Market Overview – Morning Express
– Inflation has been hot and remains hot. Yesterday’s CPI release was firmly just above expectations.
– Excluding food and energy, Core CPI +0.6% MoM versus +0.5% expected and +6.0% YoY versus +5.9%.
– Headline CPI was +0.6% versus +0.5% expected and +7.5% YoY versus +7.3%.
– January YoY data jumped from December, but overall beats are negligible relative to the broader story.
– Has inflation gone out of control? We cannot deny its steady increase, but base comparisons have become a different dynamic. This is not a 6% or 7% increase on inflation over last year’s headline hot inflation. These are increases over the aftermath of the pandemic’s deflationary event.
– For instance, Core CPI in Q1 2021 averaged 1.43%. Today’s 6.0% is YoY compared to that. Core CPI from June – Aug 2021 averaged 4.27%, how will that look YoY?
– The CME’s FedWatch, using Fed Funds futures, is now pricing in a 50-basis point hike in March with an 83.1% probability.
– It is also telling us that 50 basis points worth of hikes is priced in with a 100% probability as of May’s meeting.
– By the December Fed meeting, it is pricing in 150 basis points worth of hikes with an 88.8% probability. And 175 basis points, or seven 25 basis point hikes, with a 65.6% probability.
– Goldman Sachs and Bank of America are both calling for seven 25 basis point hikes, one at every meeting this year.
– The yield on the U.S. 10-year hit a high of 2.054% yesterday, right in the thick of our 2.00-2.15% target.
– If this is not peak hawkishness, with the 10-year at our 2.00-2.15% target, there is only 35% more room for that 7th 25bp hike to be priced in.
– Final thoughts – Given that CPI was NOT hotter than expected, risk-assets rallied into midday yesterday. Then St. Louis Fed President Bullard spoke, casting his support of 100 basis points worth of hikes by July 1st and open to 50-bp in March. To put this into context, I remember when Bullard got super dovish in October 2014 because Ebola was going to ravage the world. This came while the Fed was completing the last portion of taper and moving through a very slow tightening cycle. He created a 200-point whiplash in the S&P that fueled it to a fresh record, at a time when this was more than a 10% move amid unheard-of volatility. This is arguably one of the first instances of the ‘Fed Put’. Bullard is a voter in 2022. Two non-voters, San Francisco’s Daly and Richmond’s Barkin, followed his comments yesterday and said 50-bps in March is “not their preference”. Broadly, other committee members have exuded a “more measured pace of hikes”. Given yesterday’s violent swings, we may be embarking on a warzone of Fed speak over the next week. Stay nimble.
E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 4497.50, down 80.25
NQ, yesterday’s close: Settled at 14,071.00, down 337.25
– The first test down to rare major four-star support yesterday at 4510-4517.25 held perfectly and provided a 69-point tradable rip.
– The second test, after Bullard, broker through, but this level will remain critical through today’s close. Remember it aligns with the 50% retracement from the January all-time high and ensuing low.
– NQ is retesting a critical level of resistance at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (March)
Yesterday’s close: Settled at 89.88, up 0.22
– Crude Oil is well off overnight lows, and it is much more than the broader risk rebound.
– The IEA, in their Monthly Report, said the global Oil market is tighter than thought.
– They raised … Click here to get our (FULL) daily reports emailed to you!
Gold (April) / Silver (March)
Gold, yesterday’s close: Settled at 1837.4, up 0.8
Silver, yesterday’s close: Settled at 23.522, up 0.181
– Gold and Silver did exactly what we expected yesterday after the morning’s not hotter than expected CPI.
– It was Bullard’s comments that created a shock across asset classes, lifting the U.S. Dollar and rates. Thus, bludgeoning the metals. Silver more than Gold.
– Price action in Gold got out to 1843.3 and was likely on its way to 1855 before the impact.
– Settlement in Gold at 1837.4 aligns with previous resistance and the gap creates strong overhead supply.
– Gold has held at and above the CPI release whiplash, whereas Silver has sold off more sharply.
– Silver will look to find balance at our Pivot 22.95-23.08
– Major three-star support must be watched closely at … Click here to get our (FULL) daily reports emailed to you!
You can sign up for a free trial here: https://www.bluelinefutures.com/free-trial
https://www.bluelinefutures.com
20220211
