The markets chopped away today with eyes towards tomorrow’s FOMC meeting. The 2-yr note yield settled the session up 16 basis points at 3.43% and the 10-yr note yield settled up 12 basis points at 3.48%. The fed funds futures market is pricing in the probability of an aggressive Fed. The CME’s Fed Watch Tool shows a 96.6% probability of a 75-basis point rate hike on Wednesday (up from 3.9% a week ago), a 95.8% probability of another 75-basis point rate hike in July (up from 0.4% a week ago), and a 97.0% probability of another 50-basis point rate hike in September. The target range for the fed funds rate will be 2.75-3.00% after the September meeting.
Enjoy live commentary from Our Trading Room at YouTube as the day wraps up – feel free to like and share
This week we have inflation data and more Central Bank action as a result yields, energy prices and the USDJPY are in focus.
We talk through to today’s action and where to now ….
In today’s post market wrap live from the trading room traders discuss the patterns through the options and futures markets that have played out perfectly from last week to today. We discuss trading psychology, risk management and trader development in today’s markets. Listen to our technical and market psychology read on the day. Join the Traders Community Podcast crew @traderscom @knovawave @Mahdavi4 @MetaJohnny1 plot out 2022.
Around the table today was packed with the Fed, geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. After hours earnings and chart pattern review. This is a high-risk market.
- WTI Crude July Futures falls $5 from the session high to settle at $118.93/bbl down $2 or 1.65% that $5 off sessions highs at $123.68 (Highest since 2008 for this month)
- WTI off the 2022 high price of $129.44. The highest in 2008 was $147.27.
- Diesel July Futures settle at $4.3940 a gallon.
- Unleaded Gasoline Futures 3.9978 -0.0375 -0.93%
- Natural Gas July Futures settle at $7.1890/MMBTU down $1.42, or 16.5%.
- Brent Crude Futures settle at $122.27/bbl, up 26 cents, 0.21%.
- EIA Forecasts US LNG Exports will Increase 22% in 2022 to 11.9 Bcf/d and to 12.6 Bcf/d in 2023
- EIA Raises 2022 Oil Production Forecasts, says OPEC Production Returned to Pre-Pandemic Levels
- Rystad Energy said the war-induced uncertainty is likely to continue to impact gas prices. “The gas market remains highly volatile, and news driven,” said Rystad analyst Fabian Rønningen. This week, in particular, “the market remains anxious for clarity on rules governing ruble payments for Russian gas supplies.”
Commodities and FX
- The U.S. Dollar Index climbed for the fifth consecutive day, rising 0.5% to 105.55.
- Gold futures settled $18.30 lower (-1.0%) to $1,813.50/oz, their lowest close in more than a month, as dollar and bond yield gains apply pressure.
- Silver Futures 21.000 -0.255 -1.20%
- Copper Futures 4.1390 -0.0725 -1.72%
- Corn Futures 767.00 -2.25 -0.29%
- Wheat Futures 1050.00 -21.00 -1.96%
- Bloomberg Commodity Index 129.06 -4.18 -3.14%
- Bitcoin USD 21378 -614 -2.79
- Ethereum USD 1158.66 -28.64 -2.41
- Ripple USD 0.3110 -0.0036 -1.14
US Indices & S&P 500 sector watch:
- DJIA 30364.83 -151.91 -0.50%
- Nasdaq Composite 10828.35 19.12 0.18%
- S&P 500 3735.48 -14.15 -0.38%
- Russell 2000 1707.83 -6.77 -0.39%
- NYSE Adv 1245 Dec 2069 Vol 1.1 bln
- Nasdaq Adv 2004 Dec 2726 Vol 4.7 bln
- S&P information technology sector (+0.6%), which is the market’s most heavily weighted sector. The Philadelphia Semiconductor Index gained 0.6%. The only other sector up was the energy sector (+0.1%) but was up as much as 3.2% earlier in the day.
- Dow Jones Transportation Average (+2.1%) with FedEx (FDX 229.95, +28.97, +14.4%), which rallied after announcing three, new independent directors and a 53% increase in its quarterly dividend to $1.15 per common share.
- The main laggards of note today were the utilities (-2.6%), consumer staples (-1.3%), health care (-1.1%), real estate (-1.0%), and financial (-0.9%) sectors.
Market Pre-Market Notables
- National Vision (EYE 29.04, +3.76, +14.9%): to join S&P SmallCap 600, effective prior to the open June 16
- Continental Resources (CLR 69.60, +5.10, +7.9%): announces receipt of “take private” proposal from Hamm Family of $70/share
- Braze (BRZE) beats by $0.02, beats on revs; guides JulQ EPS above consensus, revs above consensus; guides FY23 EPS above consensus, revs above consensus… BRZE up 3.1%
- Oracle (ORCL) beats by $0.16, beats on revs; guides on the call: sees AugQ EPS in-line and revs above consensus; expects its cloud business to organically grow over 30% yr/yr in FY23…. ORCL up 11.8%
- Xperi’s (XPER) Adeia receives decision in Videotron litigation… XPER down 6.4%
US Markets YTD
- Dow Jones Industrial Average: -16.5% YTD
- S&P 400: -19.6% YTD
- S&P 500: -21.6% YTD
- Russell 2000: -23.9% YTD
- Nasdaq Composite: -30.8% YTD
Key After Hours
- Five Below (FIVE) approves stock repurchase program for up to $100 mln of common stock; also adds Bernard Kim to board of directors, who current serves as CEO of Match Group… FIVE up 0.3%
- Moderna (MRNA): FDA advisory committee votes to recommend Moderna’s two-dose COVID-19 vaccine for use in children aged 6 to 17 years, according to CNBC… MRNA up 1.1%
- Monster Beverage (MNST) authorizes new share repurchase program for up to an additional $500 mln of common stock… MNST up 1.1%
- Olin (OLN) provides operations update; experiencing weaker-than-expected demand for epoxy resin in North and South America, temporarily curtailing epoxy production at two facilities… OLN down 0.1%
- Planet Labs (PL) reports Q1 (Apr) results, beats on revs; guides JulQ revs in-line; guides FY23 revs in-line; expands strategic relationship with Bayer… PL down 10.3%
- Sprinklr (CXM) beats by $0.01, beats on revs; guides JulQ EPS in-line, revs in-line; guides FY23 EPS above consensus, revs above consensus… CXM down 6.3%
- UPS (UPS) reaches tentative agreement with Independent Pilots Association on two-year contract extension… UPS down 0.1%
- Zendesk (ZEN) has entered into settlement talks with investor Jana Partners, according to WSJ… ZEN up 2.3%
Cboe Daily Market Ratios:
Recall in January: JP Morgan quant maestro Marko Kolanovic was out with a comment near lows that didn’t go unnoticed.
