Market Overview – Morning Express
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3950.25, down 179.75
NQ, yesterday’s close: Settled at 12115.75, down 707.75
Fundamentals: Yesterday’s hotter than expected August CPI report shocked markets. One might say, that after a four-day 7% rally in the S&P, risks were skewed to the downside. Headline CPI was only a touch more than expected at +0.1% MoM and +8.3% YoY, but expectations had mounted for disinflation month-to-month. However, it was the Core read that stole the show, rising by +0.6% MoM and +6.3% YoY. Core inflation excludes food and energy. With gasoline prices falling for 76 consecutive days through the end of August (91 as of yesterday), inflation data that removes energy volatility sheds a light on the stickiness of other components, such as rents and healthcare. Signaling that inflation has not yet peaked, markets quicky discounted a more aggressive Federal Reserve with expectations for a 100bp hike next week emerging with a 36% probability. Most importantly, the picture through yearend, that we constantly reference, now points to 200bps worth of hikes with a 56.5% probability.
Inflation will remain at the forefront with today’s PPI. Although consumer prices inherently drive monetary policy, it is important to remember producer prices are a leading indicator for consumer prices. But within what timetable? The month-to-month rises in PPI have been all over the place this year, until disinflating by -0.5% in July. Given higher base comparisons as PPI rose sharply last year, the yearly read has shown signs of peaking. Headline PPI MoM for August was in line with expectations at -0.1% and YoY came in a touch below at +8.7% versus +8.8% expected. It is notable that July’s -0.5% was revised up to -0.4% and therefore today’s in line -0.1% may not be right on the nose. However, similar to yesterday’s CPI report, it was Core PPI that came in hotter than expected at +0.4% MoM versus +0.3% and +7.3% YoY versus +7.1%.
At the end of the day, it is all about the U.S. Dollar and Bonds. How do they react coming out of this data? The Bank of Japan performed “rate checks” which signal they may intervene to support the Yen. Strength in the Yen overnight has eroded some of the U.S Dollar Index’s gains from yesterday. Does the safe haven U.S. Dollar continue to strengthen with the Index breaking out above 110.50, creating added market stress? Do Treasury yields continue to climb, forcing investors to decide between higher yielding bonds and ‘riskier’ stocks? Higher yields are also a tailwind to U.S. Dollar strength.
Technicals: Yesterday’s -4.3% loss in the S&P was its worst since losing 5.9% on June 11, 2020. The S&P and NQ erased their entire rebound, that began one week ago. This reinstitutes rare major four-star support at 3900-3918.50 in the S&P and 11,979-11,996 in the NQ; a break below here could get ugly. Here is a terrific fact. After May’s CPI data in June, it took the S&P five sessions (including CPI day) to bottom out. Five days takes us to Monday, which is the Monday after Quadruple Witching. Mondays after Quad have brought some of the most historic bottoms in the market; December 2018 and March 2020, to name two. Additionally, the days around Quad have marked many turning points, such as March and June of this year. We will reintroduce a cautiously Bearish Bias until a close above major three-star resistance in the S&P at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (October)
Yesterday’s close: Settled at 87.31, down 0.47
Fundamentals: Crude Oil did get caught in the risk-off undertow on the heels of yesterday’s hot CPI. News the White House will buy Crude for the SPR “around” $80 helped spark a rally of 3.4% to close out the day. Shortly after leaking the “around” $80, the White House corrected the leak saying “once WTI trades below $80” they will begin replenishing the SPR. Regardless, the White House seemingly put a floor under Crude Oil, just as Saudi Arabia did a few weeks back. Price are back near $89 on strength this morning, ahead of EIA data. Expectations are for +0.833 mb Crude, -0.858 m b Gasoline, and +0.600 mb Distillates.
Technicals: Price action is closing in on rare major four-star resistance and will have to close above here in order to reinvite a cautiously Bullish Bias. Support now comes in at 88.03-88.29 and the bulls will hold the upper hand while out above here, but must clear rare major four-star resistance at … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1717.4, down 23.2
Silver, yesterday’s close: Settled at 19.491, down 0.369
Fundamentals: After a solid start to the week for Gold and a terrific one for Silver, both were pressed on their backfoot after the hotter than expected CPI. The U.S. Dollar surged back to last Thursday’s level and pressured the metals complex. The Yen traded to a new 24-year low upon the CPI spike but reports overnight the Bank of Japan performed ‘rate checks’, a potential precursor to currency intervention ignited a spike in the Yen that helped peel metals off session lows. Today’s PPI was overall firmer than expected paving the way for currencies, rates, and precious metals to consolidate back into the thick of yesterday’s range. It would seem with the Bank of Japan on alert, that again the overnight session will be most crucial.
Technicals: There is a push and pull taking place within the precious metals space. Silver and Gold have diverged, and each is likely keeping the other from a potential directional move. Gold’s weakness yesterday unfolded a bear-flag breakdown that retested and held major three-star support at 1700.2. Whereas Silver’s spike on Monday helped build a flagpole and given that yesterday’s weakness remains constructive, there is a bull-flag developing. Silver must hold out above major three-star support at … Click here to get our (FULL) daily reports emailed to you!