Market Overview – Morning Express
Market Overview – Morning Express
E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 4276.75, down 31.00
NQ, yesterday’s close: Settled at 13,493.25, down 165.00
Fundamentals: Minutes from the Federal Reserve’s July meeting, released yesterday afternoon, reinvigorated a lackluster tape. The S&P briefly stuck its nose back above 4300, a 1.1% bounce from session lows. Many market participants feared the Fed would orchestrate the Minutes to offset the idea of a “pivot” and coming on the heels of that hot U.K. inflation data, highlight here yesterday, odds began favoring a 75 basis point hike in September. If you have followed us since the July meeting, you know we do not believe the Fed made a “pivot”. Due to inflation rising steadfastly all year, the committee has continually needed to move the goal posts. As we predicted, inflation did stop surging ahead of Jackson Hole, which begins next week. This allowed the Fed to stop moving those goal posts and become more reactionary to the data. Those Minutes exuded just that, and odds again favor a 50 basis point hike in September with a 61.5% probability. Regardless, given the rebound in equity markets, the idea of measured downside or reward vastly outweighing risks has also flipped. We again want to reiterate, although we are certainly not bearish and believe U.S. equity benchmarks have the ability to finish the year much higher than current levels, it would be difficult to do so without a healthy pullback first.
Jackson Hole is next week and the elephant in the room is not those well-anchored Fed hike expectations, but the bank’s plan to reduce its $9 trillion balance sheet. In June, the Fed began allowing $45 billion worth of bonds per month to fall off its balance sheet. Starting in September, the bank’s Quantitative Tightening will increase to $90 billion per month. Barring an unlikely surprise on next Friday’s PCE read, the Fed’s September hike expectations will remain well-anchored through Jackson Hole, at the least. This makes the Fed’s balance sheet discussion and questions around how well markets can handle less liquidity the most critical topic.
Do not miss yesterday’s post-FOMC close Midday Market Minute.
On the economic calendar, Initial Jobless Claims came in better than expected at 250k versus 265k. Philly Fed Manufacturing also came in better at +6.2 versus -5.0, a sharp divergence from the awful NY Empire State Manufacturing on Monday. Existing Home Sales are due at 9:00 am CT. Kansas City Fed President George, a 2022 voter, speaks at 12:20 pm CT and Minneapolis Fed President, the once ultra-dove, now leaning hawkish, and 2023 voter, speaks at 12:45 pm CT.
Technicals: All four major U.S. indices traded to a higher low overnight than that from 10:30 am CT yesterday and this is very constructive because that low aligns with major three-star support in the S&P at 4256.75-4264.75. Today’s strength has pinned price action back above our pivotal 4281-4284, a level in which we said on Tuesday, as long as price action is above here it remains extremely bullish. However, given yesterday’s post-FOMC Minutes gasp for air that failed directly at our first major three-star resistance at 4304.75-4307.75, we must now see it above here in order to claim the tape to once again be extremely bullish. As we get through the opening bell, continued action above our momentum indicator in each the S&P and NQ, first key support, will stoke the bull case on the session, coming in at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (October)
Yesterday’s close: Settled at 87.69, up 1.53
Fundamentals: Yesterday’s EIA data was headline bullish. Bill Baruch noted this in a tweet directly after the release and discussed it in the post-close Midday Market Minute. However, he also pointed to September Option Expiration yesterday and a technical battle between $85-90 as keeping the tape confined. Crude inventories fell by -7.056 mb and Gasoline by -4.6442 mb. The large composite draw of -10.932 mb, after factoring in +0.766 mb from Distillates, was aided by record exports and the least amount of SPR release since the end of April. By the way, the SPR is now at the lowest level since March 1985. Ultimately, our rhetoric that surging Net Imports is unsustainable, which factor in SPR, could be starting to come to fruition and we find this extremely bullish. However, inventories at Cushing have risen for seven weeks in a row, just as the severe backwardation has come out of the market. This does signal less stress physically. Regardless, we remain upbeat and especially so as geopolitics are on high alert and expectations mount for added stimulus from China.
Technicals: Price action in October Crude has firmed up through the 87.69-88.18 mark, aligning yesterday’s settlement, the 200-day moving average, and other indicators. Given yesterday’s post-settlement weakness and higher low overnight, this is now major three-star support, and we are more Bullish in Bias given constructive bottoming action against a wide range of support, coupled with a longer-term bullish fundamental outlook. A slip back below the mark merely neutralizes the near-term strength of this developing leg and could encourage a more prolonged consolidation. However, a break back below … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (September)
Gold, yesterday’s close: Settled at 1776.7, down 13.0
Silver, yesterday’s close: Settled at 19.731, down 0.354
Fundamentals: Although Gold and Silver are off their worst levels, the tape remains very unenthusiastic. A one-two punch of better than expected Initial Jobless Claims and Philly Fed Manufacturing smacked the precious metals complex down from session highs. Furthermore, despite enthusiasm the Fed did not orchestrate hawkishness within yesterday’s Minutes, Gold and Silver have done very little to acknowledge it. Existing Home Sales are due at 9:00 am CT. Also, Kansas City Fed President George, a 2022 voter, speaks at 12:20 pm CT and Minneapolis Fed President, the once ultra-dove, now leaning hawkish, and 2023 voter, speaks at 12:45 pm CT.
Technicals: The major driver for the precious metals this week has been Sunday’s awful slate of Chinese economic data, which has stoked strength in the USDCNH (we highlighted the chart here yesterday). The USDCNH is consolidating off Monday’s high but remains constructive, holding a back-test of a potential trend line breakout. Added strength in the USDCNH will be a significant and continued headwind to the metals. If price action can hold out above our Pivot and point of balance, it would help signal some near-term exhaustion to the downside and pave the way for a rebound. Major three-star support in Gold at … Click here to get our (FULL) daily reports emailed to you!