely becoming more concerned about the overall direction of the global investment landscape. The “Bonds” now seem to be driving the train. From my perspective the dramatic movements in the bond markets are simply a direct reflection of money sloshing around and investors making larger adjustments to fixed income portfolios as the underlying landscape continues to shift.

Remember, the world’s #1 economy has gone years without an interest rate hike. Lets also keep in mind we are in the midst of the third longest stretch in U.S. history without a 10% correction in the U.S. stock market. As a result large investors are clearly becoming a bit more uncertain about where to push their assets. One thing for certain is the fact there’s a lot more talk inside the trade that “commodities” are starting to base and may soon be the focus of increasing investment dollars. This sector has clearly been the laggard for the past few years and may soon find renewed interest. There’s also starting to be more talk inside the trade that the Eurozone is gradually improving and the strength in the Euro could equate to higher crude oil prices and a weaker U.S. dollar.

Also keep in mind copper has just strung together three consecutive months of higher prices and crude oil has posted a substantial rebound as U.S. rig counts are down by over 50%. I know Goldman Sachs and several others are saying the rally in crude oil might be a bit premature and overextended, and that’s tough to argue against, but the markets are definitely trying to tell us something??? Crude and precious metals have certainly started to show signs of life, and now I’m starting to hear talk and rumors that some of the bigger players are sniffing around the agricultural asset class as it seems to be “oversold” and or perhaps “undervalued” in relationship… Yes, we can argue that China definitely has a credit problem, but from where I sit it’s doubtful it will unfold in a Democratic manner or become a large enough systemic problem that it will cause the markets to collapse.

In other words I’m starting to think the Chinese slowdown is priced in and commodities might soon come back into favor. I’m not 100% sold on this theory, but I can tell you more buzz is starting to circulate around the commodity sector, so pay close attention. As I pointed out the past several weeks, this is one of those “Big Picture” items that we need to get correct. As for today, many traders will be keeping their eye on “Retail Sales,” which are expected to be somewhat flat. More importantly though, experienced traders will be looking at the core number – minus oil – for signs of inflation and clues about the Fed’s next move. Remember, it was -1.9% in March largely due to the strong U.S. dollar. Don’t forget we also get our weekly update on U.S. crude oil inventories, with the trade is expecting to get an inventory drawdown of around 250,000 barrels. In other words we might see our second straight week of declining oil supplies?