Contained Inflation & Great Earnings Brings Green Light | Morning Express


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

S&P, yesterday’s close: Settled at 4355.00, up 14.25

NQ, yesterday’s close: Settled at 14,764.25, up 111.00


Fundamentals: U.S. benchmarks are broadly higher by 1% with tailwinds coming from yesterday’s FOMC Minutes, strong bank earnings this morning, and a healthy risk-appetite from overseas. The Minutes from the Federal Reserve’s September meeting hinted toward concerns that inflation could be more persistent than initially anticipated. However, as we noted here and in our Midday Market Minute, inflation via yesterday’s CPI data was contained within expectations. Although we believe it will reemerge over the coming months due to several factors highlighted, this is a green light for the time being. We even noted how we were surprised to see such a subdued reaction from stocks, but the S&P is now catching up to Monday’s opening high. The Minutes also pointed to starting a taper as soon as mid-November and described it by reducing their purchases by $10 billion in Treasuries and $5 billion in mortgage-backed-securities per month. At the end of the day, this plays right into our theme of uncertainty. Markets hate uncertainty, and those Minutes just gave the market less uncertainty.


On the earnings front, Bank of America, Wells Fargo, Morgan Stanley, and Citigroup all beat top-and-bottom-line estimates. Each stock is up more than 1%. Overnight, Taiwan Semiconductor reported strong earnings and said the chip shortage could last through all next year. The stock is up more than 3% and underpinning the semiconductor space as well as the overseas risk-appetite. United Healthcare also beat expectations and the stock is up about 3%.

Inflation remains at the forefront with today’s PPI data. Remember producer prices are a leading indicator for consumer prices. Strong PPI in recent months is certainly a factor in our belief that hotter inflation will reemerge in the coming ones. Although a new record at +8.6% YoY headline and +6.8% Core, PPI came in below expectations at 8.7% and 7.1%, respectively. This encouraged a whipsaw initially with the U.S. Dollar spiking to a new session low, however, Initial Jobless Claims slipped below 300k, to 293k, for the first time since pre-pandemic[BB1] and well below the 319k expected. Atlanta Fed President Bostic speaks at 9:00 am CT and Richmond Fed President Barkin speaks at noon CT along with NY Fed President Williams. All are 2021 voters.


Technicals: Price action is very strong this morning, but we cannot ignore significant overhead resistance. The S&P and NQ have each left intraday gaps at yesterday’s settlement and these will now stand as major three-star supports upon pullbacks. Also, previous peaks earlier in the week, 4365 in the S&P and 14,799-14,829 in the NQ will act as first key supports. On Monday, the S&P traded to a high of 4407, this level now aligns with a trend line from the highs and is noted as major three-star resistance. Above there still stand rare major four-star resistance at 4425.75-4432.75 and a close above here is needed to completely neutralize the sellers and break above a near-term downtrend. As for the NQ, it failed at major three-star resistance at 14,996-15,035 last week, and this still stands. However, we also have rare major four-star resistance at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Crude Oil (November)


Yesterday’s close: Settled at 80.44, down 0.20


Fundamentals: Crude Oil is higher by more than 1%. Yesterday, tepid Chinese demand, highlighted here, and OPEC trimming its 2021 demand forecast in its Monthly Report weighed on the tape. However, price action battled back above $80 in a very constructive finish. A supportive risk-environment carried through the overnight and found added tailwinds from the IEA Monthly Report. The organization raised its 2021 and 2022 demand forecast by 280k bpd and 50k bpd and added that surging energy prices could increase Oil demand by another 500k bpd over the next six months. At the same time, higher energy costs will hit the consumer and in turn slow growth. For now, we see this as an added green light for higher prices. As we noted last week, it is entirely possible to see $85 into the November contract expiration. Options on the November contract expire tomorrow, and a bullish EIA inventory report coupled with broad risk-on tailwinds and weaker U.S. Dollar is a perfect storm for a near-term blow off to $85. Last night, the API reported a surprisingly large build in Crude at 5.2 mb, but even larger draws in the products at -4.6 mb of Gasoline and -2.7 mb of Distillates. Expectations for today’s EIA report remain at +0.702 mb Crude, -0.083 mb Gasoline, and -0.933 mb Distillates.


Technicals: Price action is holding very well out above first key support at 80.55-80.64. Also, out above our rising momentum indicator, coming in at 80.75 this morning. Key resistance stands at 81.62 and then the high of 82.18, these cannot be ignore, but it is major three-star resistance at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Gold (December) / Silver (December)

Gold, yesterday’s close: Settled at 1794.7, up 35.4


Silver, yesterday’s close: Settled at 23.17, up 0.656


Fundamentals: Gold had a day yesterday, the day that it needed. U.S. CPI data was largely in line with expectations and contained; it alludes to a pace of taper slower than anticipated and such is bullish for Gold. The U.S. Dollar and rates both weakened and provided a massive tailwind to the precious metals space. Still, Gold and Silver have very heavy lifting to do, both technically and fundamentally. U.S. PPI data this morning seemed to bring added tailwinds in helping keep a bid at $1800, for now. As we are writing this, St. Louis Fed President Bullard is making comments and mentioned the taper ending this coming spring when Unemployment is at 3.5% or better. His comments seemed to underpin the U.S. Dollar because it signals a fast taper. This is something to pay attention to on a day that Initial Jobless broke below 300k for the first time since pre-pandemic. Atlanta Fed President Bostic speaks at 9:00 am CT and Richmond Fed President Barkin speaks at noon CT along with NY Fed President Williams. All are 2021 voters.


Technicals: This is a terrific spike in Gold and Silver, but we now must see a close above major three-star resistance levels. Yes, Gold close above 1780-1784 handedly yesterday but there is a big trend line from the June high that comes in at 1800 and aligns with the 200-day moving average at 1804 and we must see a close above here in order to really neutralize this ongoing weakness. Still, Gold is not out of the woods and faces very strong resistance all the way up to the 1836 failure in early September. Our momentum indicator is rising and comes in at 1791, holding above here is healthy. As for Silver, it is flirting above major three-star resistance at 23.35 and must hold above our momentum indicator at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

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