Risk assets are on their back foot this morning due to a resurgence in yields, with the US ten-year hitting a new cycle high of 4.102%, states Bill Baruch of BlueLineFutures.com.
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 3732.75, up 43.50
NQ, yesterday's close: Settled at 11,198.75, up 88.50
Fundamentals: Also, the two-and 30-year are lurking a touch below their peaks. An underlying need for liquidity has forced foreign central banks to sell US Treasuries to raise cash with the most prominent trend being a deluge at the US opening bell. However, sometimes, like today, it's steady selling overnight. In the mix are two catalysts. Late yesterday, Minneapolis Fed President Kashkari made hawkish remarks in pointing to a terminal rate above 4.4% (the rate noted by Fed consensus at September’s meeting), saying, “I don't see why I would advocate stopping at 4.5% or 4.75% or something like that [if inflation is still rising]."
Additionally, the Bank of England confirmed they will begin asset sales as early as two weeks, though initially excluding the longer-dated bonds. There is now a 20-year Bond auction, $12 billion, and Fed speaking looming. Minneapolis Fed President Kashkari, a 2023 voter, is due to speak at noon CT, Chicago Fed President Evans, also a 2023 voter, is due to speak at 5:30 pm CT, and St. Louis Fed President Bullard, a 2022 voter, speaks at 6:30 pm CT.
Despite the heavy tape, earnings have continued to top expectations. We noted yesterday how we are much more upbeat on this front than consensus. Netflix crushed estimates after the bell yesterday and has surged as much as 15%, before settling at +10%.
Technicals: We remain broadly positive in the market due to several reasons, including sentiment, seasonality, and a capitulation of sorts last week, but are dialing back our outright Bullish Bias due to lackluster buoyancy. Although the S&P has not breached our final floor of major three-star support, Monday’s gap settlement at 3689.25, two rally attempts have failed to even get to the thickets part of the technical damage at 3800 and above (noted in the levels below). A breach of the 3689.25 floors would likely align with the NQ surrendering the opening bell range low from Monday at 10,999. We would find a decisive break of such to be negative in the near term.
Crude Oil (December)
Yesterday’s close: Settled at 82.07, down 2.46
Fundamentals: Crude Oil is holding ground in positive territory after slipping by 3.97% yesterday. Although we could blame the selling on the White House announcing it will release another 15 mb from the Strategic Oil Reserve, Copper was also oddly down 1.57%. This one-two punch reeks of global growth fears and the potential of another China virus lockdown. We have been discussing our concern the Omicron sub-variant will hit China, reversing our extremely bullish call on Oil (from sub $80) that was underpinned partly by Chinese refiners ramping up in Q4. The bullish call came to fruition as Oil did rally above $90, but the other part of that call was assuming the White House would halt SPR sales. We have been vocal that this is not the case, although we see it as being very bullish in the future. Ultimately, we welcome lower prices, sub $80 once again, what we believe to be, a terrific opportunity for a Q1 rally.
The private API survey after the bell showed stocks falling across the board, helping to buoy the tape. Estimates for today’s official data are for +1.38 mb Crude, -1.114 mb Gasoline, and -2.167 mb Distillates.
Technicals: Price action has been buoyed by major three-star support at 82.05 and there has certainly been a battle at and around this region, trading to a low of 81.30 yesterday. Our momentum indicator continues to slip, now flirting with the consolidation above 82.05, defined as our Pivot and point of balance detailed below. Continued action at and above here will signal some selling exhaustion that could lead to intraday rally attempts.
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1655.8, down 8.2
Silver, yesterday’s close: Settled at 18.600, down 0.119
Fundamentals: Gold and Silver were bludgeoned overnight as both yields and the US Dollar rose. Gold is now trading at the lowest level since the September 28th reversal, though Silver has had an okay week given its fallout to 18.01 on Friday. Regardless, things look bleak in the near term with precious metals at the mercy of the rate and currency markets. Yesterday’s move in copper does flash broad warning signs for the metals complex, however, Platinum continues to hold up fairly well. We will be keeping a close eye on Platinum, due to its relative strength, for a potential buying opportunity. At the same time, Platinum can be a laggard if such rate and currency conditions persist, catching up with the selling of Gold and Silver.
There is now a 20-year Bond auction, $12 billion at noon CT, and Fed speaking looming. Minneapolis Fed President Kashkari, a 2023 voter, is due to speak at noon CT, Chicago Fed President Evans, also a 2023 voter, is scheduled to speak at 5:30 pm CT, and St. Louis Fed President Bullard, a 2022 voter, speaks at 6:30 pm CT.
Technicals: Gold has now decisively chewed through rare major four-star support, the last line of hope in a well-defined recent downtrend with lower highs broadly since the October 4th peak. Silver is testing into major three-star support aligning Friday’s low at 18.01. It is going time if buyers were going to show up as Gold is testing our next level of major three-star support aligning with its low settlement in September. A failure to hold these levels could open the door for selling.
Learn more about Bill Baruch at Blue Line Futures.