Market Overview – Morning Express
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3670.00, down 39.00
NQ, yesterday’s close: Settled at 11,316.25, down 60.50
Fundamentals: U.S. benchmarks have been in freefall since the August CPI read on September 13th. All things considered, there really has not been much of a pause, let alone a short-term reprieve. When markets move so directionally, up, or down, it tends to garner sentiment, thus building the likeliness of a mean reversion. Such became more probable at the end of last week, post-FOMC, but dysfunction in the currency and rate space exacerbated the Fed’s hawkishness at hand, stoking the U.S. Dollar and Treasury yields sharply higher. When chaos crosses paths, it amplifies, in recent days markets have absorbed the Fed’s third consecutive 75bp rate hike, a flash crash in the British Pound, and repricing of sovereign debt. Lost in the shuffle was a Fed that was maybe only moderately more hawkish than anticipated. The CME’s FedWatch Tool is signaling 125bps (425-450bps) worth of hikes through yearend with a 61% probability, up from 43.8% one week ago. The committee sees a yearend Fed Funds rate at 4.4% and a terminal rate of 4.6% in 2023. Ahead of last week’s policy decision, we made the case for shock and awe, a hike of 100bps. Ultimately, their yearend rate projections coupled with expectations of slowing growth did the talking and the 2s10s spread inverted to the -0.50bps floor. However, something has happened over the last four days, four tests of -0.50bps and marginally more, but the 2s10s spread has yet to decisively break through. In fact, amid all the chaos and dysfunction that carried into Monday’s U.S. hours, the 2s10s spread finished at -0.43%. This may not sound like a significant feat, but if the yield curve begins steepening and coupled with 5-year Breakevens at the lowest level since June 2021 (cut by one third from March peak), this could be the canary in the coal mine, telling us the worst is in, or at least a substantial reprieve is around the corner.
Technicals: As one may gather from our discussion above, we believe risks are skewed to the upside. Therefore, we are establishing a cautiously Bullish Bias. With that said, we must see construction and it is understood that a break of new lows is very negative. Yesterday’s late intraday high and failure in the S&P comes in at 3697; holding out above here would be constructive. Still, such construction must lead to a close above major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (November)
Yesterday’s close: Settled at 76.71, down 2.03
Fundamentals: Negativity is mounting within the Oil space, and it is a breath of fresh air. It has been our belief, and widely noted by us, that the intermediate trend lower will not end until the dip becomes hard to buy. In other words, a washout or cleansing had become paramount. On Friday, price action breached the $80 mark for the first time since February. The retest to $80 failed magnificently and late in the session October Crude Oil hit a fresh eight month low. Negativity is also being established by the banks and big players. UBS said only an OPEC+ production cut can stop this negative momentum, while Trafigura noted Brent is likely to stay below $100 through yearend. At the end of the day, we all know that other than a renewed global growth outlook, ultimately rubberstamped by U-turn in central bank policy (which we may be close), there are only a few factors that can encourage a quick move back above $100. Luckily, at least two factors are highly likely over the intermediate-term; the White House to stop selling SPR and instead buy, a pick up and Chinese refiner demand, and a cold winter in Europe that forces a switch from Gas to Oil.
The private API inventory survey is due at 3:30 pm CT. Early estimates for tomorrow’s EIA report are +0.33 mb Crude, +0.40 mb Gasoline, and -1.267 mb Distillates.
Technicals: Price action has improved from the low, but there are significant headwinds created, not only from last week’s fallout, but yesterday’s failure. This morning’s strength has struggled at first key resistance at 78.49-78.75, with major three-star resistance now aligning near yesterday’s peak at 79.97-80.35. We will look to our Pivot and point of balance as crucial on the session, if the bulls can keep the tape above … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1633.4, down 22.2
Silver, yesterday’s close: Settled at 18.48, down 0.43
Fundamentals: Gold and Silver both showed some promise early in U.S. hours yesterday. However, they failed miserably at technical resistance and were dragged by the fallout in Bonds as well as a resurgence of U.S. Dollar strength on the session. A rebound in precious metals begins with those two factors, Bonds and currencies, exactly what we have been calling chaotic and dysfunctional over the last two days. However, as we noted in the S&P/NQ section, the steepening of the 2s10s spread through yesterday, fallout in 5-year Breakevens, and some potential signs of peak hawkishness within the Fed’s narrative, are a perfect stew to build a significant rebound for Gold and Silver. Notably, Japan’s PPI came in below expectations last night, helping to lift risk assets, and this morning the Case Shiller Home Price Index fell by -0.4% MoM when +0.2% was expected and only climbed 16.1% YoY, less than the 17.0% expected.
Technicals: Gold and Silver both slightly breached major three-star support but did not settle below yesterday. Just as equity markets sold off sharply into the close, but rebounded in the evening, there is avenue higher that has been paved. Can we see construction today and tomorrow? Gold failed at first key resistance at 1656 yesterday, just as Silver failed at second key resistance at 19.01-19.05 (now major three-star). Construction starts and ends with a close above these levels. However, a more sustainable bounce would be in order upon a close above major three-star resistance in Gold at … Click here to get our (FULL) daily reports emailed to you!