A Historically Bullish Tailwind | Morning Express | 11/08/2022
Posted: Nov. 8, 2022, 8:49 a.m.
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3815.25, up 35.75
NQ, yesterday’s close: Settled at 11,014.25, up 124.00
Fundamentals: We have had Election Day circled on our calendar for months, the onset of one of the most historically bullish seasonal patterns. There have been 18 Midterm Elections since 1950; six and 12 months out, the S&P was higher every single time. In fact, after three months, the S&P was only negative once, in February 2003, following the 2002 Midterms the S&P was -7.8%. During such a tumultuous year, if this does not get you excited, then we do not know what will.
Bill Baruch joined Kitco News yesterday for an interview covering markets, elections, and broadly some of his best ideas. He noted that deadlock, Republicans taking control of Congress while a Democrat is President, would be the best scenario for the stock market. Rising rates and less liquidity, as the Federal Reserve tightens monetary policy, has been the biggest headwind to risk-assets this year. From a fiscal perspective, printing more money would increase the supply of Treasuries to cover the debt and thus become a tailwind to higher rates. However, upon deadlock in Washington, less debt is likely to be printed.
With that said, there is still a critical week ahead as Thursday’s CPI release nears, the Federal Reserve’s rate hike expectations are front and center. This morning, there is a 52% probability the Fed hikes by 50bps in December and only a 29.4% probability we see 125bps between December and February. Expectations for the Fed to shift down to 50bps hikes over the next two meetings are likely to bring bullish tailwinds, however, Thursday’s inflation data will have a tremendous impact.
Today’s economic calendar is light. NFIB Small Business Optimism was in line with expectations at 91.3, falling from 92.1 in September, a four-month high. The U.S. Treasury will auction $40 billion 3-year Notes today and $35 billion 10-years tomorrow. Tonight, we look to a slate of inflation data from China.
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NQ (December)
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Crude Oil (December)
Yesterday’s close: Settled at 91.79, down 0.82
Fundamentals: Crude Oil is on its back foot and consolidating but holding out above the psychological $90 mark for now. News out of China is weighing on the tape after the city of Zhengzhou said the virus cases more than doubled on Monday. Foxconn, the Apple iPhone manufacturer, is located in Zhengzhou. Although Crude Oil is down to start the day, both Gasoline and Heating Oil are trading sharply higher. Distillate stocks, comparable to Heating Oil, have slipped since peaking in September and are reapproaching a historic floor at 1 million barrels that has not been violated since 2003. This narrative will be front and center as inventory data is released tomorrow. Early expectations are for +1.1 mb Crude, -0.967 mb Gasoline, and -1.433 mb Distillates.
The EIA will release its Short-Term Energy Outlook today at 11:00 am CT.
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Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1680.5, up 3.9
Silver, yesterday’s close: Settled at 20.919, up 0.135
Fundamentals: Gold and Silver are holding ground remarkably, given the Chinese Yuan has lost 1.1% from Friday’s peak, and their local virus situation is not improving in the near-term. Although the U.S. Dollar has firmed just 0.25% from yesterday’s low, it is still down 2.4% from Friday’s peak and helping to underpin an ongoing bid in precious metals. The Treasury market is also showing some improvements from session lows as we look to Midterm Elections and auctions. All things considered, this could be the start to something much bigger for Gold and Silver, but Thursday’s CPI will confirm or deny the rally in the near-term.
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Silver (December)
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