Your Inflation Roadmap | Morning Express 05/11/22

Posted: May 11, 2022, 8:52 a.m.

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

S&P, yesterday’s close: Settled at 3996.75, up 9.25

NQ, yesterday’s close: Settled at 12,349.00, up 155.25

FundamentalsAhead of the opening bell, U.S. equity benchmarks are again on the mend. Unlike yesterday, can they hold and extend such overnight gains? It all comes down to CPI data for April due at 7:30 am CT. Expectations are for Core CPI, excluding food and energy, to rise 0.4% MoM and 6.0% YoY. In March, Core CPI rose by 0.3% MoM and 6.5% YoY. Up until last month, Core CPI added 0.5-0.6% month over month for five straight months. The market certainly wants this month-to-month pace to cool and hold a trend of 0.3% or better. After a steadfast climb from April to June 2021 that averaged nearly 0.9% MoM, the rise cooled for three months. Risk assets, the Federal Reserve, and market participants are eager to see a similar slowing effect after the recent surge. If this read on inflation is in-line to hot, it is unlikely stocks maintain their overnight gains. However, if the pace of inflation remains stagnant month to month and is in-line to softer year over year, than we believe risk assets can continue their rebound.

Helping to lift markets overnight was news that half of Shanghai’s 16 districts achieved zero-virus status. Although lockdowns and virus curbs will remain in effect, this provides a light at the end of the tunnel. The energy sector is one of the largest beneficiaries with Crude Oil snapping back by about 4%. We have been very vocal in our belief that China is orchestrating a deflationary event across commodities, while also stoking inflation through supply bottlenecks. They are using this opportunity advantageously to buy raw materials and bring pain to the west because there are no readily available tools to battle supply-chain inflation. By the way, this is a reason why we believe in Latin America as a long-term investment and our wealth advisor Blue Line Capital has begun gaining exposure here for clients.

Do not miss our daily Midday Market Minute.

Traders want to keep an ear to the ground for Fed speak. Atlanta Fed President Bostic is on the schedule for 11:00 am CT. The U.S. Treasury will auction $36 billion of 10-year Notes at noon CT.

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NQ (June)

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Crude Oil (June)

Yesterday’s close:  Settled at 99.76, down 3.33

Fundamentals: Crude Oil surged by as much as 4.5% on news that half of Shanghai’s 16 districts achieved zero-virus status. Then came a hot read on CPI, lifting the U.S. Dollar Index above 104. Crude is still holding onto chunky gains on the session, but off highs and risk-assets broadly have made a sharp U-turn. Inventory data is also front and center this morning. Last night’s API data was negative, and the tape reacted as such; +1.618 mb Crude, +0.823 mb Gasoline, and +0.662 mb Distillates. Expectations for today’s report are -0.457 mb Crude, -1.574 mb Gasoline, and -1.312 mb Distillates.

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Gold (June) / Silver (July)

Gold, yesterday’s close: Settled at 1841.0, down 17.6

Silver, yesterday’s close: Settled at 21.424, down 0.396

Fundamentals: Gold and Silver staged an overnight rebound from the depths of yesterday’s late selling. The metals complex, as expected, has found solace in Shanghai’s light at the end of the tunnel and the fact the USDCNH has not extended gains. However, a hot read on CPI has created a massive whipsaw; Core +0.6% MoM and +6.2% YoY, Headline +0.3% MoM and +8.3% YoY. In reaction, the U.S. Dollar traded out above 104, but has since pared back a bit. The broad reaction gives a sense the hot read has been quickly digested and technical supports are holding.

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Silver (July)

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