E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 3848.25, up 14.25
NQ, yesterday’s close: Settled at 11,880.25, up 71.75
Fundamentals: The S&P and NQ finished higher yesterday for the third session in a row. The late day boost came after the Federal Reserve Minutes from their June meeting. Although committee members largely agreed that another 75 basis point hike on July 27th is warranted to contain inflation, we believe a light at the end of the tunnel has started to appear. First, the odds for a 75 basis point move later this month have risen to 93.9% from 90.9% yesterday and 82.6% one week ago. We do agree, it is in the bank’s best interest to forge ahead and lift away from zero while they can. However, this plays right into our ‘Inflation Showdown at Jackson Hole’. We have stated our thesis that inflation meaningful retreats during June, July, and August via data released in July, August, and September, opening the door for a slower pace of hikes and even a pause. Since May’s hot CPI read on Friday June 10th, the Bloomberg Commodity Index has fallen 20% from its peak on Monday June 13th. Furthermore, 5-year Forward Inflation Expectations have fallen from an April peak to the lowest since February and the 5-year Breakeven Inflation Rate has fallen from a March peak to the lowest since September. We closely watch the Cleveland Fed Inflation Nowcast, and this points to Core CPI for June at 5.66% as of yesterday, down from 6.0% in May, and updates each day at 9:00 am CT. However, the headline estimate, which includes Food and Energy, remains elevated at 8.67%. We believe given the recent trend in inflation the Nowcast is likely to overshoot its expectations. The Fed’s goal is to drive down inflation from the demand side, by tightening policy. In yesterday’s Minutes, they pointed to Business Fixed Asset Investment slipping in the recent month. Additionally, May’s PCE read last week showed Consumer Spending MoM for May at 0.2%, the lowest since December and below the 0.4% expected. Furthermore, that for April was revised down from +0.9% to +0.6% and as a month over month read, it makes May’s miss more significant. This all leads into tomorrow’s Nonfarm Payrolls report for June. Job Growth is important, but Wage Growth as a measure of inflation will be absolutely critical.
Technicals: The S&P and NQ are firm ahead of the bell, but trading below their post-FOMC spike and perfect test into major three-stare resistance at 3870-3878.50 in the S&P. Pulling back minutes ahead of the opening bell is not typically a great sign, however, each index held an extremely constructive path overnight paving the way for this morning’s strength. One short-term indicator we have been watching closely for weeks is the 21-day moving average and this week, each of the four major U.S. indices was tested their respective 21-day. While the NQ was able to settle above, the S&P settled right at the mark at 3848 yesterday. We must continue to see decisive action out above what is now support aligning with the indicator for each at 3845.75-3848.25 in the S&P and 11,791-11,839 in the NQ. We believe such will help price action chew through major three-star resistance at 3870.25-2878.50 and 12,040 before the weekend, and this would point to a retest of recent swing highs. However, if price action fails we could quickly see it slip to major three-star support at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (August)
Yesterday’s close: Settled at 98.53
Fundamentals: Contrary to the price drop this week, the physical market remains extremely tight and spare capacity is the elephant in the room. Furthermore, time spreads down the Crude curve remained in steep backwardation, tightening only negligibly during this week’s precipitous drop. This tells confirms the demand landscape amid recession fears remains robust relative to supply. Helping boost prices into U.S. hours is also news that China is planning a $220 billion fiscal stimulus program.
We now look to EIA data due at 10:00 am CT. Last night’s surprise build of 3.825 mb of Crude posted by the private API survey along with an increase of inventories at Cushing did little to derail prices. Estimates for today’s official data are -1.043 mb of Crude, -0.48 mb Gasoline, and +1.133 mb Distillates.
Technicals: Crude has roared higher this morning, up nearly 5%, and pinning price action back to critical levels of technical resistance. We discussed the March trend line break earlier this week, and this aligns with major three-star resistance at 103.27-103.85; Crude Oil must close above here in order to begin repairing the damage. In order to avoid slipping back into a down leg, at a minimum, this rally must hold above our Pivot and point of balance at … Click here to get our (FULL) daily reports emailed to you!
Gold (August) / Silver (September)
Gold, yesterday’s close: Settled at 1736.5, down 27.4
Silver, yesterday’s close: Settled at 19.159, up 0.038
Fundamentals: Gold and Silver have firmed up slightly from the week’s low, but the ugly stretch through this week cannot be ignored. U.S. Dollar strength has certainly become the largest headwind to precious metals and commodities broadly, and Nonfarm Payrolls tomorrow will be pivotal. Also, the 10-year cannot be ignored as the yield has gained about 25 basis points from its 2.747% low and once again closing in on 3.0%. At the end of the day, Gold and Silver can only sustain a rally once the Federal Reserve stops moving the goal posts. Please read our discussion on the Fed and yesterday’s Minutes in the S&P/NQ section.
Technicals: Is this the start of a bottom, or only a dead cat bounce? We will only know after tomorrow’s settlement. For now, we will look to major three-star support in Gold aligning last September’s low at 1721.1 with yesterday’s low of 1730.7 and price action must obviously hold out above here. Silver has a massive level that we detailed earlier in the week, rare major four-star support, coming in at 18.78-19.03. As the day unfolds we must see steady action at and above our Pivot and point of balance at … Click here to get our (FULL) daily reports emailed to you!