Data Laying Groundwork for Fed | Morning Express | 10/28/2022
Posted: Oct. 28, 2022, 8:25 a.m.
- Core PCE, the Federal Reserve’s preferred inflation indicator, is due at 7:30 am CT. It is accompanied by Personal Spending, Income, and Consumption data, and comes ahead of next Wednesday’s policy decision.
- Q3 Employment Cost Index is also due at 7:30 am CT, followed by final October Michigan Consumer data and Pending Home Sales at 9:00 am CT.
- Apple bucks the big tech trend and is set to open marginally higher after beating top and bottom estimates. The stock initially traded lower given the environment Amazon laid and missing on iPhone sales and services revenue.
- Amazon is down sharply, losing as much as 20% before paring back to -12% ahead of the bell. The company missed on revenues and lowered its forecast for the highly anticipated holiday Q4. Cloud growth also disappoints.
- Big Oil, Chevron, and Exxon, crushed earnings expectations this morning and are both higher by nearly 2%, helping to soothe sentiment.
Breaking: Core PCE was light at 5.1% YoY v 5.2% expected and in line MoM at +0.5%. Personal Income +0.4% v +0.3% and Personal Spending +0.6% v +0.4%, both topped expectations.
The risk landscape remains fickle, but the Treasury complex responded to equity market weakness upon yesterday’s earnings miss from Amazon. Although Bonds have completely pared the panic surge and then some, it is a bright spot to see the convexity of a risk-off move. In fact, the odds for a 75bps hike from the Federal Reserve next week have eroded to 81%, and the odds for December have flipped to a 50bps hike with better than a 50% probability. We do believe 75bps next week is a foregone conclusion, but the responsiveness to fears of evolving deterioration is an important step to normalizing the historical relationship between stocks and bonds. There is chatter the Fed will use next week to lay the groundwork for slowing the pace of hikes and allowing their work to sink in. The struggles from big tech this earnings season likely helped build a case for slowing the pace of hikes. Additionally, these companies lowered the bar for future quarters. What if this was the worst environment they face? If you take a company like Netflix, one of the first dominoes to fall, they had a surprisingly good quarter. Other pandemic darlings like Shopify did too. Next week, we look to PayPal, a former darling but one that has played within a theme of leaders to the downside, now exhibiting significant relative strength in recent months. Not to mention, buybacks and a seasonally bullish time are right around the corner. Without dragging this morning’s note on, what I am getting at is this is a recipe for being in the later innings of a bear market, or at a minimum, the stage is being set for a meaningful rally.
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3819.50, down 21.50
NQ, yesterday’s close: Settled at 11,235.25, down 210.75
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NQ (December)
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Crude Oil (December)
Yesterday’s close: Settled 89.08, up 1.17
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Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1665.6, down 3.6
Silver, yesterday’s close: Settled at 19.494, up 0.008
Fundamentals: Yesterday, we said, “With fundamentals helping to support underlying strength, it is now a matter of whether Gold and Silver can chew through significant levels of technical resistance.” Gold and Silver have not been able to chew through that resistance, and fundamentally, the U.S. Dollar rebounded overnight and encouraged a wave of selling across the metals complex. Most importantly, the U.S. Dollar gained 0.70% against the Chinese Yuan on the day. However, the Dollar Index has pared its strength in half, and the Treasury complex has firmed up from session lows after the ECB raised rates as expected and did not announce QT. Also, Q3 GDP beat slightly, but Prices came down to 4.1% versus 5.3% expected and 9.1% in Q2, as well as Jobless Claims ticking up to 217k from 214k last week (though 220k expected). All things considered, the pressure is reverted back to the technical landscape.
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Silver (December)
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