Market Overview – Morning Express
Market Overview – Morning Express
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– Fed Chair Powell brought down the hammer Friday. Call it what you want, but it was not a ‘Pivot’. His narrow speech was intentional and straightforward, the Chair took no questions after.
o “Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
o “While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.”
– Price action across assets whipsawed during and right after his speech, finding a direction distinctively lower.
– Briefly cushioning Powell’s strong hawkish verbiage, highlighted above, was a soft read on Core PCE (+0.1% MoM vs +0.3% exp), the Fed’s preferred inflation indicator 90 minutes before his speech, and lower than expected Michigan Inflation Expectations during his speech (1-year 4.8% vs 5.0% and 5-year Expectations 2.9% v 3.0%).
– The equity market was certainly caught offside, therefor pundits are calling Powell’s speech a ‘Pivot’. However, the Bond market, though lower today, has absorbed the hawkishness much better. Probabilities for a 75 basis point move in September have risen to 66.5%, but it is the added 25 basis points through yearend, totaling 150 bps between September, November, and December, that we find most significant. This steadily climbed after July’s Nonfarm Payrolls three weeks ago. At that time, it emerged at 17% and before Powell’s speech, stood at 37%. It concluded Friday at 40.9% and has risen to 51.1% this morning.
– In the end, the Fed is data dependent, “Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.”
– The Euro has actually found some footing this morning, trading back above parity to the U.S. Dollar after ECB officials, in Jackson Hole over the weekend, lean into a 75 basis point hike at their September meeting. Spearheading the conversation was ECB board member Schnabel. This morning, a 75 basis point hike by the ECB is being priced in with roughly a 67% probability.
– Fed Vice Chair Brainard speaks today at 1:15 pm CT, however, it is very unlikely to hear a tone diverging from that of Chair Powell.
– More Fed speak and data as the week unfolds. Big focus on PMIs from China Tuesday evening and U.S. Nonfarm Payrolls Friday.
E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 4059.50, down 141.50 on Friday and 172.00 on the week
NQ, yesterday’s close: Settled at 12,620.50, down 535.50 on Friday and down 648.00 on the week
– Per our note Sunday Night: The trade desk took an immediate Bearish Bias Friday upon new lows on the week. This was confirmed on the close, and we expect to maintain a negative outlook until a close back above 4065 in the S&P.
– Broadly speaking, we are welcoming lower price action as an attractive momentum play, but also as we envision great long-term value if an inverse head and shoulders can build out above the May low of 3810.
– There is tremendous damage overhead due to Friday’s heavy selling and repair can only begin upon a close in the S&P above major three-star resistance at 4059.50-4064.50 and in the NQ above major three-star resistance at 12,690-12,738.
– There are multiple waves of major three-star resistance in front of those, highlighted below.
– Pivot and point of balance on today’s session will be crucial, continued action in the S&P and NQ below … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (October)
Yesterday’s close: Settled at 93.06, up 0.54 on Friday and up 2.62 on the week
– Reminder, Saudi Arabia’s Oil Minister provided a floor last Monday, signaling OPEC would continue to balance the market if Iran production was added back, global growth was constrained, and the paper-physical market remained unhinged.
– We maintain out more Bullish Bias.
– Friday’s low held the 21-day moving average, also aligning with major three-star support at 91.02-91.46. Is price action now decisively out above the 21-day? If so, this is a very bullish technical development as it has not been since the June 17th fallout.
– Fighting in Libya’s capital broke out late last week and escalated over the weekend. The country just brought production back to 1.211 mbpd, any hinderance will be seen as bullish.
– Continued price action above our Pivot and point of balance should stoke higher prices, comes in at … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (September)
Gold, yesterday’s close: Settled at 1749.8, down 21.6
Silver, yesterday’s close: Settled at 18,746, down 0.374
– Per our note Sunday night: Gold and Silver as they have broken down from a bear flag pattern. Furthermore, Copper left a tail of nearly 10 cents on Friday’s session, and the U.S. Dollar Index is gearing to breakout above its July 14th high. We view this as extremely negative in the immediate-term and see tremendous value in Week 2, September 9th expiration, 1700 Puts for $600 or less.
– U.S. Dollar Index has head faked a new swing high, retreating to negative on the session. The move has been underpinned by reinvigorated strength in the Euro due to more aggressive calls from ECB members (highlighted above).
– Gold and Silver both decisively violated their pre-FOMC statement July 27th settlements at 1737.5 in the S&P and 18.60 in Silver. Gold has recovered this level. Action below will be seen as very negative.
– In order to Neutralize our cautiously Bearish Bias, Gold will have to settle back above … Click here to get our (FULL) daily reports emailed to you!
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