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

S&P, yesterday’s close: Settled at 4276.75, down 31.00

NQ, yesterday’s close: Settled at 13,493.25, down 165.00

Fundamentals: 

Minutes from the Federal Reserve’s July meeting, released yesterday afternoon, reinvigorated a lackluster tape. The S&P briefly stuck its nose back above 4300, a 1.1% bounce from session lows. Many market participants feared the Fed would orchestrate the Minutes to offset the idea of a “pivot” and coming on the heels of that hot U.K. inflation data, highlight here yesterday, odds began favoring a 75 basis point hike in September. If you have followed us since the July meeting, you know we do not believe the Fed made a “pivot”. Due to inflation rising steadfastly all year, the committee has continually needed to move the goal posts. As we predicted, inflation did stop surging ahead of Jackson Hole, which begins next week. This allowed the Fed to stop moving those goal posts and become more reactionary to the data. Those Minutes exuded just that, and odds again favor a 50 basis point hike in September with a 61.5% probability. Regardless, given the rebound in equity markets, the idea of measured downside or reward vastly outweighing risks has also flipped. We again want to reiterate, although we are certainly not bearish and believe U.S. equity benchmarks have the ability to finish the year much higher than current levels, it would be difficult to do so without a healthy pullback first.

Jackson Hole is next week and the elephant in the room is not those well-anchored Fed hike expectations, but the bank’s plan to reduce its $9 trillion balance sheet. In June, the Fed began allowing $45 billion worth of bonds per month to fall off its balance sheet. Starting in September, the bank’s Quantitative Tightening will increase to $90 billion per month. Barring an unlikely surprise on next Friday’s PCE read, the Fed’s September hike expectations will remain well-anchored through Jackson Hole, at the least. This makes the Fed’s balance sheet discussion and questions around how well markets can handle less liquidity the most critical topic.

Do not miss yesterday's post-FOMC close Midday Market Minute.

On the economic calendar, Initial Jobless Claims came in better than expected at 250k versus 265k. Philly Fed Manufacturing also came in better at +6.2 versus -5.0, a sharp divergence from the awful NY Empire State Manufacturing on Monday. Existing Home Sales are due at 9:00 am CT. Kansas City Fed President George, a 2022 voter, speaks at 12:20 pm CT and Minneapolis Fed President, the once ultra-dove, now leaning hawkish, and 2023 voter, speaks at 12:45 pm CT.

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NQ (September)

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Crude Oil (October)

Yesterday’s close: Settled at 87.69, up 1.53

Fundamentals: Yesterday’s EIA data was headline bullish. Bill Baruch noted this in a tweet directly after the release and discussed it in the post-close Midday Market Minute. However, he also pointed to September Option Expiration yesterday and a technical battle between $85-90 as keeping the tape confined. Crude inventories fell by -7.056 mb and Gasoline by -4.6442 mb. The large composite draw of -10.932 mb, after factoring in +0.766 mb from Distillates, was aided by record exports and the least amount of SPR release since the end of April. By the way, the SPR is now at the lowest level since March 1985. Ultimately, our rhetoric that surging Net Imports is unsustainable, which factor in SPR, could be starting to come to fruition and we find this extremely bullish. However, inventories at Cushing have risen for seven weeks in a row, just as the severe backwardation has come out of the market. This does signal less stress physically. Regardless, we remain upbeat and especially so as geopolitics are on high alert and expectations mount for added stimulus from China.

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Gold (December) / Silver (September)

Gold, yesterday’s close: Settled at 1776.7, down 13.0

Silver, yesterday’s close: Settled at 19.731, down 0.354

Fundamentals: Although Gold and Silver are off their worst levels, the tape remains very unenthusiastic. A one-two punch of better than expected Initial Jobless Claims and Philly Fed Manufacturing smacked the precious metals complex down from session highs. Furthermore, despite enthusiasm the Fed did not orchestrate hawkishness within yesterday’s Minutes, Gold and Silver have done very little to acknowledge it. Existing Home Sales are due at 9:00 am CT. Also, Kansas City Fed President George, a 2022 voter, speaks at 12:20 pm CT and Minneapolis Fed President, the once ultra-dove, now leaning hawkish, and 2023 voter, speaks at 12:45 pm CT.

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Silver (September)

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