Market Overview – Morning Express
– Do not miss our Top Things to Watch this Week, out every Sunday.
– The Federal Reserve begins their two-day policy meeting tomorrow and will conclude with a statement at 1:00 pm CT.
– According to Fed Funds futures via the CME FedWatch Tool, there is a 76.3% probability they hike 75-basis points. There is also 49.7% probability they hike by at least 150 basis points between this meeting and September, to 3.0%.
– On Friday, SPGI Manufacturing PMI for July topped expectations (52.3 v 52.0 exp) but came in at the lowest since August 2020. Whereas Services PMI showed a surprise deterioration (47.0 v 52.6) and was the lowest since June 2020.
– From SPGI Chief Economist: “The preliminary PMI data for July point to a worrying deterioration in the economy. Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook.”
– Q2 GDP is due Thursday. Although it is a backward-looking indicator, at times, it can show trend. The Atlanta Fed GDPNow model expects Q2 GDP at -1.6%. However, analysts estimate Q2 GDP at +0.4%. With final Q1 GDP at -1.6%, another contraction will define a recession.
– The FedWatch Tool signals a 40.8% probability the Fed raises rates to 3.25% and 30.8% probability to 3.50%.
– By June 2023, the highest probability across a wide distribution shows 30.5% odds rates will be back 3.0%. Cuts are becoming priced in.
– At a minimum, there is a clear expectation for the pace of hikes to slow down after September.
– The Bloomberg Commodity Index finished last week 15.7% from its June peak. Gasoline futures have fallen 25% and more than $1 from their June peak while retail gas is now widely seen at and below $4.00.
– Expectations for inflation, according to the Cleveland Nowcast model, show it holding steady in July at 8.9% headlines and 6.05% Core, versus 9.1% and 5.9% in June. However, the MoM rise in July is expected to come in sharpy at 0.33% headline and 0.48% Core, versus 1.3% and 0.7% in June.
– There are signs some job market frothiness is being relieved, something that is further supported by the surprisingly sharp deterioration in July Services PMI. Also, did last week’s Philly Fed Manufacturing signal a reversion in producer prices? It dropped from 65.5 in June to 52.2 in July.
– The Fed is not going to begin any sort of victory lap in their fight against inflation this week, especially given it is too early and evidence is still developing, but market participants will be looking for any signal of a slowdown in the aggressive nature of the bank’s tightening.
– Coca-Cola, McDonald’s, UPS, Raytheon, Unilever, GE, and many more report ahead of the bell tomorrow. Microsoft, Alphabet, and Visa all report after Tuesday’s bell.
E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 3965, down 36.25 on Friday and up 100.00 on the week
NQ, yesterday’s close: Settled at 12,423.50, down 216.50 on Friday and up 416.00 on the week
– Significant levels of resistance were achieved on Friday. For the S&P, this was rare major four-star resistance aligning with the settlement prior to the May CPI release on June 9th at 4017.50-4019. For the NQ, this was our next upside target at 12,646-12,686.
– Throughout the week, here and via the Midday Market Minute, we discussed the importance of capitalizing on long positions into this resistance and ahead of this week’s Fed meeting and earnings deluge.
– We remain cautiously Bullish in Bias over the intermediate to long-term from this broad level and lower. The emphasis is from a bit lower and we will continue to look for constructive pullbacks as buying opportunity.
– A shelf of support in each the S&P and NQ developed from Friday at 3950-3951.50 and 12,343-12,373.
– However, we see heightened near-term risks for a deeper pullback that tests major three-star support in the S&P and NQ at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (September)
Yesterday’s close: Settled at 94.70, down 1.65 on Friday and up 0.13 on the week
– Recession fears weighed on Crude Oil ahead of the weekend after poor Eurozone PMIs and given continued mass testing in China.
– Also, a bearish EIA report and Libya production coming back online added negativity to the. Libya is now seen ramping to 1.2 mbpd over the next two weeks.
– A return of geopolitical premiums after Russia attacked the Odessa, Ukraine port only one day after inking a deal to allow the traffic of exports?
– Bullish response this morning to major three-star support at 92.83-92.97, aligning with the July 6th low, creates a right shoulder of a bullish inverse head and shoulders pattern.
– Strong overhead technical resistance persists due to steep trend line from Jun 14th high.
– Look for momentum to shift with a close above the 21-dma at 99.49 today.
– Must close above major three-star resistance at 96.52-96.97 to encourage added buying.
– A bullish breakout will be secured upon a close above major three-star support at … Click here to get our (FULL) daily reports emailed to you!
Gold (August) / Silver (September)
Gold, yesterday’s close: Settled at 1727.4, up 14.0 on Friday and 23.8 on the week
Silver, yesterday’s close: Settled at 18.617, down 0.102 on Friday and 0.023 on the week
– The U.S. Dollar Index has slipped by 2.9% from its July 14th peak, yet Gold and Silver have shown very little life. However, the USDCNH remains +0.84% on the month and elevated just below the 6.80 mark.
– The U.S. 10-year yield sliced below 3.0% last week and hanging just above 2.8%. Not bringing the supportive force one would think.
– Thursday’s post-ECB reaction in Gold did create a bullish engulfing bar, but a gain of less than 1% on Friday after failing against major three-star resistance at 1735.5 encouraged a slip by 0.5% from session highs exudes how shorts are still defending their position.
– As of last Tuesday, the Managed Money net-short position more than doubled from the prior week to 18,738 contracts.
– Silver’s rebound has been more muted than Gold.
– Look for Gold to trade constructively out above major three-star support at … Click here to get our (FULL) daily reports emailed to you!
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