Will Inflation Torpedo the Tape? | 12/08/2022
Posted: Dec. 8, 2022, 8:34 a.m.
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3936.75, down 8.25
NQ, yesterday’s close: Settled at 11,509.50, down 56.50
Fundamentals: U.S. equity benchmarks have so far staved off additional waves of selling and are consolidating at the low end of the week’s range. We look to weekly Initial Jobless Claims this morning at 7:30 am, before inflation data is truly at the forefront, beginning with CPI and PPI from China tonight. Tomorrow brings PPI, remember, producer prices are a leading indicator of consumer prices. We also get a fresh look at December Michigan Consumer data with evolving inflation expectations. Next week, CPI is due Tuesday, and this all leads into the Fed’s policy decision on Wednesday. Unless the inflation data is smoking hot, the Fed is expected to hike by 50bps. What matters more is their path through the first quarter. Currently, the CME FedWatch Tool is signaling at least 100bps through February with a 57.5% probability, off the highest level of the week at about 65%. Furthermore, exactly 100bps between the next three meetings is at a 43.9% probability. By staying at this level or better, there is reason to believe a Christmas Rally will take hold.
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NQ (December)
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Crude Oil (January)
Yesterday’s close: Settled at 72.01, down 2.24
Fundamentals: A tightly supplied Oil market is rallying off a Keystone Pipeline disruption. Canada’s TC Energy said this morning it shut down the pipeline, which carries 622,000 bpd, adding there was an Oil release into a creek in Nebraska. Yesterday’s EIA data did little to support a market in freefall. Despite a -5.187 mb draw in Crude, there was a combined build of 11.479 mb build in the products. Another 2.1 mb from the SPR was released last week, and Exports fell by 10.626 mb w/w. Such week-to-week divergences, combined with the higher-than-expected Refinery Utilization at +0.3% w/w versus +0.1%, help explain the wide range of data. For now, the Keystone news is helping to buoy price action from nearing the $70 mark for the first time since January for this January contract or since December for front-month.
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Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1798.0, up 15.6
Silver, yesterday’s close: Settled at 22.922, up 0.587
Fundamentals: Gold and Silver are edging higher this morning after Initial Jobless Claims were in line with expectations at 230k. Outside of 240k two weeks ago, this is the highest level since September. Yesterday’s stronger-than-expected Nonfarm Productivity and lower-than-expected Labor Cost data for Q3 helped underpin a rally that retested the $1800 mark in Gold and $23 in Silver. While there has been bullish momentum in recent weeks, and this rebound exudes more in the near-term, this tape will heavily rely on tomorrow’s PPI data and what the inflation read does to the U.S. Dollar and rates.
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