What Does A Bond Breakout Mean for Risk-Assets? | Morning Express | 1/19/2023
Posted: Jan. 19, 2023, 9:21 a.m.
Fundamentals: Yesterday’s data dump sent 30-year Bond futures to the highest level since September. Yes, there were tailwinds from a dovish Bank of Japan and slowing U.S. inflation data (CPI last week, PPI yesterday), but there has been an undeniable safe-haven bid due to data showing a deteriorating U.S. economy. We are not in 2022 anymore, inflation is not rising precipitously, and the Treasury market is not forecasting endless Fed rate hikes. Although this creates a Bond bid, much of it should have been discounted in Q4. There is a fine line between ‘bad news is good for risk-assets’, and ‘bad news is bad for risk-assets’. Have we crossed into the dark side, where slowing economic growth without a Fed pivot will take down stocks? We do not know the answer yet, but Bonds are beginning to say so.
Do not miss our daily Midday Market Minute, from yesterday.
Today’s economic calendar brings weekly Initial Jobless Claims, fresh January Philly Fed Manufacturing, Housing Starts, and Building Permits.
Fed Governor Collins speaks at 8:00 am CT, but Fed Vice Chair Brainard, maybe the most dovish committee member, speaks at 12:15 am CT. Her comments, especially at this juncture, will be critical.
E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 3945.75, down 63.75
NQ, yesterday’s close: Settled at 11,475.75, down 148.75
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NQ (March)
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Crude Oil (March)
Yesterday’s close: Settled at 79.80, down 0.65
Fundamentals: Crude Oil felt the shock of a slowing U.S. economy yesterday and was pulled down along with other risk-assets. At the same time, China’s reopening has been a bullish tailwind to start the year. But how much has been discounted? Especially after the run to a critical resistance area at $82, with the last leg powered by the OPEC+ and IEA Monthly Reports. Each highlighted a rebound in Chinese demand and a potential supply/demand imbalance if the world were to lose Russian barrels. At some point, the narrative has been fully discounted, and maybe that moment came yesterday. Please do not mistake us, a rebound in Chinese demand may be the catalyst to $90+, but not until the market actually realizes it.
Weekly EIA inventory data is due at 10:00 am CT. Expectations are for -0.593 mb Crude, +2.529 mb Gasoline, and +0.122 mb Distillates. There has been rumors of a rebound in Gasoline demand. How much SPR was released? Are we still seeing the regular end-of-year inventory distortions?
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Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1909.9, down 11.8
Silver, yesterday’s close: Settled at 23.647, down 0.421
Fundamentals: A divergence between Gold and Silver continues. Gold is seeing an underlying safe-haven bid, underpinned by falling yields (discussed in the S&P/NQ section), whereas Silver is incurring pressures tied to deteriorating economic data. Regardless, the U.S. Dollar’s inability to strengthen has kept a broadly stable picture for both. Today’s economic data was better than expected, with Initial Jobless Claims falling to the lowest level in nearly a year, Philly Fed Manufacturing coming in less-worse, and a mix between Building Permits and Housings Starts. Boston Fed President Collins spoke at 8:00 am CT and said, “the Fed should raise the policy rate to just above 5%, and then hold it there for some time,” adding that, “it is appropriate to slow the pace of hikes, especially since the risks are now more balanced.” However, she added that “services inflation remains persistently high.” We now look to comments from Fed Vice Chair Brainard at 12:15 am CT, known to be one of the most dovish committee members.
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Silver (March)
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