Removing Uncertainties, For Now | Morning Express 10/18/2022
Posted: Oct. 18, 2022, 8:55 a.m.
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3689.25, up 91.75
NQ, yesterday’s close: Settled at 11,110.25, up 366.26
Fundamentals: U.S. equity benchmarks rebounded to start the week, ping-ponging between 3600 and 3700 for the third straight session. A bit of levitation through Asian hours last night found strong bullish tailwinds from a Financial Times article saying the Bank of England will further delay Quantitative Tightening. The news ripped the S&P through resistance at Friday’s peak of 3733 and to a fresh high of 3764.75. The Bank of England then denied the story, but price action has remained buoyant, holding, and rebounding from the FT story launch point.
Earnings have also helped underpin this week’s rally with Bank of America helping set things off on the right foot yesterday, followed by Johnson and Johnson and Goldman Sachs this morning. In recent weeks, we have pointed to the excessive negative sentiment as a potential upside catalyst. However, it does not end at broad market sentiment, but also that for earnings. We believe expectations are set for companies to stumble through much of the season, but instead surprise to the upside during what is typically a seasonally bullish time of year.
Do not miss our daily Midday Market Minute, from yesterday.
The CME’s FedWatch Tool signals a 75bps hike in two weeks at a near certainty and now has the probability of another 75bps hike in December at 69.4%. When we go out to the next meeting in February, expectations are for a 25bps hike with a probability of 54.9%. In fact, the bright spot is the removal of some near-term uncertainties as two more 75ps hikes are discounted, with a slower pace of future hikes. Remember, our theme for the last couple of weeks, a bullish catalyst would be a market that refuses to go lower on a hot inflation print. As we look to the next month, expectations for October headline CPI are already lingering at an eyepopping +0.80%. Ultimately, inflation would need to be hotter than those lofty expectations, but we now have a pocket of time for markets to rebound from this excessive negativity.
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NQ (December)
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Crude Oil (November)
Yesterday’s close: Settled at 84.53, down 0.12
Fundamentals: Despite a broad sense of risk-on in equities, Crude Oil remains on soft footing. Fresh pressures come from something we anticipated here, and we are not geniuses for forecasting it; the White House announced it will sell another 10-15 mb from the Strategic Petroleum Reserve. Anyone could have seen this naive maneuver coming from miles away after OPEC+ announced it will cut production by 2 mbpd, in reality 900,000 bpd. Additionally, an eroding global growth outlook coupled with a new Omicron sub-variant being reported and Chinese President Xi doubling down on his draconian policies, it paves the way for some negative market sentiment. Early expectations for tomorrow’s weekly EIA data are for +1.551 mb Crude, -2.0 mb Gasoline, and -2.18 mb Distillates.
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Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1664.0, up 15.1
Silver, yesterday’s close: Settled at 18.719, up 0.648
Fundamentals: Gold and Silver are holding ground, rebounding from yesterday’s post-settlement selling, but have not extended gains on the session. The U.S. Dollar is down on the week, but this failed to bring support to the precious metals camp. The Treasury complex remains weak, with Bonds lingering at their lows and this is certainly weighing on Gold’s ability to gain ground. Today’s Industrial and Manufacturing Production data topped expectations, Gold’s task to gain ground could be tougher, but a strong number here could also mean more demand for Silver and Platinum for industrial purposes. We will dive into this report and cover it on today’s Midday Market Minute.
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Silver (December)
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