Inflation is Percolating | Morning Express | 2/15/2023
Posted: Feb. 15, 2023, 8:33 a.m.
E-mini S&P (March) / E-mini NQ (March)
S&P, yesterday’s close: Settled at 4145.50, down 1.75
NQ, yesterday’s close: Settled at 12,631.00, up 90.50
Fundamentals: The barrage of economic data continues today with January Retail Sales front and center, along with fresh February NY Empire State Manufacturing, both released at 7:30 am CT. Combined with U.S. CPI yesterday and U.S. PPI tomorrow, along with fresh Philly Fed Manufacturing, the data will tell a story.
Yesterday’s January CPI came in above expectations, with headline at 6.4% y/y versus 6.2%. Was it hot? Arguably yes and no, but it signals a fresh wave of inflation could be percolating. The headline month-over-month read was in line with expectations at +0.52%, but this was a seven-month high. There was some disinflation in Durables, falling by -0.06% m/m, but the pace of disinflation is slowing from an average of -0.58% over the last three months. However, Services Less Rent and Shelter, which is referred to as the new Super Core, was +0.56% m/m, above its pace for the last three and six months. Shelter still increased at an elevated +0.74% m/m. Though Shelter is widely known to be the most lagging component, there are real signs the housing sector is beginning to surprise to the upside. All things considered, inflation is beginning to ebb and flow, a parallel to the 1970s and something the Fed must avoid.
What would underpin this ebb and flow? A tight job market and strong consumer. January Nonfarm Payrolls surprised to the upside, with 517,000 jobs created and the Unemployment Rate hitting a new 54-year low. Today brings the highly anticipated January Retail Sales report. Going as far back as mid-December on CNBC, Bill Baruch has lauded this report as absolutely pivotal. We believe it could really surprise to the upside. Yes, December’s read was abysmal at -1.1% m/m for both headline and Core (excluding autos). Those weak results encourage an easier snapback in January. However, over the last three years, two of the best three reads have come in January. Not just snapbacks but blowouts. Ultimately, holiday spending is not what it used to be, and people can order anything on demand. When January rolls around, people are ready to spend on perceived deals and enjoy the New Year. Have you looked around? People are back in the office, and they are out at restaurants, all encouraging more and more spending.
Although there is no certainty in how the stock market will react today upon these Retail Sales results, if hot, it begins to support a story that inflation is picking back up. Foreseeably, such would support the U.S. Dollar and extrapolate further Fed rate hikes. After yesterday’s CPI, the 2-year Note did the talking, it rose by nearly 10bps and is now at 4.6%, the highest since November 9th. The 2s10s spread cratered to a new low of -0.875%. The Treasury complex is certainly telling us CPI was hot and the Fed must be more aggressive.
Do not miss our daily Midday Market Minute, from yesterday.
Technicals Premium
🔒 You need to be a Premium User to unlock this content. Click here to unlock.
Levels Premium
🔒 You need to be a Premium User to unlock this content. Click here to unlock.
NQ (March)
Levels Premium
🔒 You need to be a Premium User to unlock this content. Click here to unlock.
Crude Oil (March)
Yesterday’s close: Settled at 79.06, down 1.08
Fundamentals: Crude Oil has consolidated off its best levels of the week after the White House announced it would sell another 26 mb from the SPR. This morning the IEA is in the news, saying, "World oil supply looks set to exceed demand through the first half of 2023, but the balance could quickly shift to the deficit as demand recovers, and some Russian output is shut in."
Weekly EIA inventory data is now front and center, and last night’s private API survey posted a massive surprise build of 10.507 mb of Crude, while Gasoline and Distillates also rose, by 0.846 mb and 5.261 mb, respectively. Furthermore, API signaled inventories at Cushing increased by another 1.954 mb, which would mark the seventh consecutive week of increases. Cushing stocks are now at the highest levels since July 2021. Expectations for today’s official report are +1.166 mb Crude, +1.543 mb Gasoline, and +0.447 mb Distillates.
Technicals Premium
🔒 You need to be a Premium User to unlock this content. Click here to unlock.
Levels Premium
🔒 You need to be a Premium User to unlock this content. Click here to unlock.
Gold (April) / Silver (March)
Gold, yesterday’s close: Settled at 1865.4, up 1.9
Silver, yesterday’s close: Settled at 21.873, up 0.021
Fundamentals: Gold and Silver both hit the lowest level of the year overnight and could find additional pressures on the heels of a hot January Retail Sales report; headline +3.0% m/m vs +1.8%, and Core +2.3% vs +0.8%. The U.S. Dollar has been finding its footing ever since the January Nonfarm Payrolls report on February 3rd, and this has been a direct headwind to the precious metals complex. Today’s Retail Sales exudes a very resilient consumer, and furthermore credit card delinquencies are at extremely low levels, signaling this report was not a one-time event. As we explained in more detail in the S&P/NQ section, a consumer of this strength, coupled with a tight job market (the Unemployment Rate at 54-year lows), is a leading indicator of fresh waves of inflation. Although we believe Gold and Silver will shine again this year, this will be seen as a near- to intermediate-term headwind.
Technicals: Price action in Gold has now chewed through support leading into the 1850 area, and 1850.1-1856.7 will now serve as our Pivot and point of balance. Similarly, Silver has broken below major three-star support at 21.78-21.95. Although this favors the bear camp and encourages continued liquidation, all is not lost, as we have major three-star support in Gold and rare major four-star support in Silver coming in at 1838.8-1842.2 and 20.70-21.08.
Levels Premium
🔒 You need to be a Premium User to unlock this content. Click here to unlock.
Silver (March)
Levels Premium
🔒 You need to be a Premium User to unlock this content. Click here to unlock.
In case you haven't already, you can sign up for a complimentary 2-week trial of our complete research packet, Blue Line Express.
Sign up for a Free Trial
Start Trading with Blue Line Futures
Don't have an account with Blue Line Futures?
Futures trading involves substantial risk of loss and may not be suitable for all investors. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
Blue Line Futures is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that the NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. Therefore, carefully consider whether such trading is suitable for you considering your financial condition.
With Cyber-attacks on the rise, attacking firms in the healthcare, financial, energy and other state and global sectors, Blue Line Futures wants you to be safe! Blue Line Futures will never contact you via a third party application. Blue Line Futures employees use only firm authorized email addresses and phone numbers. If you are contacted by any person and want to confirm identity please reach out to us at info@bluelinefutures.com or call us at 312- 278-0500
Like this post? Share it below:
Back to Insights
In case you haven't already, you can sign up for a complimentary 2-week trial of our complete research packet, Blue Line Express.
Free Trial