Market Overview – Morning Express
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 4130.00, up 44.50
NQ, yesterday’s close: Settled at 12,740.75, up 148.25
Fundamentals: An absolutely pivotal U.S. CPI read is due at 7:30. The four-day risk-on rally displays mounting disinflation expectations. A survey of analysts points to headline inflation falling by -0.1% month over month but remaining elevated at +8.1% year over year. The Cleveland Fed’s Nowcast signals a slowing monthly rise of inflation, increasing by a meager +0.06% MoM while holding at 8.24% YoY. Up until this summer, Core CPI, excluding food and energy, was watched most closely. Due to the fall in gasoline prices, it will again be front and center. Analysts expect Core to rise by +0.3% MoM and +6.1% YoY. The Cleveland Fed’s Nowcast is showing +0.48% and +6.25%.
Despite expectations for slowing inflation, the Federal Reserve is still seen hiking rates by 75 basis points at their policy meeting next week. The CME’s FedWatch Tool gives this an 86% probability. Additionally, they are expected to hike by 150 basis points through yearend with an 89.3% probability. However, what really matters after today’s CPI read is whether an additional 25 through yearend (175 in total) becomes more likely or erodes. Those odds currently sit at 20.4%.
Bill Baruch discussed the risk dynamic in yesterday’s Midday Market Minute. Fed Chair Powell is in the driver’s seat, humbling markets at his narrow and hawkish Jackson Hole speech. He emphasized one read of slowing inflation, as incurred in July, will not derail the Fed’s fight. But will two reads of slowing inflation? In such a case, there will certainly be a bullish headline impact on risk assets. However, the four-day rally has likely discounted August’s slowing inflation, within the aforementioned expectations. Furthermore, the market risks are now skewed to the downside, especially in the case that CPI rises by +0.1% MoM or more.
Technicals: U.S. equity benchmarks have melted higher since holding rare major four-star support at the 3900 area. Yesterday’s strength recouped the Jackson Hole breakdown, and tailwinds overnight have padded gains. Our Bias in this current market environment must account for both the fundamental and technical impact of today’s CPI. Therefore, we will remain outright Neutral and plan to update you with a Midday Market Minute once the morning settles. From a purely technical basis, overnight strength decisively through major three-star resistance aligning with the pre-Jackson Hole floor at 4128-4130 is bullish. Will it stick? We will be looking to the range outside of here comes for confirmation in either direction. A break below major three-star support at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (October)
Yesterday’s close: Settled at 87.78, up 0.99
Fundamentals: Crude Oil rose overnight along with the broad risk-environment as market participants eye critical read on U.S. inflation at 7:30 am CT and OPEC’s Monthly Report. Crude’s rise can be attributed to many drivers to start the week, fresh delays in an Iran Nuclear Deal, the potential of an extreme measure by Russian President Putin, broad market tailwinds, U.S. Dollar weakness, and of course a critical hold of rare major four-star support. As the session unfolds, U.S. inventory expectations will also impact market sentiment. Early estimates are for -0.20 mb Crude, -0.817 mb Gasoline, and +0.633 mb Distillates.
Technicals: Price action is firm but testing into a wide range of rare major four-star support at 89.43-90.39. Our Bias has remained Bearish, although we have pointed to the trading opportunities provided amid a test of rare major four-star support at the $82 region. A close above this resistance would reinvigorate a Bullish Bias. Until then, the bulls must hold the tape our above our Pivot and point of balance at … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1740.6, up 12.0
Silver, yesterday’s close: Settled at 19.86, up 1.093
Fundamentals: Silver led the charge higher yesterday, testing nearly a one-month high on a short-covering rally. The move began percolating Wednesday upon the U.S. Dollar’s reversal and Silver grinded higher to finish the week. However, yesterday’s was 88% more Friday. At the end of the day, it all comes down to today’s August CPI report. Will it favor continued weakness in the U.S. Dollar, thus underpinning the recent strength in Gold and Silver? We breakdown our thoughts in today’s S&P/NQ section.
Technicals: The Commitment of Traders Managed Money Net-Short position in Silver hit the lowest level since May of 2019, as of the week ending last Tuesday. We can assume that some of last week’s late grind higher was the beginning of the short-covering and this will place huge emphasis on this Friday’s report. In the meantime, Silver did check resistance at the $20 mark yesterday before settling in and holding the Pivot and point of balance at 19.57-19.63. However, Gold has struggled to extend gains and hold above major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!