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

S&P, yesterday’s close: Settled at 4130.50, down 10.75

NQ, yesterday’s close: Settled at 12,896.50, down 13.25

Fundamentals: U.S. equity benchmarks are hanging at levels last seen two weeks ago. The S&P settled at 4124.50 on August 9th and soft July CPI released the morning of August 10th helped ignite a fresh leg to the market’s rebound. That dataset signaled headline inflation did not increase from June to July, the first such instance since inflation re-emerged in June 2020. The Federal Reserve has worked ‘expeditiously’ to tighten monetary policy and suppress demand since acknowledging in Q1 their patience was a mistake. The war against inflation is certainly not over, but the bank arguably has secured a victory in one of many battles to come. However, acknowledging the victory in and of itself by signaling a desire to lift their foot off the gas will immediately water down the impact of their maneuvers by reigniting demand. Fed Chair Powell’s job is not an easy one, and yes it has been made more difficult by remaining steadfast in easy policy at last year’s Jackson Hole. As his speech on Friday nears, we are reminded of our Jekyll and Hyde narrative. This is a belief resonated in how the Federal Reserve can exude one rhetoric in its official policy statements but take a more dovish or hawkish approach in between. Their less hawkish approach at the July 27th policy meeting sparked a 10.3% rally in the S&P from the prior day’s close to its peak. In fact, their less hawkish approach took so many by surprise it was championed a ‘Fed Pivot’. We at Blue Line quickly denied such ‘Pivot’ calls and, in the aftermath, committee members began to speak more hawkishly. One might consider the current state of official communication, policy statements and Jackson Hole, as their Jekyll approach, more sensitive to the potential risks of being overly aggressive in policy, and the in-between as Hyde, showing little concern for the stability of asset markets. What does this all mean? We believe that Fed Chair Powell’s approach on Friday will be less about the well-anchored expectations of either 50 or 75 basis points in September and more about the data dependence as inflation in the near-term cools. Furthermore, he may show sensitivity to the increased balance sheet run-off to $90 billion per month, from $45 billion, to begin in September. Ultimately, a less hawkish approach and one more in line with his July 27th post-FOMC press conference.

Do not miss our daily Midday Market Minute, from yesterday.

Durable Goods Orders for July were mixed this morning with Core, excluding transportations items, beating at +0.3% versus +0.2% expected and headline missing widely, coming in flat versus +0.6%. Pending Home Sales is due at 9:00 am CT.

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NQ (September)

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Crude Oil (October)

Yesterday’s close: Settled at 93.74, up 3.38

Fundamentals: Crude Oil is holding ground terrifically out above the previous week’s highs ahead of today’s EIA report. The real bullish tailwind this week has come from those comments from the Saudi Oil Minister discussed here yesterday. Helping to underpin the strength is the expectation of falling inventories on today’s report. Last night, the private API survey posted a massive surprise headline draw of -5.632 mb Crude, along with +0.268 mb Gasoline, and +1.051 mb Distillates. Expectations for today’s official report at 9:30 am CT are for -0.933 mb Crude, -1.464 mb Gasoline, and +0.58 mb Distillates.

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Gold (December) / Silver (September)

Gold, yesterday’s close: Settled at 1761.2, up 12.8

Silver, yesterday’s close: Settled at 19.026, up 0.148

Fundamentals: Gold and Silver received a much-needed shot of adrenaline yesterday morning from the awful Services PMI data (44.1 versus 49.2). However, the U.S. Dollar began stabilizing midsession and found further support from a terrible 2-year auction that sent yields higher. The one-two punch of underlying U.S. Dollar strength and rising yields has quickly eroded any excitement Gold and Silver had early in the session. Hyde is out, per our Jekyll and Hyde discussion in the S&P/NQ section; Minneapolis Fed President Kashkari, a once lauded dove, insisted late yesterday the Fed must remain steadfast in its battle against inflation. The precious metals complex received little reaction from the poor headline Durable Goods Orders and is trying to hold ground after the better-than-expected Pending Home Sales.

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Silver (September)

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