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If you get the Dollar right, you get a lot of things right

E-mini S&P (September) / NQ (September)

S&P, yesterday’s close: Settled at 4141.75, down 5.00

NQ, yesterday’s close: Settled at 13,183.25, down 45.50

Fundamentals: The market is zeroed in on tomorrow’s CPI report for July. With commodities bludgeoned and the Fed’s tightening trickling into the economy, the anticipation of a much slower month to month increase of inflation led to July being the S&P’s best month since November 2020. Although it has merely recaptured the scene of the crime from May’s CPI report (released June 10th), the NQ and Russell 2000 have reached their highest levels since April. As we near the ‘Inflation Showdown at Jackson Hole’ later this month, our theme since the spring, the macro backdrop is right where we expected; an inflection point that has underpinned risk-on. Headline year over year inflation may not be receding and is expected at +8.7-8.8%, with Core at 6.1%, according to the Cleveland Fed Nowcast, but a reprieve in the month to month surge is what’s being discounted at +0.2-0.3% headline and +0.5% Core. This is down from a headline month to month jump in June of 1.3%. If confirmed, the data dependent tune from Fed Chair Powell will stick through Jackson Hole and increase the odds of a continued summer melt-up in equity markets. However, if CPI is again much hotter than expected, especially on the heels of last week’s Nonfarm Payrolls report, it will force the Fed to act with continued aggression and we are likely to see the probability of a 100 basis point hike in September emerge.

As noted in yesterday’s Midday Market Minute, amid a stew of narratives, it was NVDIA’s revenue warning that grabbed the reins on the session. Consumer spending has eroded and a slump in gaming is leading the decline. Today, Micron echoed similarities with its own revenue warning due to “challenging” conditions that lower expectations for bit demand growth in DRAM and NAND. We applauded Alphabet, Apple, ServiceNow, and others who pre-announced layoffs, hiring and spending slowdowns, and warned of the challenging environment; each stock is trading much higher in the aftermath of their actual earnings report. Companies, especially those in tech, need to trim the fat and as an investor this is a positive. Micron announced additional Capex reductions. All things considered, yes, the market is reacting negatively now, but flushing this out ultimately opens the door to overall positive price action.

On today’s economic calendar, Nonfarm Productivity in Q2 showed less of a decrease than expected at -4.6% versus -4.7%, but Unit Labor Costs exceeded expectations at 10.8% versus 9.5%. The U.S. Treasury will auction $42 billion 3-year Notes today and $35 billion 10-years tomorrow.

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NQ (September)

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Crude Oil (September)

Yesterday’s close:  Settled at 90.76, up 1.75

Fundamentals: Crude Oil is moving higher at 5:00 am CT on news Russia suspended Oil exports via the southern leg of the Druzhba pipeline due to transit payment issues. The pipeline feeds Hungary Czech Republic, and Slovakia. The interruption has been confirmed by Slovak refiner Slovnaft, adding that production will continue, and supplies may be renewed in several days if parties show a “positive approach”. We credit @financialjuice on Twitter for these updates. As the session unfolds, traders do want to keep an eye on developments in renewing the Iranian Nuclear Deal which seem to be gaining traction after EU leaders delivered a proposal. Early estimates for this week’s inventory data are for -0.400 mb Crude, -0.417 mb Gasoline, and -0.033 mb Distillates. The EIA’s Short-Term Energy Outlook is due today at 11:00 am CT.

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Gold (December) / Silver (September)

Gold, yesterday’s close:  Settled at 1805.2, up 14.0

Silver, yesterday’s close: Settled at 20.614, up 0.772

Fundamentals: Silver led the precious metals complex higher yesterday and Gold is following suit today by trading out above resistance at 1812. U.S. Dollar weakness from the post-Nonfarm spike has helped underpin this strength and the USDCNH is gearing for a second day of declines, potentially taking out the 21-dma for the first time since July 11th. We commonly find a stronger Chinese Yuan (weaker USDCNH) to be a direct boost to metals broadly. At the end of the day, it will be all about tomorrow’s CPI data, which we discussed in the S&P/NQ section in more detail. Ultimately, a hot read will erode the recent rebound in Gold and Silver.

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Silver (September)

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