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

S&P, yesterday’s close: Settled at 3803.25, up 113.00

NQ, yesterday’s close: Settled at 11,640.75, up 355.00

Fundamentals:  U.S. equity benchmarks are again on their backfoot. Underlying strength in the U.S. Dollar was reinvigorated at the European open, marking a turning point of sentiment. Yesterday, we discussed how markets hit a brick wall of Fed hawkishness that could no longer be extrapolated and coupled with a deteriorating economic landscape, it invited an easing of financial conditions. This began last week when the U.S. Dollar slipped 4% and the U.S. 10-year yield nearly 50bps from their peaks last Wednesday. Though buyers remained on strike in the equity space through quarter-end, they stepped in with two hands upon Monday’s opening bell, driving a two-day gain of 5.6% gain in the S&P upon yesterday’s close. The domino effect is clear, and every piece fits into the puzzle. Yesterday, we noted that as of last Monday the odds of a 75bps hike at the November meeting was roughly 75%. As the U.S. Dollar and rates topped, and equities remained heavy, these odds closed in on a coin flip with a 50bps hike through Friday’s quarterly close. Yesterday’s action was very directional, the U.S. Dollar Index fell to a two-week low, and the S&P capped off its best two-day gain since March 2020. However, rates levitated from their own two-week low, and specifically the 2-year outpaced the long-end of the curve, meaning the domino effect has now begun in reverse, a re-tightening of financial conditions. As of this morning, the odds of a 75bps hike in November have climbed to 65.4% and the U.S. Dollar Index is +0.75% on the session. The structural issues in the U.K. and Europe have not disappeared. The British Pound fell more than 1% after U.K. Prime Minister Truss failed again to communicate the logistics of her fiscal frivolousness and a non-monetary ECB-EU meeting stoked added concern.

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

The U.S. economic calendar will have the greatest impact on which way the dominos fall. The first glimpse of September jobs this morning via the private ADP survey showed 208,000 jobs added. Services data will highlight the session with final SPGI Services PMI for September due at 8:45 am CT. The initial read showed less of a contraction than predicted at 49.2 versus 45.0, and an improvement from conditions that were deteriorating in July (47.3) and August (43.7). However, through those months, the more closely watched ISM read for Non-Manufacturing never followed, printing 56.7 and 56.9, respectively. It is expected at 56.0 today. The Prices and Employment components will be watched closely. Stronger than expected data will be seen as a major headwind to risk-assets, whereas Monday’s weaker ISM Manufacturing helped underpin strength. This all leads into Friday’s Nonfarm Payrolls report.

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NQ (December)

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Crude Oil (November)

Yesterday’s close:Settled at 86.52 up 2.59

Fundamentals: Yesterday was another monster session for Crude Oil, and it is no surprise we are seeing a healthy consolidation ahead of today’s OPEC+ announcement and weekly EIA inventory data. Expectations have mounted for OPEC+ to cut at least 1 mbpd and as much as 2 mbpd. We began the week calling the excitement a potential ‘buy the rumor, sell the news’ event, and now anything less than 1 mbpd would almost certainly encourage heavy selling upon the headline. The White House is not happy with the cartel’s plan after the administration sold off the Strategic Petroleum Reserve to the lowest level since 1984, grandstanding for the midterm elections. At the end of the day Saudi Aramco has notched record profits this year and their ally Russia is heavily reliant on Oil revenues.

Breaking New: OPEC+ JMMC recommends a production cut of 2 mbpd.

As bullish as we are over the intermediate-to long-term, it is important to understand that many OPEC+ countries cannot even produce to their ceiling. The effective production cut really does not change much.

Expectations for today’s EIA data are +2.052 mb of Crude, -1.334 mb Gasoline, and -1.367 mb Distillates. The SPR release will have an impact on the composite results.

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Gold (December) / Silver (December)

Gold, yesterday’s close:  Settled at 1730.5, up 28.5

Silver, yesterday’s close: Settled at 21.099, up 0.510

Fundamentals:  The reversal in Gold and Silver can be understood within the context of our S&P/NQ section, financial conditions have begun to retighten. However, markets (and the Fed) will remain very data depended. The U.S. Dollar has rebounded broadly, reinstating pressure on the commodities landscape. Additionally, rates are on the mend from their one-week slide, and this is seen as a major headwind to precious metals. Furthermore, upon the OPEC+ JMMC’s recommendation for a cut of 2 mbpd, Bonds slipped further. Crude Oil will be the tail wagging the inflation narrative at this critical inflection point between $85-90, if the U.S. Dollar remains firm, and we could see a divergence between Oil and Gold in the coming days.

Services data will highlight the session with final SPGI Services PMI for September due at 8:45 am CT. The initial read showed less of a contraction than predicted at 49.2 versus 45.0, and an improvement from conditions that were deteriorating in July (47.3) and August (43.7). However, through those months, the more closely watched ISM read for Non-Manufacturing never followed, printing 56.7 and 56.9, respectively. It is expected at 56.0 today. The Prices and Employment components will be watched closely. Stronger than expected data will be seen as a major headwind to risk-assets, whereas Monday’s weaker ISM Manufacturing helped underpin strength. This all leads into Friday’s Nonfarm Payrolls report.

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Silver (December)

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