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Threading the Needle | Morning Express 06/15/22

Posted: June 15, 2022, 8:44 a.m.

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

S&P, yesterday’s close: Settled at 3740.25, down 13.25

NQ, yesterday’s close: Settled at 11,346.50, up 19.00

Fundamentals: It is Fed Day, and the committee announces their policy decision at 1:00 pm CT. At this quarterly meeting they also reveal updated economic projections and the famed Dot Plot. This will be followed by Fed Chair Powell’s press conference at 1:30 pm CT. Expectations have now mounted to at least a 75-basis point hike with 100% certainty. In fact, there is now a 4.4% probability the committee hikes 100-basis points. Remember, just one week ago, there was less than a 4% probability the Fed would hike more than 50 basis points.

Please make sure to read yesterday’s Morning Express, Gasping For Air. Here, we dive into the policy that got us here, the hurdles the Fed faces, sentiment, and a potential light at the end of the tunnel.

Last night, a slate of May economic data from China crushed expectations. Industrial Production YoY rebounded from April’s contraction to beat at +0.7% versus -0.7% expected. Fixed Asset Investment topped at 6.2% versus 6.0%. Retail Sales was less worse at -6.7% versus -7.1% expected and -11.1% in April.

Do not miss our daily Midday Market Minute. Yesterday, Bill Baruch discussed how China’s data would impact broad sentiment and the metals complex.

Also helping to stabilize sentiment is an emergency ECB. The German 10-year yield has rallied by more than half a percent just in June, marking a four-month run from 0% to a 1.778% peak ahead of the announcement, the highest since January 2014. The yield of less solvent nations, such as Italy reached as high as 4.305% yesterday, the highest since October 2013. We covered this last week, citing the rise as inflationary tailwinds due to energy dependence.

Breaking: Retail Sales and NY Empire State Manufacturing whiffed. Headline Retail Sales MoM for May -0.3% versus +0.2% expected and Core +0.5% versus +0.8% expected. NY Empire -1.20 versus 3.00. Odds of a 100-basis point hike now off the table.

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NQ (September)

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Crude Oil (July)

Yesterday’s close: Settled at 118.93, down 2.00

Fundamentals: Crude Oil slipped yesterday after the White House announced it will sell up to 45 mb from the SPR. We remain steadfast in our view the SPR release is having no impact other than headline movement over the first 24 hours. In fact, the sales are effectively going to China and Europe, doing little to loosen the constraint domestically. Today, the IEA Monthly Report expressed fear that demand will outstrip supply through next year. They further noted that Russian output is likely to only be partly offset by Middle East production growth.

Today’s official weekly EIA data is due at 9:30 am CT. Yesterday’s private API survey printed +0.736 mb Crude, -2.159 mb Gasoline, and +0.234 mb Distillates. Expectations for today’s report are -1.314 mb Crude, +1.066 mb Gasoline, and +0.292 mb Distillates.

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Gold (August) / Silver (July)

Gold, yesterday’s close: Settled at 1813.5, down 18.3

Silver, yesterday’s close: Settled at 20.954, down 0.301

FundamentalsIt is Fed Day, and the precious metals complex is expected to have tremendous volatility. The U.S. Dollar Index was sharply lower early this morning after the ECB announced an emergency meeting to discuss the violent swings in sovereign debt (discussed in the S&P/NQ section). However, the Dollar has reversed much of the gains. Still, yields are coming in and bond prices have stabilized, helping to underpin a rally in Gold and Silver. Also, a slate of economic data from China was much better than expected overnight (discussed in the S&P/NQ section). This boosted the metals complex broadly and helped strengthen the Chinese Yuan against the U.S. Dollar. Lastly, Retail Sales and NY Empire State Manufacturing both whiffed this morning, giving yet another reason for metals to edge higher. Regardless, it all comes down to the Federal Reserve’s policy maneuvers and messaging at 1:00 pm CT.

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Silver (July)

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