Market Overview – Morning Express
E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4120.50, up 13.50
NQ, yesterday’s close: Settled at 12,605.00, up 54.00
Fundamentals: If Treasuries taketh, can they giveth? Due to inflation and central banks tightening monetary policy, yields began a steadfast move higher on January 3rd. The U.S. 10-year started this first trading day of the year at 1.514%. The rise has, in part, brought blunt force trauma to the stock market, but a reprieve through May paved the way for a (stock market) rebound. However, the yield of the U.S. 10-year has now risen for sixth straight session, beginning May 30th, surging through the psychological 3.0% mark. Like clockwork, once 3.0% was achieved yesterday morning, U.S. equity benchmarks quickly coughed up a strong start to the week. We see four major tailwinds stoking the recent ascent of yields.
First, influential Atlanta Fed President Bostic walked back comments on pausing rate hikes in September. On Monday May 23rd, he, and Kansas City Fed President George, separately pointed to 50-basis point hikes in both June and July before pausing in September. Risk-assets rallied, but Treasury prices were already lower. A pause in rate hikes has since been supported only if inflation cools. However, hawkish comments from others such as Fed Governor Waller have certainly drowned out the idea of a pause. Well, this aligns perfectly with our thesis, The Inflation Showdown at Jackson Hole. Feel free to connect to learn more about this thesis, 312-278-0500 or info@bluelinefutures.com
Secondly, the Federal Reserve begins quantitative tightening (loosely) in June; the bank will not reinvest assets that are expiring off its balance sheet. The bond market is clearly bracing for losing its largest buyer when assets are set to begin expiring in mid-June.
Next, Crude Oil traded above $120 both Friday and Monday. In fact, the July Crude Oil set a new contract high, while Gasoline and Heating Oil set new all-time highs. Also, China began reopening right as Treasury prices were on their low. Higher Crude Oil is certainly inflationary, now couple that with China’s reflationary event.
Do not miss our daily Midday Market Minute from yesterday.
Lastly, it is not only yields in the U.S., but the German 10-year has surged in recent weeks to the highest level since June 2014. Although the ECB is expected to firm up a timeline to tighten policy on Thursday, the bulk of the move was ignited by plans to ban Russian Oil. Energy inflation, or better yet, energy dependence, is driving yields in Europe.
Back to yesterday, yields surged into the European close as both German and Italian debt led the way, forcing a wave of risk-off; taketh. If such can recede, can they giveth? We believe so.
Technicals: Both the S&P and NQ are testing into levels of support in which they responded throughout last week. However, due to unfished business below, we have not had this listed as a major three-star support in the S&P and have now dialed such back for the NQ. Those first key support levels are denoted below. We are now most closely watch the intraday gaps for each the S&P and NQ from the May 26th settlement. These align to create major three-star support at 4051.25-4055.75 and 12,218-12,279; a break and close below will begin to neutralize the near-term uptrend. To the upside, we must see the S&P and NQ regain first key resistance at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (July)
Yesterday’s close: Settled 118.50, down 0.37
Fundamentals: Crude Oil is holding ground well as Gasoline retreats 4% on the week and 25 cents from its high. While a broad undertow from risk-assets, equities, and U.S. Dollar strength is pushing the energy complex on its backfoot, the focus will shift to weekly inventory expectations as the session unfolds. Early expectations are for -1.8 mb Crude, +0.283 mb Gasoline, and +0.567 mb Distillates. Yesterday, we noted that Libya’s Sharara oil field, its largest, was reopening, however, reports suggest it has been closed again. The EIA is expected to release its Short-Term Energy Outlook at 11:00 am CT.
Technicals: Price action has consolidated slightly lower, but remains constructive, holding our first key support. Our levels are little changed from yesterday, but our momentum indicator has edged a bit lower, denoted as our Pivot and point of balance. As long as price action holds out above its breakout point, major three-star support at 116.43-117.07, the bulls are in control and targeting … Click here to get our (FULL) daily reports emailed to you!
Gold (August) / Silver (July)
Gold, yesterday’s close: Settled at 1843.7, down 6.5
Silver, yesterday’s close: Settled at 22.092, up 0.184
Fundamentals: Gold and Silver are mixed this morning and rather quiet, compared to the rest of the metals complex trading sharply lower; Copper -1%, Platinum -2%, and Palladium -2%. The U.S. Dollar Index is firming only slightly on the session, but it is the USDCNH that is up 0.50% and making a clear impact on the metals complex. However, U.S. Treasuries are responding to the risk-off and this is buoying Gold from support. Yesterday’s sharp drop in Treasuries, rise in yields, pressured Gold significantly.
Technicals: Both Gold and Silver stuck their nose below first key support, listed below, but has so far responded. Due to Silver holding ground better yesterday relative to Gold, first key support aligns with our momentum indicator, whereas Gold’s aligns as the Pivot and point of balance at 1846-1848.7. At the end of the day, in order to neutralize the selling that began yesterday, Gold must regain first key resistance at … Click here to get our (FULL) daily reports emailed to you!
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