Natural gas has been one of the most watched commodities of the past five years, as a boom in production, driven by new technology such as horizontal drilling and hydraulic fracturing, or fracking, has pushed US gas output to an all-time high. After bottoming out four years after the 2008 recession, the fossil fuel has managed to claw back some of the ground it gave up. The recent uptick in US natural gas prices has prompted some commentators to speculate that the commodity had finally turned the corner, a move that would begin to normalize the relationship between oil and natural gas prices. Although the long-term outlook for natural gas demand might be strong, this recent move doesn’t mark a beginning of a durable recovery in US gas prices. We expect the amount of natural gas in storage to remain elevated for much of the year, which should ensure that prices remain below $4 per BTU this fall.

The markets have been treading water in choppy seas ahead of the Bernanke Press Conference and FOMC forecasts shift and decision. The tapering talk has been the main driver since May 22 and today will be a confirmation of that significant turning point - making for a line of demarcation in fixed income and likely FX, Equities and most commodities. We have a before and after event risk. This is the same as July 24, 2012 when ECB President Draghi made his famous “whatever it takes” promise. That wasn’t an obvious turn until confirmed and reconfirmed by the ECB and the markets over the next 2 months. So it goes for the FOMC today - confirmation of rate policy ending the extraordinary accommodation even at some point in the future is sufficient to force markets to reprice the rules of engagement. Zero rates have caused significant abnormalities across a broad spectrum of products - this will have to change over the next year or so. The overnight news has been lost in the anticipation for todays main event but there are a few things that stand out: 1) Japan Trade, 2) Japan Abe’s tacit support from the G8; 3) Kuroda’s promise to do more to kill JGB volatility and support economy if needed; 4) Greece and the Troika remain at odds over the budget deficits as the new property tax receipts miss. 5) China rates are higher, CNY lower and fears with banks grow. When you mix the Asia stories with the European ones about Cyprus wanting an EU bailout overhaul, the UK bank pressures from regulation and the level of the EUR near 1.34 you have a market set up for a reversal into the US afternoon. Equities have banked on a dovish Bernanke, as have the FX markets but the bonds are in a very different place. The argument that the BOJ or ECB or others will provide the easy money into 2014 may be slipping away. The before and after event risk today remains significant - but it won’t be the final driver of markets this week as we get the Eurogroup meetings, the flash PMI reports on China and EU and the US Philly Fed tomorrow.

Commentary on financial market developments in advance of the June 19, 2013 trading day.

William McChesney Martin, Jr., Federal Reserve Chairman from 1951 to 1970, is famous for his quote that the job of the Federal Reserve is "to take away the punch bowl just as the party gets going." This all sounds great, but what if the party never gets lively? Since the end of the Great Recession in 2009, the global economy has expanded in fits and starts, never developing much upward momentum that wasn’t related to fiscal or monetary stimulus. The financial markets have gone through periods of optimism, but underlying this is a level of fragility that requires nurturing. The recession was halted by a combination of lower interest rates and fiscal stimulus. When that failed to return the global economy to economic health, the major central banks embarked on a program of managing the money supply (quantitative easing), rather than price levels, in order to provide an economic boost. For a while, this caused asset prices to rise, although it is far from clear that it did much for growth. Now with optimism that the US economy is repairing itself, people expect it to act as the locomotive for growth, but this could be wrong as evidenced by recent asset price movements.