Digesting Transitory Inflation | Morning Express

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


S&P, yesterday’s close: Settled at 4146.25, down 37.25


NQ, yesterday’s close: Settled at 13,346, down 10.75


Fundamentals: Inflation is front and center, U.S. Core CPI will be released at 7:30 am CT. Due to the start of Covid lockdowns one year ago, the base comparisons for this April data are low and a rise of inflation through the summer is only expected to be transitory. The Federal Reserve has been steadfast in this notion, but rising prices have already affected our everyday lives. Commodities, like Lumber and Copper, have hit record highs, whereas others are the most expensive in years. Still, according to the Fed’s metrics, inflation is very contained, and they have exuded little concern that a rise through this summer will be anything but. Core CPI is expected at +2.3% YoY and +0.3% MoM. Given all the hype, we must agree, these consensus estimates are tame and certainly do not signal the ‘inflation boogeyman’ is lurking around the corner, forcing the Fed to speed up their timeline in tightening unprecedentedly lose policy. Regardless, inflation alone, unless it rose a meteoric amount very quickly is unlikely to force the Fed’s hand. Today’s data must be interpreted along with the other half of the Fed’s dual mandate, jobs. As you well know, jobs data for April was a complete whiff and this landscape is right where we thought it was after March’s results; an 8 million jobs deficit since the onset of the pandemic. Lastly, we cannot ignore Fed Chair Powell’s historic policy shift last year to symmetrical inflation targeting. Here, the Fed is welcoming inflation and telegraphing it can run just as hot as it was cold. Furthermore, they have said they expect to be behind the curve, they will be reactionary to data. Although financial media, as well as doom and gloom naysayers, want you to believe this single number could create a tectonic shift in Fed policy, the Fed, themselves, has repeatedly told you otherwise!

How do we interpret today’s results relative to stocks? It is our belief the market is preparing for a read above those consensus expectations of +2.3% YoY and +0.3% MoM. Therefore, a tenth or two above the YoY results should bring welcomed relief when coupled with the jobs landscape; the Fed has no reason to think about tapering bond purchases anytime soon. On the other side of the coin, a soft number is likely to signal the Fed is on hold for longer than thought one week ago and this could be very bullish for stocks, at least initially. All things considered, such an analysis must be coupled with our ongoing discussion of ‘a longer-term thematic divergence’ between value and growth stocks.

Bill Baruch joined CNBC’s Trading Nation yesterday to discuss the Tech Wreck.

Of course, Fed speakers will help us digest today’s results. Fed Governor Clarida speaks at 8:00 am CT and Atlanta Fed President Bostic speaks at noon CT; both are 2021 voters. Philadelphia Fed President Harker follows at 12:30 CT. There is also a 10-year Note auction at noon CT. Traders want to keep an eye on CPI data that does come in above consensus expectations and a weak auction. This would help rev rates higher and thus bring added headwinds to growth stocks.


Technicals: Price action across indices broke sharply lower yesterday morning, but strong levels of technical support were defended. For the S&P, a critical level of major three-star support, one that has been tested six times now, at 4118-4120.50 ultimately buoyed the tape and the S&P has not settled below it, since rallying through it on April 14th. For the NQ, there was a trend line from the November low that could be drawn and aligned at major three-star support at 13,090. With the tape consolidating in a steady manner, our Pivots align as our momentum indicators and bring a point of balance; continued action above ... 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 (June)


Yesterday’s close: Settled at 65.28, up 0.36


Fundamentals: The ransomware attack on the largest fuel pipeline in the U.S. is creating the expected ripple effect; a gas shortage. The southeast U.S. is so far the hardest hit with stations from Georgia, North Carolina, Florida, and more reportedly out of gas. This news is not the only factor sending Crude Oil up by more than 1% today, the conflict between Israel and Palestine is escalating towards a full-scale war. With both narratives driving prices higher, EIA inventory data is also in the picture. Last night’s private API survey was muted and expectations for today’s report are -2.817 mb Crude, -0.60 mb Gasoline, and -1.08 mb Distillates. Refinery Utilization WoW is expected to have grown at a slower pace last week, +0.5%.

Core CPI data this morning at +3.0% YoY was the highest since December 1995 and has created a whipsaw across markets. Ahead of inventory data this morning, this gives more credence for day traders to remain extremely nimble. Regardless, maintain a Bullish Bias, although more cautious since the Sunday night spike, and expect $70 to be in the cards soon enough.


Technicals: Price action is testing major three-star resistance at 66.45-66.60 for the second time in a week. This comes on the heels of a very constructive pullback. One that never settled below 64.41-64.55 and where buyers responded to our next major three-star support at 63.43-63.69. Our momentum indicator is rising, encouraging us to create a large pocket of first support, at least for this morning, that comes in at 65.30-65.75. This aligns our momentum indicator with the Sunday night high; the tape is bullish across all timeframes while out above ... 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 (June) / Silver (July)


Gold, yesterday’s close: Settled at 1836.1, down 1.5


Silver, yesterday’s close: Settled at 27.667, up 0.175


Fundamentals: Gold and Silver are both back in positive territory ahead of the NYSE bell, after whipsawing lower immediately follow the CPI read. The data was well above expectations with Core CPI YoY at +3.0% and MoM at +0.9%, headline data (including food and energy) was +4.2% YoY and +0.8% MoM. Markets are so far digesting it as simply one number amid transitory expectations due to low base comparisons from one year ago. It certainly will be interesting to see how things unfold this morning, because one asset class is not ignoring it, and maybe the most important; Treasuries. The 10-year yield has hit a high of 1.66, ahead of today’s auction and this brings a pivotal inflection point to finish out the week. Although the Dollar Index quickly pared gains, and this has provided support to Gold and Silver, it will be tough for precious metals to ignore a steadfast rise in rates. As for the Dollar, German 10-year yields traded to new highs for the second straight session and the tightening of the spread between U.S. and German debt does suppress Dollar gains.

Of course, Fed speakers will help us digest today’s results. Fed Governor Clarida said he expects inflation to run above their 2% target over the next few months. and Atlanta Fed President Bostic speaks at noon CT; both are 2021 voters. Philadelphia Fed President Harker follows at 12:30 CT.


Technicals: We maintain a cautiously Bullish outlook for both Gold and Silver, but believe the real value is buying at better levels. Therefore, we are welcoming and hoping for some weakness in order to capitalize. First key support in Gold has been tremendous so far at 1817.6-1822, but we find the real value at major three-star support at 1798.4-1806. We cannot ignore rare major four-star resistance overhead at 1843-1850, Gold must close above here which paints a path of least resistance to ... 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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Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.

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