Market Overview – Morning Express
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3917.25, up 27.25
NQ, yesterday’s close: Settled at 12,024.00, up 90.50
Fundamentals: The central bank extravaganza is underway. Riksbank, Sweden’s central bank, surprised markets with a full 100bps hike. Coupled with much hotter than expected German PPI (+7.9% MoM vs +1.6% exp), the one-two punch quickly eroded an improving risk-sentiment on the European open. Also, last night, Japan’s CPI hit an eight year high. Shorts began covering late in yesterday’s session, driving the S&P to an overnight high of 3936.25. The news sparked a fresh wave of selling, bringing price action back below 3900 ahead of the opening bell. The hotter than expected inflation data has sent global bond markets sharply lower with the German 2-year and 10-year yields each adding about 12bps. The U.S. 10-year yield is now decisively out above 3.5% and trading at the highest since April 2011. However, the bigger story is the U.S. 2-year yield closing in on 4.0% and the 2s10s spread at the historic floor of -0.50%.
This leads into tomorrow’s Fed decision. The bank begins their two-day policy meeting today and concludes with a rate hike decision at 1:00 pm CT. tomorrow. The CME FedWatch Tool points to a 75bp hike with an 82% probability, but we believe it is more about the holistic picture. At least, what are the rate expectations after the next three meetings? The Fed is expected to hike by 200bps through yearend (between tomorrow, November, and December) with a 56.5%. This indicates the Fed would have to hike by 75bps tomorrow and another 125bps between November and December. It is our belief that risk-sentiment is teetering on this 56.5%. If 125bps at the next two meetings becomes more probable or if odds of 150bps emerges more firmly than the current 8.6%, it is likely stocks are lower. However, if these expectations fall back to 100bps, then risks for a stock market rally are becoming very skewed to the upside.
Building Permits data missed expectations, falling -10% Mom, whereas Housing Starts topped expectations, rebounded 12.2% MoM. On the inflation front, a slate off CPI from Canada came in under expectations. We now look to comments from ECB President Lagarde at noon CT, along with the U.S. Treasury auctioning $12 billion worth of 20-year Bonds.
Technicals: Price action across U.S. equity benchmarks improved upon yesterday’s opening bell. A push and pull below 3900-3905 throughout the session remained constructive and pressured shorts into the close. A short-covering rally lifted both the S&P and NQ to settle at major three-star resistances; 3918.50-3919.25 and 11,979-12,036. Strength carried afterhours and the S&P briefly exceeded our next level of resistance, highlighted below. This morning’s reversal establishes a Pivot and point of balance with the recurring 3900-3905 in the S&P, as well as 11,933-11,936 in the NQ. Regaining these marks will again improve risk-sentiment and pressure shorts. However, while holding below our Pivot and point of balance the door is open for a test of key support at 3870.50-3873.75 at minimum, while leaving the door open for a direct test of major three-star support at… Click here to get our (FULL) daily reports emailed to you!
Crude Oil (November)
Yesterday’s close: Settled at 85.36, up 0.60
Fundamentals: Crude Oil rebounded strongly from to settle 4.4% from yesterday’s low of 81.73. We found several major catalysts driving the move; data showing +3.583 mbpd overcompliance from OPEC+ in August, a weakening U.S. Dollar on the session, the planned reopening of China’s Chengdu with 21 million residents, positioning dynamics due to the October contract expiration, and hold of rare major four-star support at 81.66-81.94. We also believe an improvement in broad risk-sentiment added tailwinds, but its arguable Crude started such a rebound in sentiment. However, the risk-environment has deteriorated into the onset of U.S. hours due to Germany’s hot PPI at +7.9% MoM. Adding to pressures in Crude Oil are reports the White House will extend the timeline of SPR release, selling another 10 mbs in November. At the end of the day, lower technical highs have been a self-fulfilling prophecy for recent action.
Technicals: Crude Oil’s rise stopped on a dime at major three-star resistance at 86.16-86.28 and has now sunk back below the 85.66 mark. We continue to hold a Neutral Bias, hinged on the idea a flush is necessary to cleanse this market and present a tremendous buying opportunity. First key support comes in at yesterday’s late morning shelf and the 50% of the move at 83.86-84.12. A break below this support will quickly open the door for a test of strong key support at … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1678.2, down 5.3
Silver, yesterday’s close: Settled 19.358, up 0.023
Fundamentals: Gold and Silver are on their backfoot this morning with a resurgence in the U.S. Dollar on the heels of hotter than expected German PPI (+7.9% MoM). This hot inflation read paves the way for the idea Europe will have to tighten policy much more than expected and thus erode the growth outlook further. This has also opened a trap door in the sovereign debt complex, underpinning higher yields from Germany and the U.S. The ongoing and underlying strength in the U.S. Dollar has been a crucial component of our more recent cautiously Bearish Bias of Gold.
Technicals: Rally attempts in both Gold and Silver have failed at first resistance levels; 1690-1696 in Gold and 19.57-19.63 in Silver. Ultimately, the multiple tests of resistance now make way for selling/liquidation to probe the lower end of the recent ranges. Although we have had major three-star support in Gold at 1665.7-1673.7, this is the fourth test in as many days, and it becomes more likely that support gives way. Such opens the door to our next significant support at … Click here to get our (FULL) daily reports emailed to you!