Welcome to 2016 | Morning Express 05/12/22

Posted: May 12, 2022, 9:24 a.m.

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

S&P, yesterday’s close: Settled at 3930.25, down 66.50

NQ, yesterday’s close: Settled at 11,969.75, down 379.25

FundamentalsWelcome to 2016. We have discussed many parallels between the market’s rebound out of the Great Financial Crisis in 2009 and out of Covid in 2020, both fundamentally and technically. How the Federal Reserve provided liquidity, and volatility was created when they began removing those accommodations. As equity markets continue in a tailspin, there is one very noticeable ingredient missing, and everyone is talking about it. Where is the VIX spike? Upon yesterday’s close, the S&P was 4% below February’s low, which was lower than January. The market also fell 8.9% in April. Yet, the VIX has not exceeded February’s spike high, which was also a lower high than January’s 38.94. This phenomenon is developing as potentially another parallel. In August 2015, the S&P fell as much as 12.7% and the VIX spiked to 53.29. The S&P rebounded by 15% and nearly set a new high. Sound familiar? As soon as the calendar turned to 2016, the selling was reinvigorated. Also sound familiar? As the parallels mount, they do not have to happen in order. The point here is, the market fished for a bottom from January through February 2016, taking out the August low but never getting near August’s VIX spike, reaching 32.09 and then 29.87, respectively. The takeaway is that a VIX blowout is not required in order to reach a bottom. This especially holds true when being relatively close in time to such a blowout. In this case, 2020 was that blowout.

On the heels of yesterday’s hot CPI read, we have PPI this morning. Remember, producer prices are a leading indicator to consumer prices. If you’re trying to find something positive this morning, its that we do not have fresh negative news; PPI did not run away in the same manner that CPI did. In fact, Core PPI MoM came in below expectations at +0.4% versus +0.6%. Also, headline PPI was in line with expectations at +0.5%, although the YoY read came in higher at 11.0% versus 10.7% due to revisions in April. Weekly Initial Jobless Claims came in at 203k, the highest since mid-March, but right at the 200k benchmark. However, Continuing Claims improved for the fifth week in a row.

The Treasury complex is higher this morning, yields are lower. We find this to be a positive and a reversion to some normalcy. The Treasury will auction $22 billion in 30-year Bonds at noon CT.

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NQ (June)

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Crude Oil (June)

Yesterday’s close:  Settled at 105.71, up 5.95

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 1853.7, up 12.7

Silver, yesterday’s close: Settled at 21.575, up 0.151

Fundamentals: Despite holding ground yesterday, the downtrend resumed overnight, and Silver fell to the lowest level since July 2020. Price action broke through a support level that we have leaned on since September 2020, but the rise in the U.S. Dollar Index to fresh 20-year highs has brought significant selling pressure. The U.S. Dollar also extended its run against the Chinese Yuan after a two-day intermission, and this has a direct impact on the metals complex. An arguably softer than expected read on PPI has done little this morning to derail the Dollar’s rise.

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Silver (July)

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