Morning Express| | 04-05-23 |

Posted: April 11, 2023, 8:38 a.m.

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

S&P, yesterday’s close: Settled at 4136.25, up 4.25

NQ, yesterday’s close: Settled at 13,158, down 12.75

Fundamentals: U.S. stock indices have been grinding higher since slipping into and bottoming through Monday’s opening bell. E-mini S&P and E-mini NQ futures pared losses into the final minutes of yesterday’s session and poked above Friday’s holiday Nonfarm Payroll highs after the European open. Underpinning the latest breath of this risk-on move was New Loans data for March out of China at 3:30 am CT, which came in as the second highest on record, only behind January. In our opinion, we have yet to feel the full impact of China’s reopening, and this data is a precursor. One might scream, “But the inflation!” Last night, CPI data for March from China came in at -0.3% versus +0.5% expected. Yes, disinflation, and yes, one could argue New Loans have yet to percolate through the economy. However, there will be the crosswind of easing supply chains, which allows Chinese regulators to stoke growth.

This leads into tomorrow’s U.S. CPI data for March, and Wednesday’s PPI, both of which have shown signs of cooling. E-mini S&P and E-mini NQ futures have been rangebound leading into this critical read, as seen in a failure to continue the end of Q1 run-up and the response to waves of selling into 4100 for the S&P and 13,000 for the NQ. Expectations for headline CPI are +0.4% m/m, down from +0.5% in February, and 5.6% y/y, up from 5.5%. The Cleveland model suggests +0.3% m/m and 5.22% y/y. For Core CPI, analysts expect +0.2% m/m, down from +0.4% in February, and 5.2% y/y, down from 6.0% and the lowest since May 2021. The Cleveland model forecasts +0.45% m/m and 5.66% y/y. There are clear expectations for inflation to temper. While some may ask, by how much? The real concern is how much cooling is already discounted, and are risks now skewed to the downside (for the market) in the case of something only negligibly hotter? This will be answered tomorrow, but we are hopeful, and our models point to cooling. Furthermore, we firmly believe that producer prices are a leading indicator of consumer prices, and PPI has shown signs of disinflation in two of the last three months.

What we do know is critical, this bull market has shown leadership from high-quality tech, and yesterday’s strength within the semiconductor space cannot go unnoticed. News of slowing PC demand in the first quarter, headlined by Apple's -40%, could have crippled the market. Instead, semiconductors did not focus on lagging Q1 data, they focused on the Samsung news, cutting chip production, and the impact it will have into 2024. That is just it; leadership is looking past the next few months because they told us the first half of 2023 will be awful. That is something we are confident the market has discounted.

Do not miss our daily Midday Market Minute, from yesterday.

Today, the U.S. Treasury will auction $40 billion 3-year Notes at noon CT and $32 billion 10-years tomorrow. We also look to Fed comments from Chicago Fed President Goolsbee at 12:30 pm CT, Philadelphia Fed President Harker at 3:00 pm CT, and Minneapolis Fed President Kashkari at 6:30 pm CT which are 2023 voters.

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