Cautious Trade Retreats As Fed Signals Growth Ahead and Jobs, French Election Loom

Soothing language from the Fed is helping put the “fear trade” into retreat. The dollar is up, gold is getting plastered, and stocks look stronger as well with the Fed apparently on pace to hike rates next month.

The recent economic slowdown appears to be “transitory,” the Fed said in its post-meeting statement. If that’s right, coming months could see the economy expand at a “moderate” pace and inflation head up toward 2%, the Fed added.

That doesn’t sound like the recipe for a big economic boom, but it did raise expectations of another Fed rate hike by next month. The odds now stand at about 74%, Fed funds futures indicate.  Chances for another hike don’t hit 50% until the December meeting. The bond market fell and yields on 10-year Treasuries ticked up to 2.34% by early Thursday.

Strong earnings are still driving the market. Also, CEOs are painting a picture of continued earnings growth and this helps trump some of the other factors like geopolitical worries. People keep talking about low volatility as measured by the VIX fear index, but VIX isn’t out of line with other measures of fear, either. Gold is down more than 1% early Thursday, and bonds are falling as well. So-called “bottom pickers” are having a rough time, and it hasn’t been paying off to be one, so we’re seeing less hedging.

With the Fed meeting out of the way, tomorrow’s jobs report looms large. Consensus is for non-farm payrolls to rise about 180,000, said Briefing.com. That would be a major jump from the tepid 98,000 in March, and it should be interesting to see if the government makes any revisions to that March number, which surprised many on Wall Street.

Also keep an eye on average hourly earnings, which are seen climbing about 0.3%, according to the consensus of Wall Street analysts. So far this year, rising wages haven’t shown much impact on consumer demand, however. Before the jobs report comes factory orders data later this morning. Maybe that will show a bit of life. Anything above the consensus 0.4% might indicate some economic vigor.

It’s possible volatility could show a bit more life ahead of the jobs report and Sunday’s French election. The latest polls show centrist Emmanuel Macron far ahead of his right-wing opponent Marine Le Pen, and media reports judged Macron as the winner of the recent debate between the two. Markets don’t tend to like uncertainty, and if Le Pen were to win, that would probably raise uncertainty around Europe and the euro. A Macron win arguably could strengthen markets, but we’ll have to wait and see.

Money From Under the Seat Cushions

April auto sales disappointed for a number of reasons, but there is some good news out of the airline industry. Shares of Delta Air Lines, Inc. DAL rose earlier this week after the company reported a 1% year-over-year increase in passenger revenue per available seat mile during April. Other airline shares followed DAL higher. Revenue per seat mile has been a challenge for the airline industry, and this is just one month, but it might be interesting to see if it starts a trend. Airline executives have long promised to improve this metric.

Copper Spoils Materials Sector Party

The materials sector slumped on Wednesday, and copper prices could be in line for some of the blame, according to Briefing.com. Copper futures fell more than 3% at times during the session. Copper is sometimes seen as a proxy for economic health because it’s part of so many industrial products, so any prolonged weakness in the metal might raise some eyebrows. Still, keep things in perspective. Copper is about flat year to date and well above year-ago levels. Support sits at the psychological $2.50 mark.

Swimming in Crude

U.S. crude oil stockpiles sank by about 900,000 barrels last week, less than the two million-barrel draw analysts had expected and a possible indication of relatively light demand. Crude stocks are about 3% above year-ago levels, the Energy Information Administration said, and remain at near-record highs. Meanwhile, gasoline stocks rose slightly and are about 10% above the seasonal average even as demand seems to be flagging. When gasoline stocks are this high, it could reduce demand for new oil to make more, which helps explain why oil prices fell below $47 a barrel today for the first time since OPEC announced its production cuts late last year.