An Infection Point Within a New Bull Market? I Morning Express | 3/1/2023
Posted: March 1, 2023, 9:06 a.m.
E-mini S&P (March) / E-mini NQ (March)
S&P, yesterday’s close: Settled at 3975.50, down 12.50
NQ, yesterday's close: Settled at 12,072.25, down 11.00
Fundamentals: E-mini S&P and E-mini NQ futures stalled out in the final two hours yesterday to finish at new session lows. The move coincided with U.S. Dollar strength and a likely air-pocket into month-end. Price action remained weak into the overnight, with each index trading down to its Friday afternoon range before Chinese PMIs topped expectations and reinvigorated sentiment. At the onset of the first opening bell of March, the U.S. Dollar Index slipped to its lowest level in a week after German CPI came in hotter than expected. The news, though weighing on the Dollar due to Euro strength, has done the same to equities while lifting yields. The hotter-than-expected inflation from Germany should not come as a surprise due to yesterday’s slate from France and Spain. However, ECB Governing Council member Nagel, also the President of the German Bundesbank, immediately spoke of significant ECB rate hikes after March and a faster QT, saying, “ECB policy must be more stubborn than inflation.” U.S. equity benchmarks are now on their backfoot ahead of the bell as we eye a slate of manufacturing data from the U.S. Up first is the final February SPGI Manufacturing PMI at 8:45 am CT. It is followed by the more closely watched ISM Manufacturing at 9:00 am CT.
Do not miss our daily Midday Market Minute, from yesterday.
In yesterday's Morning Express, we spoke of good news beginning to have a good impact on equities. CME Fed Fund futures have now priced-out any probabilities of a rate cut in 2023 with a terminal rate of 5.25-5.50%, matching the Federal Reserve’s expectations. Does bad news still have an uplifting impact? We will see with today’s Manufacturing PMIs. What we do know is that components like Prices Paid and New Orders will continue to have more weight within the report than ever before.
Lastly, Treasury yields are at a critical inflection point. With data signaling inflation in both the U.S. and Europe is again running hot, yields have remained very elevated. However, the U.S. 10-year Note has not been able to pierce 4.0%, and 10-year futures prices are testing a critical level of support going back to the November 10th rally. Additionally, the U.S. 2-year yield has been the leader higher, but it too is showing signs of exhaustion at its spike from Friday, struggling to hold above 4.84% as it tests the November 4th high of 4.88%. If yields retreat and futures prices firm up, it will be seen as a supportive catalyst to equity markets. However, if yields surge through these critical areas, it could be the straw that breaks the camel’s back.
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NQ (March)
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Yesterday’s close: Settled at 77.05, up 1.37
Fundamentals: Crude Oil retreated from a session high of 77.83 yesterday to close out the month and incurred additional selling after the API inventory print. Strong PMIs and upbeat economic comments out of China last night quickly reinvigorated the tape, but to a lower high before selling kicked in after Russia said it has no plans of selling its Oil cheaply.
It is important to note that yesterday's high of 77.83 was achieved at the U.S. intraday open at 8:00 am CT. After struggling to extend gains, it retreated with broader risk-assets before the private API survey showed another large build of 6.203 mb. Although some of this was offset by -1.774 mb Gasoline and -0.3441 mb Distillates, another large headline build of Crude will begin weighing more on sentiment. API also saw inventories at Cushing increase by 483,000 barrels.
The official EIA data is front and center at 9:30 am CT. Analysts expect +0.457 mb Crude, +0.464 mb Gasoline, and -0.462 mb Distillates. Refinery Utilization and Exports will play a role in understanding the breadth of the report.
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Gold (April) / Silver (May)
Gold, yesterday’s close: Settled at 1836.7, up 11.8
Silver, yesterday’s close: Settled at 21.071, up 0.278
Fundamentals: Yesterday was a significant turn for Gold and Silver, but today’s slate of Manufacturing PMIs remains to define it as a month-end bounce or something more significant. Final SPGI Manufacturing PMI is due at 8:45 am CT, and the more closely watched ISM Manufacturing PMIs follow at 9:00 am CT. Bringing a tailwind this morning is U.S. Dollar weakness, however, it comes at the expense of higher yields due to hotter-than-expected German CPI and hawkish comments from the ECB’s Nagel, a crosswind. We turned cautiously Bullish early yesterday morning and will look to a steady close today to define a more Bullish near-to intermediate-term outlook while defining a level to be such above.
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Silver (May)
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