US traders are eyeing more record highs as we near the open on Wall Street on Tuesday, with all three major indices currently seen opening around a third of a percentage point higher.
The Trump rally has been relentless in recent weeks, aided more recently by the rally in oil which is helping to support the energy sector. Brent and WTI are trading just shy of 1% higher again today after the International Energy Agency raised its forecast for oil demand this year and next in its latest report, providing further bullish momentum at a time when OPEC and non-OPEC members have come to a surprise agreement to cut production from January. Another push higher could see Brent target $60 for the first time since July last year, with WTI possibly hitting $57.
The coordinated agreement on a production cut between OPEC and non-OPEC members could throw another spanner in the works for the Fed which is already likely to have a tough time providing accurate projections for the coming year, given Donald Trump’s ambitious spending plans. Assuming the cuts are implemented as planned which is far from certain, the moves in oil prices could provide further inflationary pressures for the Fed at a time when inflation is already expected to rise and any fiscal stimulus will only add to this.
Against this backdrop, the Fed may be forced to raise interest rates at a faster pace that it had planned and the markets have currently priced in. With this in mind, and given that a rate hike tomorrow is almost entirely priced in, the Fed’s projections and dot plot combined with Chair Yellen’s comments in the press conference could be crucial in determining whether the santa rally makes it to the new year. Investors haven’t been easily spooked recently but the prospect of three or four rate hikes next year may be enough to do it.
For a look at all of today’s economic events, check out our economic calendar.