Your Roadmap as Volatility Continues | Morning Express 05/05/22
Posted: May 5, 2022, 9:01 a.m.
E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4295.25, up 126.00
NQ, yesterday’s close: Settled at 13,531.25, up 443.75
Fundamentals: U.S. equity benchmarks finished strongly after the Federal Reserve hiked rates by 50-basis points and announced the start of quantitative tightening to begin next month. Ultimately, the policy announcement and Fed Chair Powell’s press conference could not have played out more perfectly within our narrative. Powell placed a ceiling on the committee’s hawkishness by saying a 75-basis point hike was not on the table, forcing markets to quickly recalibrate the path of rates; stocks and commodities rallied, whereas the U.S. Dollar and rates backed off. This was right in line with what we spoke of yesterday:
Prices of many assets have come in over the last two months and there are inflationary tailwinds the Fed cannot control. Furthermore, since the committee has been patient, they are likely to remain patient.
It is our belief that market participants found themselves so deep in the woods on the inflation narrative, they cannot see the trees; when the magazine covers are printed, it has usually gone too far. This caused many to be offsides from current levels in fear of a hawkish surprise. Powell also emphasized the health of the economy in the face of the Q1 GDP blip and markets found it all soothing. As we embark on a new trading day, we must not overlook the volatile environment we find ourselves and yesterday’s momentum hold.
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The Bank of England hiked rates by an expected 25 basis points this morning. However, the British Pound is getting trucked and trading at the lowest level since July 2022. Many committee members saw the risks of inflation to be more balanced and prefer to be patient as economic expectations recede. Sound familiar? The move has underpinned the U.S. Dollar, helping it regain broad strength versus the Euro and Yen. Will this throw off yesterday’s Fed momentum? Stay nimble. The focus will now shift to tomorrow’s Nonfarm Payrolls.
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NQ (June)
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Crude Oil (June)
Yesterday’s close: Settled at 107.81, up 5.40
Fundamentals: Crude Oil ripped to the highest level since March 24th after OPEC+ said it would add 432,000 bpd in June and the White House announced a plan to replenish the country’s shrinking Oil reserves. The OPEC+ meeting lasted all buy 13 minutes, but a token increase does not change the fact the cartel simply cannot produce that amount of Oil. In April, they were at 164% compliance, producing about 800,000 bpd below their quota. The market is also coming to the realization of how temporary the SPR splash was and those reserves, need to be replenished ‘expeditiously’. With that said, traders do want to keep an eye on the U.S. Dollar paring yesterday’s losses, demand forecasts being revised lower, and the path of China lockdowns; all are potential headwinds in the near-term.
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Gold (June) / Silver (July)
Gold, yesterday’s close: Settled at 1868.8, down 1.8
Silver, yesterday’s close: Settled at 22.402, down 0.263
Fundamentals: Gold and Silver ripped higher after the Federal Reserve hiked 50-basis points and announced the start of quantitative tightening next month, see comments in the S&P/NQ section. Remember, precious metals settle before Fed policy decisions and their post-settlement moves are accounted for on the following session. These are terrific moves to see as both Gold and Silver dig out of their recent fall, however, the U.S. Dollar and rates are on the mend this morning and will pose significant headwind to the sustainability of this rally. Tomorrow brings Nonfarm Payrolls.
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Silver (July)
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