Inflation, Labor Costs, and Flying Hawks I Morning Express | 3/2/2023
Posted: March 2, 2023, 9:23 a.m.
E-mini S&P (March) / E-mini NQ (March)
S&P, yesterday’s close: Settled at 3956.50, down 19.00
NQ, yesterday’s close: Settled at 11,961.75, down 110.50
Fundamentals: E-mini S&P and E-mini NQ futures slipped precipitously through the Asian open last night, the second in a row, but this time there was not a robust slate of China data to quickly improve sentiment. In fact, last night was just the opposite as Tesla slipped as much as 7% after it’s Investor Day disappointed; the company announced more spending and no new models. The E-mini S&P and E-mini NQ were dialed in on Tesla’s weakness as well as the U.S. 10-year Note regaining 4.0% for the first time since November 10th and more or less ignored Salesforce earnings. The beleaguered software company blew out earnings expectations and is up more than 15% on strong guidance and buybacks. Salesforce has done some heavy lifting for the Dow, buoying it around unchanged for much of the overnight.
Price action in the E-mini S&P and E-mini NQ futures staved off a fresh low after a hotter-than-expected Eurozone CPI. Although the headline +8.5% y/y and record Core at +5.6% y/y is certainly jarring, expectations mounted in recent days from the individual country reports. However, surging inflation in Europe has helped underpin higher yields in the U.S., a direct headwind to risk-assets. It is worth noting German yields have retreated slightly. We will continue to watch the U.S. 2-year very closely, as well as the 10-year. It is no coincidence the 2-year yield took out its November high and reached the highest since July 2007 yesterday, as E-mini S&P futures hit a six-week low.
Do not miss our daily Midday market Minute, from yesterday.
From the U.S. economic calendar, Q4 Unit Labor Costs were revised higher in a shocking manner, to +3.2% from +1.6%. Nonfarm Productivity was as well, but lower, to 1.7% from +2.6%. In other words, labor costs more for less. Weekly Initial Jobless Claims also topped expectations at 190k versus 195k. Traders should keep an ear out for Fed speak as the day unfolds. Fed Governor Waller is due to speak at 3:00 pm CT, and Minneapolis Fed President Kashkari at 5:00 pm CT, both are known to be two of the more hawkish committee members.
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NQ (March)
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Crude Oil (April)
Yesterday’s close: Settled at 77/05. Up 1.37
Fundamentals: Crude Oil is bleeding higher, underpinned by record U.S. Exports on yesterday’s weekly EIA inventory report. In December, the spread between WTI and Brent was below $4. Today, the spread is above $6. The relatively cheaper WTI versus Brent is a tailwind for U.S. Exports. The steady buoyancy for Crude has also diverged from the broader risk environment this week and Russian Exports are the elephant in the room. As the price climbs, we find technical landscape to be critical.
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Gold (April) / Silver (May)
Gold, yesterday’s close: Settled at 1845.4, up 8.7
Silver, yesterday’s close: Settled at 21.095, up 0.024
Fundamentals: Gold and Silver have been under pressure from yesterday’s high due to climbing yields. The U.S. 10-year yield is now out above 4% and the 2-year is at the highest levels since July 2007. To make the path more difficult, we are seeing broad U.S. Dollar strength. Although hot inflation data out of the Eurozone underpins the yield story and should lift the Euro, it is also seen as drastically slowing European growth as the ECB attempts to cool the rising prices. Gold turned up on Tuesday, and steady day today would exude there is more under the hood than just a dead cat bounce.
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Silver (May)
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