The Inflation Showdown At Jackson Hole | Morning Express 08/23/2022
Posted: Aug. 23, 2022, 8:44 a.m.
E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 4141.25, down 90.25
NQ, yesterday’s close: Settled at 12,909.75, down 358.75
Fundamentals: The healthy pullback finally arrived. How fitting, right? The S&P rallied from extreme negativity, when investors were crying uncle, and stopped right at the 200-day moving average, just as many bears were throwing in the towel. The one theme that threads this all together, what we have been talking about since April, the ‘Inflation Showdown at Jackson Hole’. On Friday, Fed Chair Powell will deliver his much-awaited keynote speech. The Federal Reserve has used the Jackson Hole Symposium to deliver, in many ways, monumental policy announcements. Just over the last two years, the bank announced ‘symmetrical inflation targeting’ in 2020, allowing inflation to run as hot as it did cold, and decided to stand strong in their path of easing last year. Of course, the former led to the latter and the Fed is now battling unprecedented and historic waves of inflation. Over the next two days, leading up to Chair Powell’s speech on Friday, we will examine the direction in which we believe the Fed will go from here.
Do not miss our daily Midday Market Minute, from yesterday.
Today’s economic calendar brings flash PMIs. Germany surprised by only marginally contracting at 49.8 versus 48.2. This underpinned a firmer Eurozone read at 49.7 versus 49.0. Although Eurozone Services PMI did expand at 50.2, it came in below the 50.5 expected, with Germany’s 48.2 (49.0 exp) contraction weighing it down. The largest surprise this morning came from the U.K., where Manufacturing PMI contracted with 46.0 versus 51.0 expected. The U.S. is on deck, due at 8:45 am CT, followed by New Homes and Richmond Fed data. The U.S. Treasury will auction $44 billion 2-year Notes today, $45 billion 5-years tomorrow, and $37 billion 7-years on Thursday. Also, Minneapolis Fed President Kashkari will speak at 6:00 pm CT.
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NQ (September)
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Crude Oil (October)
Yesterday’s close: Settled at 90.36, down 0.08
Fundamentals: Crude Oil is pressing out above Friday’s failed high of 91.69 after strength was reinvigorated by jawboning from the Saudi Oil Minister. He noted the Oil market is overlooking limited spare capacity and there is a disconnect between futures and physical that may force OPEC+ to tighten output. Oh really? We have been pointing to this disconnect for months as the White House unloads SPR at a record pace. Furthermore, in the expectation of a politically orchestrated price suppression in Gasoline, stations waited to re-stock supply at better prices, drawing down tanks in the meantime. There have now been 70 straight days of lower Gasoline prices at the pump and coincidentally Gasoline inventories have been drawn down by 9.62 mb over the prior two weeks. All things considered, there is a clear disconnect and Saudi Arabia, enjoying the $50 billion profit from Aramco last quarter, clearly wants to defend the price of Oil from the mid-80’s and we find this very bullish.
Early estimates for tomorrow’s EIA report are -1.5 mb Crude, -1.833 mb Gasoline, and +0.267 mb Distillates.
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Gold (December) / Silver (September)
Gold, yesterday’s close: Settled at 1748.4, up 14.5
Silver, yesterday’s close: Settled at 18.878, down 0.191
Fundamentals: As we noted here yesterday, the U.S. Dollar strengthening against the Chinese Yuan has been a direct headwind weighing on the precious metals landscape. The USDCNH broke out yesterday and extended gains on today’s session before peeling back (and developing a potential spinning top). The Dollar has also strengthened above parity against the Euro and the Dollar Index as so far Pac-Manned the July 14th high of 109.14. Added headwinds have come in the tune of rising yields on fears of a more hawkish Fed at Jackson Hole and added supply hitting the market this week (highlighted in the S&P/NQ section). It is all about the Fed’s messaging this week. Today, we look to U.S. flash PMIs at 8:45 am CT.
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Silver (September)
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