Opportunity is Skewing Amid a Mountain of Risk I Morning Express | 3/8/2023
Posted: March 8, 2023, 9:30 a.m.
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E-mini S&P (March) / E-mini NQ (March)
S&P, yesterday’s close: Settled at 3989.75, down 62.75
NQ, yesterday’s close: Settled at 12,169.00, down 154.50
Fundamentals: Fed Chair Powell surprised markets yesterday with overly hawkish prepared remarks before Congress. He emphasized data at this trajectory will force the Fed to hike rates higher than anticipated and hold for longer. Rate markets quickly discounted his comments, and CME Fed Fund futures, via the FedWatch Tool, now signal a 77.9% probability the Fed hikes by 50bps in two weeks. This was a starkly different Powell than the one that touted disinflation at the February 1st Fed meeting and did not use an opportunity the following week to reverse course after a hot Nonfarm Payrolls Report on February 3rd. We have always tried to avoid criticizing the Fed, its tough being in the spotlight and having every move dissected to the nth degree. His mistake is not so much yesterday’s comments but the blinders he wore a month ago when he all but took a victory lap. Now, after one month of hot jobs and inflation data relative to broad expectations, he reverses course. As you are aware, we came into the year expecting hotter data and a resilient consumer. We said the Q4 slowdown was the product of social evolution during the holiday season. When the Fed took a less hawkish approach through January, we disagreed and said they needed to squash inflation before it begins to ebb and flow. Fed Chair Powell is finally attempting this, but what he really is succeeding at is chasing his tail around. This hot data has already happened, and we now must not lose track the Fed is tightening, they have taken rates from zero to 4.50-4.75%, the M2 Money Supply and Fed’s Balance Sheet are both shrinking, and we have not seen the real impact yet. With Fed Funds futures pricing in a terminal rate of 5.50-5.75% even before February data has been released, we believe this opens the door for opportunity in the Treasury complex. Connect with our trade desk to see what we are doing.
ADP Payrolls gave us the first look at February job growth this morning and printed +242K. If you combine this number with ADP’s revised January job growth of 119k, you get 361k. On February 3rd, Nonfarm Payrolls printed 517k for January alone. Something has to give this Friday or ADP will need to rewrite its models again (they did this one year ago and shut down data for several months).
Traders must keep a close eye on today’s JOLTs Job Openings data due at 9:00 am CT. Also, Fed Chair Powell’s second day of Congressional testimony begins then.
Do not miss our daily Midday Market Minute, from yesterday.
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NQ (March)
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Crude Oil (April)
Yesterday’s close: Settled at 77.58, down 2.88
Fundamentals: Weekly EIA inventory data is front and center. Yesterday, after the bell, API said Crude stocks fell by -3.835 mb, while Gasoline was +1.84 mb and Distillates +1.927. Inventories were little changed at Cushing at +-0.024 mb. This was more or less in line with analysts' estimates for today’s official read, +0.395 mb Crude, -1.863 mb Gasoline, and -1.038 mb Distillates.
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Gold (April) / Silver (May)
Gold, yesterday’s close: Settled at 1820.0, down 34.6
Silver, yesterday’s close: Settled at 20.199, down 0.936
Fundamentals: Gold and Silver are trying to stabilize out of yesterday’s bloodbath and are doing so despite stronger-than-expected data this morning. ADP Payrolls printed 242k versus 200k, and JOLTs Job Openings 10.824 million versus 10.5 million. The metals complex broadly is trying to muscle out of the hole. Maybe it is a sign of seller exhaustion, but there are certainly some value seekers at this level. In the S&P/NQ section, we spoke of opportunity evolving in the Treasury complex due to Fed Chair Powell’s hawkishness. This would correlate to opportunity in precious metals, reach out to the Blue Line Futures trade desk to discuss.
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Silver (May)
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