Market Overview – Morning Express
Market Overview – Morning Express
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3910.50, down 14.00
NQ, yesterday’s close: Settled at 12,019.00, down 85.25
Fundamentals: There are many things happening in the bond market, but with the curve broadly steepening for about a month, these are now the two biggest. The Federal Reserve is reducing its balance sheet and rate hike probabilities are mounting. This month, the central bank doubled the pace in which it will unwind its balance sheet to $90 billion per month. Also, a new wave of hawkish expectations are emerging. A 75 basis point hike later this month is now priced in with a 78% probability. This paves the way for at least 150 basis points through yearend with an 82.9% probability, and odds of 175 have emerged at 5.6%. One month ago, even after a strong July jobs report the odds for 150 were merely 22%. The Federal Reserve is getting exactly what they want, and Fed Chair Powell’s Jackson Hole speech was impeccably timed. He delivered a narrow and deliberately hawkish rhetoric no one could ignore, right in front of an air pocket in the bond market. Prior to his speech, markets were pricing in some likeliness of rate cuts by mid-2023. Now, those 150 basis points being discounted through yearend are expected to hold through next June with an 80.6% probability. The 30-year Bond has broken down and its yield hit the highest since June 2014 (3.514%) yesterday. Given this and the shift in rate hike expectations, the 2-10-year yield curve has steepened by 20 basis points since Powell’s speech, back to -15 basis points. Although risk-sentiment is roiling, this is arguably very constructive over the intermediate-term.
Do not miss our daily Midday Market Minute, from yesterday.
You see, inflation may be trying to peak but would remain buoyant if conditions were too loose. Powell’s impeccable timing, a one-two punch if you will, is not only intended to suppress inflation but an attempt to bury this wave six feet under. Make no mistake, as we wrote about through the spring, there will be many battles against inflation within a much larger war. We now have one week until next Tuesday’s CPI data. The Cleveland Fed Inflation Nowcast has revised August headline inflation lower to +0.06% MoM, but September is expected at +0.42% MoM. When the rise of inflation was expected to dissipate in July, expectations for August were following. This allowed the Federal Reserve to catch its breath, but with September’s indicators re-elevating, it forced the more deliberate approach.
This leads into comments from Fed speakers today and tomorrow. Richmond Fed President Barkin, who does not vote until 2024, speaks at 8:00 am CT. Cleveland Fed President Mester, a 2022 voter, is at 9:00 am CT. Fed Vice Chair Brainard is scheduled for 11:35 am CT, and Fed Governor Barr speaks at 1:00 pm CT. Tomorrow, Fed Chair Powell speaks at 8:10 am CT, coinciding with the ECB policy announcement at 7:15 am CT and ECB President Lagarde’s press conference afterward.
Technicals: Selling kicked in on the open yesterday, but the trade was two-sided with a significant rebound attempt early. The bears are in the driver’s seat, but the bulls can begin neutralizing the immediacy of the selling by advancing price action out above resistance aligning with yesterday’s rebound at 3939.25-3943.25 in the S&P. Overall, the heavy tape is pointing lower and a substantial flush in order stoke excessive negativity in front of next week’s CPI. Still, what was rare major four-star support above the 3900 mark continues to buoy the tape, now as major three-star support at 3902-3908.25. However, the trend line that once aligned here now comes in as resistance near the recurring 3923.25 mark. Continued action below here in the S&P will encourage a move to our next major three-star support at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (October)
Yesterday’s close: Settled at 86.88, down 0.01
Fundamentals: Ironically, it may seem the West’s price caps are working. Unfortunately, this is simply a global growth and currency story. The U.S. Dollar is breaking out broadly against global currencies and pressuring commodities. China has now locked down roughly 60 million and cases are emerging in Shanghai. Furthermore, Trade Balance data from China last night was ugly with both headline Exports and Imports coming in sharply below expectations at +7.1% versus +12.8% and +0.3% versus +1.1%. To make matters worse China’s Crude Oil Imports for August fell 9.4% YoY. Although OPEC+’s production cut was headline bullish, it also exudes fear within the demand dynamics. Given these headwinds, many bulls have gotten out of the way, (remember we went Neutral upon the break of $93 last week) and there could be further political engineering to keep prices suppressed ahead of the midterms.
Technicals: Price action is chewing through major three-star support, a floor, at 86.16-86.28. Although October’s previous low was 85.37, we view the break below major three-star support as significant and paving the way for further weakness that can test a minimum of … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1712.9, down 9.7
Silver, yesterday’s close: Settled at 17.908, up 0.027
Fundamentals: Gold and Silver staged a rebound from overnight lows but remain very weak due to the strength of the U.S. Dollar and the risk-off environment. The USDCNH has all but achieved 7.0 and the USDJPY (inverse of Yen futures) decisively broke out above the closely watched 140.0 mark yesterday. Furthermore, as we discussed in the S&P/NQ section, due to indicators signaling a rebound of month-to-month inflation in September, the Federal Reserve is likely to remain stern in their hawkish rhetoric. On the positive side, a flush in Gold below $1700 this week could set the stage for a terrific buying opportunity through August’s CPI read next week.
Technicals: We continue to hold a cautiously Bearish Bias, something we implemented upon the bear-flag breakdown after Fed Chair Powell’s Jackson Hole speech August 26th. A critical area of support at the psychological $1700 mark in Gold, the low settlement, has been defended twice now by the bull camp, but another test and violation through today’s session could open the door to heavy selling into major three-star support at … Click here to get our (FULL) daily reports emailed to you!
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