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E-mini S&P (March) / E-mini NQ (March)

 

S&P, yesterday’s close: Settled at 4052.50, up 2.75

NQ, yesterday's close: Settled at 12,323.50, up 12.25

 

Fundamentals: E-mini S&P and E-mini NQ futures raced to our near-term upside targets yesterday before retreating and consolidating through the second half of Monday’s session. Profit-taking and strong resistance (highlighted below) contributed to the move after the E-mini S&P rallied 4% and the E-mini NQ 5.5% from Thursday’s low to Monday’s high, as market participants gear up for the first of Fed Chair Powell’s two-day semiannual Congressional Testimony at 9:00 am CT. Powell lauded disinflation at his post-FOMC press conference one month ago, and risk-assets celebrated. One week later, when given the opportunity, the Fed Chair did not reverse his comments. Data in February, for January, signaled inflation is again heating up, and leading indicators such as the job market, Personal Spending, and Personal Income are holding strong. Although Powell did not shift gears as February unfolded, a slew of committee members reiterated the hawkish components from Powell’s comments, the ones that were ignored in favor of ‘disinflation’. This, combined with the hotter data, created a one-two punch pricing out rate cuts in 2023 and brought the CME’s Fed Fund futures in line with the Fed’s terminal rate of 5.25-5.50%. We view this as a positive for risk assets, and it underpinned our Bullish Bias flip last week. Ultimately, with one of the most relevant rates, the 2-year Note, surging to 4.9% and pressuring the 2s10s inversion below -90bps, it tells us the market hears the Fed’s hawkishness loud and clear. One thing we are sure of from Powell today is he will emphasize data dependence. We do not want to get ahead of ourselves, there was a great opportunity last week, but this Friday’s Nonfarm Payrolls and next week’s CPI will be most critical, confirming or denying this rally. Regardless, given the move in rates, we believe that solid data could be a tailwind instead of a headwind, it just cannot be too hot.

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NQ (March)

 

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Crude Oil (April)

Yesterday’s close: Settled at 80.46, up 0.78

 

Fundamentals: Crude Oil is holding up much better than the metals complex, hitting the highest since January 27th on today’s session. Chinese Trade Balance data is weighing on commodities after it showed a sharp drop in imports, -10.2% for January and February versus -5.5%. Furthermore, according to Reuters, Crude Oil Imports were 84.06 tonnes over January and February, equating to 10.40 mbpd. This is -1.3% from the same period in 2022 and lower than the 11.32 in December and 11.37 mbpd in November. The focus shifts to Fed Chair Powell, where an early indication signals a hawkish tone, before moving on to weekly EIA data, which has also not been so supportive. Considering all of this, we believe risks are skewed to the downside from the $80 area.

 

 

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Gold, yesterday’s close: Settled at 1854.6, unchanged

Silver, yesterday’s close: Settled at 21.135, down 0.103

 

Fundamentals: Weakness across the metals complex began overnight on disappointing Chinese Trade Balance data, with Imports falling -10.2% for January and February versus -5.5% expected. The reaction strengthened the U.S. Dollar versus the Chinese Yuan and pressured rates. Although lower rates are supportive of the precious metals camp, that story made a sharp turn on Fed Chair Powell’s prepared speech. The remarks for his Congressional Testimony were seen as hawkish, and the CME’s FedWatch Tool quickly priced in a 50/50 coin flip on whether the Fed will hike by 25bps or 50bps. Is Powell chasing his tail around? It certainly seems so, lauding disinflation one month ago and now quickly reverting as soon as one month’s worth of data heats up. This all builds into Friday’s Nonfarm Payroll report and next week’s CPI. Stay nimble, and we will update you as today and the week unfold.

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Silver (May)

 

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