Growth at the Forefront, Fed Probabilities Moving | 12/06/2022
Posted: Dec. 6, 2022, 10:16 a.m.
Fundamentals: U.S. equity benchmarks slipped sharply to start the week. It is no coincidence the odds of at least 100bps worth of Fed hikes through its February meeting have risen to 63.7%, according to the CME’s FedWatch Tool. Strong Wage Growth on Friday’s Nonfarm Payrolls, followed by a re-acceleration in Services via yesterday’s ISM Non-Manufacturing, has underpinned the rise in hike expectations from a coin flip one week ago. The yield of the U.S. 10-year Treasury has also responded, not just fundamentally to the data, but from technical support at 3.5% area, or 114’16-115’00 in the futures. Rising yields will tighten conditions and the risk appetite. Bill Baruch discussed just this on yesterday’s CNBC Halftime Report.
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Today’s economic calendar is quiet, but things begin to pick up through midweek. U.S. Trade Balance data is due at 7:30 am CT. Although inflation is showing signs of being contained for the moment, the fear is a sharp slowdown in global growth. Services data from China and the Eurozone contracted more than expected to start the week. We then look to Trade Balance data from China tonight. On the earnings front, Toll Brothers will be closely watched tonight. The homebuilder is known to specialize in higher-end homes, but what has been the impact of rising rates? |
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 4003.25, down 72.75
NQ, yesterday’s close: Settled at 11,805.75, down 204.50
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NQ (December)
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Crude Oil (January)
Yesterday’s close: Settled at 76.93, down 3.05
Fundamentals: Global growth fears and strong technical resistance eroded upbeat sentiment in Crude Oil to start the week. Yes, reopening tailwinds from China are a positive, but this will be a slow process through the first quarter. Furthermore, the price caps on Russian Oil may do very little to keep Russian barrels off the market, which was ultimately not the goal. The price cap at $60 will impact China, India, Turkey, and the likes, logistically, but Saudi Arabia cut their price for January Arab Light for Asia to a 10-month low, in what appears to be an attempt to compete with Russian barrels post-cap. Although we remain upbeat over the long-term, we have been and will continue to be extremely cautious in the near-term. Broadly speaking, tremendous damage to the Oil market has taken place during this time of year, and prior experience is a factor in keeping us cautious right now. Furthermore, there are the $80+ bull markets in Oil, and the sub-$50 bear markets in Oil, with very sharp and vicious transitions in between.
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Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1781.3, down 28.3
Silver, yesterday’s close: Settled at 22.417, down 0.833
Fundamentals: One of the most seasonally bullish times of year for the precious metals complex is right around the corner, but before then, there are clear fundamental headwinds. As we noted in the S&P/NQ section, the odds of 100bps worth of hikes from the Fed through February have increased to 63.7%, from a coin flip. Additionally, the U.S. Dollar Index is at a critical area of support, and Treasuries a critical area of resistance. However, all is not negative, the Chinese Yuan has strengthened back below the psychological 7.0 mark versus the U.S. Dollar. The week builds into a critical read on inflation with PPI on Friday, and we would not be surprised to see a continued consolidation lower until then.
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