Market Overview – Morning Express
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 4081.25, up 119.25
NQ, yesterday’s close: Settled at 12,042.25, up 517.50
Fundamentals: Fed Chair Powell put on his bright red Santa cap yesterday and did his best to usher in that Christmas rally we spoke of, signaling that smaller rate hikes could start as early as December. Of course, he did add his ongoing rhetoric, “We (the Fed) will stay the course until the job is done, and despite promising developments, there is a long way to go in restoring price stability.” The CME’s FedWatch Tool shifted rate hike expectations through mid-2023 to lean on a 4.75-5.00% peak, down from 5.00-5.25%. The odds of at least 100bps between the December and February meetings shifted slightly closer to a coin flip, at 54.5% from 57.6%. Yesterday, we said, “The latter (a softening in Powell’s approach) could anchor expectations for a terminal rate at 5.00%, a stark contrast to the 5-7% hawkish St. Louis Fed President Bullard has called for (again on Monday) and likely ushering in a Christmas rally.” Between Powell’s comments, Vice Chair Brainard’s dovishness, and Bullard’s hawkishness, the Fed can agree on at least one thing, rates at a minimum, will move into the low-end of the restrictive zone in the next 60 days. Furthermore, markets are finding comfort in this.
Today’s slate of economic data was mixed and includes the Fed’s preferred inflation indicator, Core PCE. Headline and Core PCE for October y/y were both in line with expectations. However, September was revised up by one-tenth on each. Both headline and Core PCE m/m came in a tenth below expectations at +0.3% and +0.2%, respectively. Personal Income topped expectations handily at +0.7% versus +0.4%, and this could signal sticky wage inflation. Also, weekly Initial Jobless Claims fell back to 225k, from 241k last week, and better than the 235k expected.
Dallas Fed President Logan, a 2023 voter, speaks at 8:30 am CT and Fed Governor Bowman follows at 8:35 am CT. Manufacturing data is also front and center, with the final November SPGI due at 8:45 am CT and the more closely watched ISM read out at 9:00 am CT.
We must not forget tomorrow brings Nonfarm Payroll at 7:30 am CT.
Technicals: Price action surged through major three-star resistance at 3997-4003.25 as Fed Chair Powell spoke, and there was a clear signal the market was about to go gangbusters. So, where to now? On the spike from soft m/m PCE, the S&P landed a direct hit on a trend line from its January 4th record high. The market is so far exuding the type of strength that signals there is more to this run. However, it is imperative that one does not chase into such strong resistance. Again, the time to chase was yesterday, broadly on the break back above 4000 in the S&P and through 11,750 in the NQ. Today can certainly continue to run, and we want to see a close today, or on the week above the 4105 trend line, anything less will remain vulnerable if not already much lower (given this environment). In fact, a steady consolidation out above our Pivot and Point of balance would be most healthy for each of the S&P and NQ at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (January)
Yesterday’s close: Settled at 80.55, up 2.35
Fundamentals: Crude Oil is surging higher once again and now closing in on the $83 mark. Tailwinds are coming from the OPEC+ production cut talks, Fed Chair Powell’s Santa cap, the EU’s price cap talks, looser quarantine rules in China, and last night’s better-than-expected Chinese Manufacturing PMI. Overall, there have been bullish tailwinds building since OPEC+ reiterated a floor on Brent near $80 (and WTI at $70-75). We also know the White House is a buyer, looking to restock the SPR they have emptied around $70, helping to underpin weakness. However, that story of weakness and widespread lockdowns in China has deteriorated and shifted back to the reopening discussion. The virus does pose a headwind as case counts rise domestically and across the globe, but OPEC’s active management of production has so far offset such risk.
Yesterday, we saw a very muted reaction to the massive EIA headline draw of -12.5 mb of Crude versus the -2.7 expected. Why? Net Imports, including SPR release, was down 12.1 mb week-over-week. Also, Refinery Utilization surged by 1.3% w/w, versus +0.2% expected, and up from a 1% the week prior, which had a hand in product builds. When considering those product builds, the composite draw was only -6.264 mb. Now, consider this relative to the drop in Net Imports.
Technicals: Price action settled out above the $80 mark and began using previous major three-star resistance at 79.65-79.93 as a floor to stage this latest leg higher. We see the bulls in the driver’s seat with continued action above our Pivot and point of balance at 81.67-81, however, one cannot ignore major three-star resistance looming overhead at … Click here to get our (FULL) daily reports emailed to you!
Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1759.9, down 3.8
Silver, yesterday’s close: Settled at 21.781, up 0.345
Fundamentals: As we have pointed out in FOMC Meeting follow-ups, Gold and Silver settle before the release. Similarly, Gold and Silver settled yesterday, prior to Fed Chair Powell’s comments. Today, each is sharply higher, but most of those gains came late in yesterday’s electronic session and before the equity market closing bell. Today’s softer m/m PCE data helped underpin added strength, with the U.S. Dollar Index now back below the 105 mark and the 10-year yield is hugging 3.6%; all of which is supportive to the precious metals complex. Now, layer the Chinese Yuan gaining 2.12% against the U.S. Dollar on the week, although it is unchanged today. This all builds up to tomorrow’s Nonfarm Payrolls report, but first, Dallas Fed President Logan, a 2023 voter, speaks at 8:30 am CT, and Fed Governor Bowman follows at 8:35 am CT. Manufacturing data is also front and center, with final November SPGI due at 8:45 am CT and the more closely watched ISM read out at 9:00 am CT.
Technicals: Price action in both Gold and Silver has cleared the massive headwinds of resistance we have been referencing, but can they do it on a daily and weekly closing basis? Gold is out above 1806-1807.2, aligning multiple technical indicators and a previous speak. Silver is out above 22.22-22.52, aligning with the June damage. A constructive close above these marks should pave a path of least resistance to … Click here to get our (FULL) daily reports emailed to you!