Market Overview – Morning Express
Market Overview – Morning Express
Nonfarm, the Fed, and Washington
– Do not miss our weekly Top Things to Watch this Week, out every Sunday.
– Stocks hold steady after blowout jobs report on Friday negates ongoing recession. 528k jobs added in July versus 250k expected. Wage Growth surged by +0.5% MoM vs +0.3% exp (June was revised +0.1% to +0.4%) and by +5.2% YoY vs +4.9% exp.
– Odds for the Fed’s September meeting have flipped to a 68.5% probability for a 75 basis point hike. Probabilities now show a 72.8% chance for at least 125 basis points in hikes through yearend to achieve 3.50%, and a 54.7% chance the Fed Funds rate will hold at 3.50%, or higher, through June 2023 (21.4% probability it is higher and a 45.3% probability it is lower).
– A narrative that such job growth is unsustainable and can only deteriorate from here is underpinning equity strength; low quality jobs and people taking two jobs.
– The Fed already talked down the idea they were ‘pivoting’ to dovish and we wholly agreed with that last week.
– The Senate passes lauded spending bill; yup, more spending to fight inflation. The narrow 51-50 margin was aided by Vice President Harris’ tie breaking vote. The legislation will expand spending on healthcare and renewable energy, bring down drug costs, and more.
– The big emphasis is on CPI, due Wednesday.
China, Russia, and Geopolitics
– China’s Trade Balance data, released Saturday night, showed a surge in Exports by more than expected at 18.0% YoY versus 15.0%, signaling a healthy global economy. However, Imports missed expectations at +2.3% YoY vs 3.7%, leading to a record $101 billion surplus.
– Virus cases in Beijing tick-up and China’s resort province Hainan, a city of one million people, locks down with an estimated 80,000 tourists.
– China announces fresh military drills around Taiwan, a day after its largest ever exercise ended, protesting Speaker Pelosi’s visit.
– Russia advances in Ukraine, shells power plant in Zaporizhzhia and announced they installed an official to hold a referendum to join Russia. Ukraine warns of Chernobyl-style risks.
– U.N. Secretary Guterres, “after decades, the threat of nuclear war has returned.”
– Russia says no basis for a Putin-Zelenskiy meeting.
E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 4146.75, down 5.50 and up 13.25 on the week
NQ, yesterday’s close: Settled at 13,228.75, down 98.25 on Friday and up 257.25 on the week
– Resilience is the only way to describe it. U.S. equity benchmarks were magnificently resilient on Friday, weathering the hot wage growth data within a robust Nonfarm Payrolls report.
– We maintain our cautiously Bullish outlook and believe a combination of cash coming off the sideline and short-covering has yet to truly begin.
– Little shakeout post-NFP left a bullish tail, more pronounced in the S&P and Dow than NQ, and most pronounced in Russell 2000.
– Small caps (Russell 2000) hitting new swing highs this morning with help from meme mania reemerging.
– NQ and Russell had their highest weekly settlement since the week of April 18th.
– Dow and S&P both trading above NFP release high, nice technical pennant but must have follow through.
– NQ still trading below pre-NFP 13,348
– Continued strength out above our Pivot and point of balance will encourage higher prices, squeezing shorts.
– Next major upside targets come in at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (September)
Yesterday’s close: Settled at 89.01, up 0.47 on Friday and down 9.61 on the week
– Did not settle below the 200-day moving average at 88.82 on Friday, comes in at 88.88 today.
– China’s July Crude Imports +4.2% MoM, but -9.5% YoY.
– China virus effects and new cases weighing on near-term demand sentiment.
– We view the blowout jobs report Friday as bullish for Crude Oil given there has not been a large rebalancing of Fed path expectations. From a headline perspective, consumers are making higher wages, helping to offset higher expenses such as Gas.
– However, in the same manner the cure for higher prices is higher prices, the cure for demand-side issues due to high prices is lower prices; according to GasBuddy.com, average Gas prices are down for the 54th straight day to 4.015 and the national average is likely to slip below $4.00 today for the first time since March.
– Crude set a new swing low on Friday, but Gasoline held Thursday’s low and has use that for rebound fuel.
– Friday’s spike to 90.76, failed at key resistance and slipped sharply through settlement and electronic close in a very disappointing and weak manner.
– The longer-term trend remains up, and we remain cautiously Bullish, for now, but well aware a washout to $82-85 could be necessary to cleanse out weak longs before turning higher.
– First key resistance is the 200-dma and our 89.05 level that tethered Friday’s settlement.
– Pivot and point of balance unchanged from Friday at … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (September)
Gold, yesterday’s close: Settled at 1791.2, down 15.7 on Friday and 9.4 on the week
Silver, yesterday’s close: Settled at 19.842, down 0.288 on Friday, and up 0.355 on the week
– Blowout Nonfarm Payroll dented Gold and Silver, but prices have battled back strongly to start the week.
– Last week, the Fed did a great job talking down the idea of a ‘pivot’ and preparing markets for what turned out to be a strong NFP. Adjustments in hike probabilities were highlighted in the first section, but were broadly minor.
– Underpinning today’s rebound is geopolitics, U.S. Dollar softness and Treasury resilience.
– Price action in Gold and Silver spiked lower on jobs data but did not retest as session unfolded, holding second key support for Gold and major three-star support in Silver at 19.78.
– Price action is firmly out above our momentum indicators at 1792 and 19.71.
– Although the more volatile and whippy Silver is trading to highest since Tuesday, it is testing rare major four-star resistance again.
– Look for Gold to exceed and close above strong resistance at … Click here to get our (FULL) daily reports emailed to you!
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