A Historical Expiration | Morning Express 05/25/22

Posted: May 25, 2022, 8:41 a.m.

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

S&P, yesterday’s close: Settled at 3940.50, down 31.25

NQ, yesterday’s close: Settled at 11,771.00, down 264.25

Fundamentals: U.S. equity benchmarks muscled out of yesterday’s early bludgeoning and finished on firm footing, though still down significantly on the session. That wave of strength quickly dissipated on the European open early this morning and after analysts in a Bloomberg survey downgraded China’s 2022 GDP forecast from 5.5% to 4.5%. Additionally, the Nikkei Asia reported Apple as having delays in developing its new iPhone due to China’s virus lockdowns, the stock is down more than 1% ahead of the bell. Although Apple warned such lockdowns could impact revenue by up to $8 billion at its earnings release last month, this is not the type of market environment that digests negative news well.

The U.S. Dollar Index is on the mend after falling from its peak for six out of the last eight sessions. Weakness in the Chinese Yuan cannot be seen directly in the Dollar Index, but it is a broad driving force this morning, weighing on everything from the Aussie Dollar to Copper. The Euro is also slipping after more hawkish members of the ECB are confirming only a 25-basis point hike in July as recession fears rise. Still, we cannot ignore that a major factor in the U.S. Dollar’s pullback this week was due to comments from Federal Reserve committee members. Specifically, the influential Atlanta Fed President Bostic and Kansas City Fed President George, a 2022 voter. Both had pointed to a pause in rate hikes once reaching 2%. The Federal Reserve releases the Minute from their May 3-4 meeting at 1:00 pm CT. Narratives have certainly developed since and the Minutes could be viewed as a bit stale, but still impactful.

Do not miss our daily Midday Market Minute from yesterday.

Core Durable Goods Orders, excluding transportation items, came in below expectations this morning at +0.3% versus +0.6%. The headline read did as well, +0.4% versus +0.6%.

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NQ (June)

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Crude Oil (July)

Yesterday’s close: Settled at 109.77, down 0.52

Fundamentals: A large draw in Gasoline reported by API after the bell has underpinned overnight strength, along with news that Russia’s port loadings will fall about 3% in the first half of June. Crude Oil and the energy space as a whole is sharply higher, diverging from the broad commodity space as the U.S. Dollar strengthens. This pins EIA data is front and center at 9:30 am CT. Analysts expect -0.737 mb Crude, -0.634 mb Gasoline, and +0.917 mb Distillates. Cushing will be a critical component after inventories fell to near one-month lows last week and nearing the lowest since August 2018. API reported Cushing stocks as falling by 0.731 mb last week.

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Gold (June) / Silver (July)

Gold, yesterday’s close: Settled at 1865.4, up 17.6

Silver, yesterday’s close: Settled at 22.063, up 0.34

Fundamentals: Gold and Silver each settled at the highest level since May 6th yesterday, but are both now on their back foot. A rebound in the U.S. Dollar and weakness in Chinese Yuan are certainly a major catalyst for the slip, but we cannot ignore Gold’s June Option Expiration. Next to December, June is the biggest month for Gold and Open Interest builds into this critical expiration. In fact, many significant rallies in Gold have historically begun the day after this expiration, and we see exactly this potential here today. It is no coincidence that Gold is down by about 1% on the session and hugging the 1850 mark as 11,450 Puts and 11,287 Calls are open here at the 1850 strike. This is the equivalent of $4.2 billion, yes billion, of notional Gold. Furthermore, this does not even include the Puts and Calls above and below the 1850 strike. What a massive expiration! This aligns with a historical precedent that a large move is to be expected in the coming days. Coincidentally, these options expire at 12:30 pm CT and the Fed releases the Minute from their May meeting at 1:00 pm CT. Stay nimble and do not hesitate to reach out to our trade desk.

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Silver (July)

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