Powell Is Not Volcker | Morning Express 06/22/22
Posted: June 22, 2022, 9:52 a.m.
E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 3767.75, up 92.00
NQ, yesterday’s close: Settled at 11,577.25, up 280.50
Fundamentals: In bear-market-rally fashion, yesterday’s strong session was slammed overnight. The selling began early and hit risk-assets from stocks to commodities. Asia led markets lower with the Hang Seng getting tagged by -2.56% and the Shanghai Composite by -1.20%. As for commodities, Crude Oil and Copper both fell out of bed, losing 5% and 3.3% respectively. Even at the onset, the moves felt like there was a negative news event, such as China reestablishing lockdowns or a Fed Governor going rogue, you know who you are. Ultimately, there was no new news, and that is the essence of a bear market. If we were looking to justify the slam-down in some manner, we could say it was due to an abundance of “recession headlines”. Countless banks raised their odds the U.S. economy slips into a recession and media played the loop ad nauseam. Guess what, we are in a recession, and we do not need two quarters of contracting GDP to justify it. However, as we have made it very clear, it is our belief the market prices in a recession 9-12-and-18 months ahead of time. Therefore, U.S. equity benchmarks have been trading like we are in a recession for three to six months already.
On a positive note, the yield of the U.S. 10-year has slipped to a near two-week low at 3.145%. There is a 20-year Bond auction at noon CT, but it will be Fed Chair Powell front and center this morning as he begins two days of testimony before Congress on the state of the economy. Today, he addresses the Senate Banking Committee at 8:30 am CT. We also look to comments from Philadelphia Fed President Harker at 10:30 am CT, he is a 2023 voter. Richmond Fed President Barkin speaks again at 12:30 pm CT, he does not vote until 2024.
Do not miss our daily Midday Market Minute, from yesterday.
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NQ (September)
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Crude Oil (August)
Yesterday’s close: Settled at 106.82, up 1.53
Fundamentals: Crude Oil has plunged by more than 5% amid a broad risk-off undertow. Recession fears and Asian Crude imports from Russia are both weighing broadly on the energy complex. News came out on Monday that China’s Imports of Russian Oil climbed to a record, up 55% from the prior year. The New York Times also penned an article released late yesterday detailing how “Asia’s demand for discounted Russia Oil is offsetting the demand lost from Europe due to sanctions.” Adding fuel to the bearish leg was news that China imported nearly another 2 mb of Iranian Oil for its reserves. The market is going through a re-pricing, adding Russian barrels back to the market. However, this is a short-term band-aid over a wider-stretching problem, the lack of spare capacity and increasing demand. Ultimately, this barrage of news does not change our intermediate to longer-term bullish outlook for Crude Oil. In fact, we view the news as a positive, because it finally brings prices back to a level in which we can justify building a position.
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Gold (August) / Silver (July)
Gold, yesterday’s close: Settled at 1838.8, down 1.8
Silver, yesterday’s close: Settled at 21.768, up 0.181
Fundamentals: Gold and Silver were tagged overnight amid the broad risk-off move. Whereas Silver remains in the red through the start of Fed Chair Powell’s Congressional testimony, Gold and U.S. equity benchmarks have reversed sharply and are both trading positive. The U.S. Dollar Index is slipping along with Treasury yields. Fed Chair Powell said, “I would never want to compare myself to Paul Volcker in anyway.” We believe he is implying that despite currently having such a hawkish stance, he truly does not want to squash the stock market or economy, nor does he want to be known as the Fed Chair that did so. We find this statement very bullish for the precious metals complex and believes it aligns with our ongoing narrative that precious metals will outperform once the Fed stops moving the goal posts. Once the rise of inflation tapers off, we believe those goal posts will stop being moved.
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Silver (July)
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