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

S&P, yesterday’s close: Settled at 3588.50, down 10.75

NQ, yesterday’s close: Settled at 10,840.50, down 4.50

Fundamentals:  

It is CPI Day, and the prized inflation indicator is due at 7:30 am CT. Analysts expect the headline read to rise +0.2% month-over-month, while the Cleveland Fed’s Inflation Nowcast model is signaling a +0.32% bump. On a year-over-year basis, they are at 8.1% and 8.2%, respectively. Historically, Core inflation, excluding food and energy, has been watched most closely. However, the Fed has communicated it is most concerned with the real impact on consumers, including the volatile prices paid at the pump and grocery store. It is also likely some political jawboning was behind that rhetoric, given the White House’s questionable effort to bring down gasoline prices by liquidating the country’s Strategic Petroleum Reserve. If so, it may have backfired as Core CPI remains the stickiest month-over-month and is expected to rise by +0.5%. In fact, four of the last five months have risen 0.6% or more, with the year-over-year read for September elevating for the second consecutive month and back to the cycle high of 6.5% hit in March. To make matters worse, the Cleveland Fed model is signaling 6.62%.

Inflation has been the front page narrative, so to speak, for at least a year now. Expectations are entrenched in higher inflation and more so when the stock market is at pessimistic levels. The S&P is now 15% lower than when the August CPI report was released on September 13th. At that time, many market participants had reinvigorated hopes after a historical 20% surge from the June low through August. That CPI report forced a quick recalibration of those expectations, and a two-week bloodbath ensued, heck it’s still going. Today’s report does not come with those same lofty hopes, instead being delivered like the June CPI report in July, amid excessive negativity, which paved the way for that historical 20% surge. The only difference now is the early look for October has continued to levitate, with month-over-month headline CPI, via the Cleveland Fed model now pinging +0.8%. However, to devil’s advocate the devil’s advocate, has the rise in October’s forecast and Fed’s rate hike expectations mounted too much given a deteriorating economy? Furthermore, we believe summer spending, anchoring higher inflation, is now in the rearview mirror and Owner’s Equivalent Rents, a drastically lagging indicator that makes up one-third of CPI, is due to peak out as early as Q1. This brings a lot of potential for a stock market -25% on the year, experiencing excessive negativity, and about to enter a seasonally bullish time of year. 

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

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NQ (December)

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Crude Oil (November)

Yesterday’s close: Settled at 87.27, down 2.08

Fundamentals:  U.S. inflation data is front and center, but we get weekly EIA inventories at 10:00 am CT. Yesterday afternoon, the EIA, in their Short-Term Energy Outlook, joined OPEC in lowering their demand outlook. This morning, the IEA also slashed its forecast for 2023 world Oil demand growth by 470,000 bpd, about 20%. However, they joined the criticism of OPEC+, saying, “Their supply cuts increase energy security risks worldwide.” Price action remains little changed at the onset of U.S. hours after the private API survey showed a much larger build than expected last night for Crude at +7.054 mb. They also had +2.008 mb Gasoline and -4.560 mb Distillates. Expectations for today’s official read are +1.750 mb Crude, -1.825 mb Gasoline, and -2.05 mb Distillates.

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Gold (December) / Silver (December)

Gold, yesterday’s close:  Settled at 1677.55

Silver, yesterday’s close: Settled at 18.938, up 0.549

Fundamentals:  

A hotter-than-expected CPI report has bludgeoned Gold and Silver, as it has all asset classes. Overall, the dataset was not too much off from the Cleveland Fed Inflation Nowcast model detailed in the S&P/NQ section, but an overall strong headline MoM at +0.4% and Core MoM at +0.6% has quickly forced a recalibration. Also, considering the super-hot expectations for headline October MoM at +0.8%, markets are reacting very spooked. There is now basically a 100% probability the Fed hikes by 75bps on November 2nd, and now a 61.8% probability for another 75bps in December, a rise from 32.5% one day ago. Of course, the U.S. Dollar has spiked, but it is the Treasury landscape really bringing the pain, with 2-year yields hitting 4.50%, 10-year yields 4.075%, and 30-year yields 4.00%.

Traders want to keep a pulse on the U.K. after Prime Minister Truss said the government is considering raising the corporate tax rate in a bit of a policy reversal. Before today’s hot CPI, this had encouraged strength in Treasuries and weakness in the U.S. Dollar.

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Silver (December)

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