Inflation in Focus | Morning Express

CPI leading components

VIX with 50 dma

E-mini S&P (September) / NQ (Sept)

S&P, yesterday’s close: Settled at 4430, up 4.25

NQ, yesterday’s close: Settled at 15,040.50, down 80.75

Fundamentals: Is inflation transitory? The debate is front and center with U.S. CPI due at 7:30 am CT. Data for July is expected to increase, but at a slower pace than the last three months. Still, inflation is expected to be the hottest in years with used cars and airfares remaining a bellwether. Core CPI is watched most closely as it excludes the more volatile food and energy. Analysts estimate it to increase by 0.4% MoM, a rate not achieved prior to the pandemic since April 2005, and by 4.3% YoY, aside from last month’s 4.5% this would be the hottest since 4.4% in January 2002. Headline CPI, not excluding food and energy, is expected at +5.3%. This is a touch behind last month’s +5.4%, the hottest since +5.6% in August 2008. We noted here last month that June’s read marked a steady trend higher in inflation that one cannot ignore. However, higher base numbers for July and August, given the economy reopening last year, would slow the pace of change. Regardless, these are still historically high expectations, and it paves the way for steadfast inflation into yearend. Considering all of this, a soft read today shall not change the Fed’s trajectory of announcing a taper as latest as the September policy meeting, but a hot read could speed up the next debate: the pace in which asset purchases are tapered.

The influential 2021 voter, Atlanta Fed President Bostic, speaks at 9:30 am CT. On Monday he continued is move into hawkish territory, saying that one more strong jobs report is sufficient to begin tapering asset purchase. Kansas City Fed President George, a 2022 voter and also considered a hawk, speaks at 11:00 am CT. Rounding out the day is a 10-year Treasury auction at noon CT. The yield of the 10-year has extended to 1.37% overnight, the highest since July 14th ahead of both CPI and the auction.

Technicals: Price action in the S&P remains steady and holding near record highs. A previous pocket of support and point of balance has now been raised to 4425-4429; there is significant volume that has traded within here in recent days, steady action at and above here is supportive to higher prices. Waves of selling have been met with buyers, likely a bulk of such coming from institutions and dealers protecting gamma and crushing volatility. We do not reference the VIX here much, but there is a floor at 16.00. After building off a low of 14.10 in June, it settled in at 16.00 before rallying to trend line resistance at 25.00. One could argue a small inverse head and shoulders is building in the VIX. Ultimately, the S&P must chew through its two thick layers of major three-star support at and just under 4400 in order to get any sign of healthy pullback going. As for the NQ, upon yesterday’s slight peel back, it did take out the Sunday night low. However, major three-star support 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 (September)

Yesterday’s close: Settled at 68.29, up 1.81

Fundamentals: Crude Oil slipped as much as 3% overnight after CNBC first reported the White House said OPEC+ should bring back more production. Specifically, the White House noted the July announcement to boost production as “not enough” and “more must be done to support the global economic recovery”. The news comes ahead of today’s EIA inventory data, due at 9:30 am CT. Last night, the private API survey said Crude inventories fell by 816,000 barrels, Gasoline fell 1.14 mb, and Distillates rose 673,000 barrels. Expectations for today’s official report are -1.271 mb Crude, -1.657 mb Gasoline, and -0.472 mb Distillates. There is a clear concern from the White House that demand in the second half of the year will force prices higher, stoking inflation and weighing on individuals’ pockets. These reports come in the face of demand destruction fears due to the rise of new Covid cases, not only in the U.S, but in China, and around the world.

Technicals: As we noted in our Midday Market Minute yesterday, price action held at and above major three-star resistance at 68.28-68.62. However, Crude did not settle above, settling at 68.29. We now look to 67.02, the midpoint of the range this week as our Pivot and point of balance; steady action above here into and through the EIA report will signal higher prices. Below here, major three-star support 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 (Sept)

Gold, yesterday’s close: Settled at 1731.7, up 5.2

Silver, yesterday’s close: Settled at 23.392, up 0.123

Fundamentals: U.S. Core CPI MoM was soft at +0.3%, versus the expected +0.4%. In our S&P/NQ section today, as well as in recent weeks, we have spoken about our expectations for today’s read and that higher base numbers for July and August will likely slow the pace of inflation in the near-term. However, this does not re-direct the broader trend and inflation is likely to increase steadfastly into yearend, unless the Fed acts more quickly than anticipated. Today, we noted that CPI for July does not impact whether a taper should be announced by the September Fed meeting, but the conversation has likely now begun to shift to the pace of taper. All things considered, expectations were pricing in another hot read and today’s results were merely in line at best. Therefore, it has allowed Gold and Silver to trade higher as the U.S. Dollar and Treasury yields slipped. We now look to comments from Atlanta Fed President Bostic at 9:30 am CT, a 2021 voter, Kansas City Fed President George at 11:00 am CT, a 2022 voter, and a 10-year auction at noon CT.

Technicals: Gold and Silver battled overnight at first key supports, 1725 and 23.18 to trade higher into and after the CPI read. Both are holding above our Pivots and momentum indicators at 1732.5 and 23.35-23.40 for Silver. In a normal market, steady action above here is supportive to higher prices, however, we cannot ignore the tremendous overhead damage from Sunday’s selling and failure through Monday morning. Major three-star resistance for Gold is directly overhead at 1750 and Silver faces key 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.

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