Market volatility has broadly been on the decline since Monday. Upon last Wednesday’s Federal Reserve policy meeting, each asset class raced to price in higher inflation expectations for 2021 and a speedier timeline to two rate hikes. Committee members this week confirmed prospects for two and even three rate hikes by the end of 2023 but were cautious in signaling a taper without data for another three to four months. In comes today’s inflation read. Core PCE, the Federal Reserve’s preferred inflation indicator, for May is due at 7:30 am CT and expectations are for +3.4% YoY, aligning perfectly with the Fed’s new 2021 projection, and +0.6% MoM. This would be a slight pickup YoY from April’s 3.1%, but a bit slower than its 0.7% MoM. Personal Income is expected to trend lower by -2.5% MoM as it continues to recede from March’s stimulus checks and Personal Spending is expected to rise by 0.4% MoM.
The S&P has camped out at its freshly set record high. The U.S. Dollar Index has settled in, retreating from last week’s high by 0.7%. The yield of the U.S. 10-year has rebounded from a four-month low to linger just below 1.5%. In fact, the long end of the Treasury curve roared higher and priced in peak inflation after the Fed caved to critics by quickly raising those inflation expectations. The price of the 30-year Bond ripped to a Sunday night high of 163’02, briefly pinning its yield below the psychological 2% mark. After last week’s bludgeoning, Gold is finding some footing at 1771, a key technical level. In the case of Crude Oil, it is more focused on delayed nuclear talks with Iran, a bullish inventory report, and next week’s OPEC+ meeting, but make no mistake, risk-assets broadly are all paying attention to this morning’s inflation number.
Given the Federal Reserve acknowledged higher inflation but coupled with the emphasis of Average Inflation Targeting by officials this week, a number above the 3.4% expected should not spook markets. We believe something a tenth or two above would fall in line with the Fed’s yearly projection and should not have a negative impact on risk-assets. This means the U.S. Dollar could weaken on such firmer than expected results. Remember, Core CPI, a slightly different but closely watched inflation metric, posted +3.8% YoY for May just two weeks ago. Furthermore, given the Fed’s caving last week, we imagine market participants must prepare for something hot; wondering if the Fed knows something more. Therefore, if inflation is contained, it could bring a green light to risk-assets.
E-mini S&P (September) / NQ (Sept)
S&P, yesterday’s close: Settled at 4256, up 24.50
NQ, yesterday’s close: Settled at 14,354.25, up 91.25
Technicals: The S&P is hugging major three-star resistance aligning with its previous record at 4258.50-4260 and waiting on this morning’s inflation data to confirm its next leg higher. However, the NQ has capitalized on lower interest rates to set a fresh record for each of the last three sessions and breakout above what was rare major four-star resistance. We have been outright Bullish in Bias but are exuded some caution this morning until we see the data but also the weekly close. Can the S&P get out above 4258.25-4260 decisively and carry those tailwinds to next week, or will inflation come in hot? We have positioned ourselves to be ready to capitalize on pullbacks as a buying opportunity and a retest into major three-star support at 4208-4213 would be ideal if it happens. Still, there is strong support underpinning the market at 4236.50-4241 and continued action above here would likely pave the way for fresh highs into the close. As for the NQ, it remains in a breakout while above previous resistance, now major three-star support at 14,230-14,286.
Resistance: 4258.25-4260***, 4284.75***, 4294.75**, 4307***
Support: 4236.50-4241**, 4227-4231***, 4208-4213***, 4202.25**, 4183.75-4185***
Resistance: 14,451-14,487***, 146,22***
Support: 14,230-14,286***, 14,195**, 14,107-14,130**, 14,030-14,064**, 13,932-13,958***
Crude Oil (August)
Yesterday’s close: Settled at 73.30, up 0.22
Technicals: Price action has climbed higher extremely well in recent weeks, essentially climbing a staircase. This provides a slew of key resistance levels below the market, but we do not have major three-star support until 69.87-70.05. We remain more Bullish in Bias, but the tape is exuding some exhaustion ahead of next week’s OPEC+ meeting and this is a call for some caution in positioning. Ultimately, traders want to be prepared to use pullbacks into $70 as a buying opportunity.
Resistance: 72.70-73.25***, 76.89-76.90****
Support: 72.32-72.45**, 71.82-72.07**, 71.29-71.33**, 70.60-70.65**, 69.87-70.05***, 68.47-68.68***
Gold (August) / Silver (July)
Gold, yesterday’s close: Settled at 1776.7, down 6.7
Silver, yesterday’s close: Settled at 26.05, up 0.061
Technicals: Gold and Silver have established footing at critical levels of technical support, and this has allowed for a rebound ahead of this morning’s inflation data. Although the fundamental aspects of this market under the microscope it still must remain technically constructing. First, our momentum indicators have risen slight, but the tape is holding out above 1780 for Gold and 26.12 for Silver; continued action above here will set the stage for a good finish to the week. Still, there is tremendous overhead technical damage and the first real hurdles come in at major three-star resistance for Gold at 1799.3-1800 and a key level aligning with the highs of the week for Silver at 26.40-26.55.
Resistance: 1785.9-1787.8**, 1799.3-1800***, 1827.5-1830.5***, 1840-1848.4***
Support: 1771***, 1756.8***
Resistance: 26.16*, 26.40-26.55**, 26.94-27.09**, 27.32-27.36***
Support: 25.74***, 25.40**
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