Magnificent Resilience | Morning Express 08/8/2022

Posted: Aug. 8, 2022, 8:35 a.m.

Nonfarm, the Fed, and Washington

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- Stocks hold steady after blowout jobs report on Friday negates ongoing recession. 528k jobs added in July versus 250k expected. Wage Growth surged by +0.5% MoM vs +0.3% exp (June was revised +0.1% to +0.4%) and by +5.2% YoY vs +4.9% exp.

- Odds for the Fed’s September meeting have flipped to a 68.5% probability for a 75 basis point hike. Probabilities now show a 72.8% chance for at least 125 basis points in hikes through yearend to achieve 3.50%, and a 54.7% chance the Fed Funds rate will hold at 3.50%, or higher, through June 2023 (21.4% probability it is higher and a 45.3% probability it is lower).

- A narrative that such job growth is unsustainable and can only deteriorate from here is underpinning equity strength; low quality jobs and people taking two jobs.

- The Fed already talked down the idea they were ‘pivoting’ to dovish and we wholly agreed with that last week.

- The Senate passes lauded spending bill; yup, more spending to fight inflation. The narrow 51-50 margin was aided by Vice President Harris’ tie breaking vote. The legislation will expand spending on healthcare and renewable energy, bring down drug costs, and more.

- The big emphasis is on CPI, due Wednesday.

 

China, Russia, and Geopolitics

- China’s Trade Balance data, released Saturday night, showed a surge in Exports by more than expected at 18.0% YoY versus 15.0%, signaling a healthy global economy. However, Imports missed expectations at +2.3% YoY vs 3.7%, leading to a record $101 billion surplus.

- Virus cases in Beijing tick-up and China’s resort province Hainan, a city of one million people, locks down with an estimated 80,000 tourists.

- China announces fresh military drills around Taiwan, a day after its largest ever exercise ended, protesting Speaker Pelosi’s visit.

- Russia advances in Ukraine, shells power plant in Zaporizhzhia and announced they installed an official to hold a referendum to join Russia. Ukraine warns of Chernobyl-style risks.

- U.N. Secretary Guterres, “after decades, the threat of nuclear war has returned.”

- Russia says no basis for a Putin-Zelenskiy meeting.

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

S&P, yesterday’s close: Settled at 4146.75, down 5.50 and up 13.25 on the week

NQ, yesterday’s close: Settled at 13,228.75, down 98.25 on Friday and up 257.25 on the week

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NQ (September)

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Crude Oil (September)

Yesterday’s close:  Settled at 89.01, up 0.47 on Friday and down 9.61 on the week

- Did not settle below the 200-day moving average at 88.82 on Friday, comes in at 88.88 today.

- China’s July Crude Imports +4.2% MoM, but -9.5% YoY.

- China virus effects and new cases weighing on near-term demand sentiment.

- We view the blowout jobs report Friday as bullish for Crude Oil given there has not been a large rebalancing of Fed path expectations. From a headline perspective, consumers are making higher wages, helping to offset higher expenses such as Gas.

- However, in the same manner the cure for higher prices is higher prices, the cure for demand-side issues due to high prices is lower prices; according to GasBuddy.com, average Gas prices are down for the 54th straight day to 4.015 and the national average is likely to slip below $4.00 today for the first time since March.

- Crude set a new swing low on Friday, but Gasoline held Thursday’s low and has use that for rebound fuel.

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Gold (December) / Silver (September)

Gold, yesterday’s close:  Settled at 1791.2, down 15.7 on Friday and 9.4 on the week

Silver, yesterday’s closeSettled at 19.842, down 0.288 on Friday, and up 0.355 on the week

- Blowout Nonfarm Payroll dented Gold and Silver, but prices have battled back strongly to start the week.

- Last week, the Fed did a great job talking down the idea of a ‘pivot’ and preparing markets for what turned out to be a strong NFP. Adjustments in hike probabilities were highlighted in the first section, but were broadly minor.

- Underpinning today’s rebound is geopolitics, U.S. Dollar softness and Treasury resilience.

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Silver (September)

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