“Near term we recommend buying the dip on US indices given oversold conditions… though medium term we favor EM/China/Europe on a regional basis on improving activity and easing headwinds, and the UK on valuation.”Marko Kolanovic Jan 10 2022
- We stay positive on equities and expect omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll,
- As this wave fades, it will likely mark the end of the pandemic
- omicron’s lower severity and high transmissibility crowds out more severe variants and leads to broad natural immunity
- signs of supply constraints potentially passing their worst point
Recall back in October he said to buy the dip because fears of higher yields were overdone adding the market could absorb higher yields. “We don’t expect a broad market selloff unless yields were to rise above 250-300 bps (US 10y), which we don’t foresee in the near term,” From there the S&P 500 rose 11.5%.
Perhaps this time it’s’ different but nevertheless the algorithms liked it that day but from then ……… not so much
U.S. Treasuries ended Tuesday on a lower note with shorter tenors pacing the retreat. Today’s selling took place as the market adjusted to a sharp jump in expectations for a 75-bps hike tomorrow and it tightened the 2s10s spread to just five basis points. The fed funds futures market now sees a 96.1% implied likelihood of a 75-bps hike, up from 31.3% yesterday.
- 2-yr: +16 bps to 3.43%
- 3-yr: +14 bps to 3.59%
- 5-yr: +12 bps to 3.60%
- 10-yr: +12 bps to 3.48%
- 30-yr: +7 bps to 3.43%
- Household Financial Stress Highest Since Outset of Pandemic US Economic Optimism Index Shows – TRADERS COMMUNITY
- US Producer Price Inflation Continues Elevated in May PPI +0.8% m/m +10.8% y/y – TRADERS COMMUNITY
- U.S. Small Business Expecting Better Business Conditions Hits Record Low – TRADERS COMMUNITY
- Ethereum Collapses 20% To Yearly Lows as Risk Investors Seek Shelter from The Storm – TRADERS COMMUNITY
- Around The Barrel – Crude Oil and Gasoline Outlook in Inflationary Cycle – TRADERS COMMUNITY
- Into The Vortex – Natural Gas Outlook in Record Inflation Environment – TRADERS COMMUNITY
- American Gasoline Prices Hit Record High $5 per gallon – TRADERS COMMUNITY
Index – Last – Chg – % Chg
- UK: FTSE 100 7187.46 -18.35 -0.25
- Germany: DAX 13304.39 -122.64 -0.91
- France: CAC 40 5949.84 -72.48 -1.20
- Italy: FTSE MIB 21846.89 -71.15 -0.32
- Spain: IBEX 35 8066.40 -116.90 -1.43
- Stoxx Europe 600 407.32 -5.20 -1.26
- Switzerland: Swiss Market 10699.07 -197.18 -1.81
- The EU is reportedly preparing legal action against the U.K. for violating Brexit terms.
- Eurozone’s June ZEW Economic Sentiment improved to -28.0 from -29.5.
- Germany’s May CPI was up 0.9% m/m (expected 0.0%; last 0.8%) and up 7.9% yr/yr, as expected (last 7.4%). May WPI was up 1.0% m/m (last 2.1%) and up 22.9% yr/yr (last 23.8%). June ZEW Economic Sentiment improved to -28.0 from -34.3 (expected -27.5) and ZEW Current Conditions improved to -27.6 from -36.5 (expected -31.0).
- U.K.’s April Average Earnings Index + Bonus rose 6.8% yr/yr (expected 7.6%; last 7.0%). April Claimant Count decreased by 19,700 (expected -49,400; last -65,500), April three-month employment increased by 177,000 (expected 105,000; last 83,000), and April Unemployment Rate ticked up to 3.8% from 3.7% (expected 3.6%).
Index – Last – Chg – % Chg
- Japan’s Nikkei -1.3%;
- Hong Kong’s Hang Seng unchanged;
- China’s Shanghai Composite +1.0%;
- India’s Sensex -0.3%;
- South Korea’s Kospi -0.5%;
- Australia’s All Ordinaries -3.7%.
- China’s May FDI 17.3% YTD (last 20.5%) o Japan’s April Industrial Production -1.5% m/m (last -1.3%) and Capacity Utilization 0.0% m/m (last -1.6%)
- India’s May WPI Inflation 15.88% yr/yr (expected 15.10%; last 15.08%)
- Australia’s May NAB Business Survey 16 (last 19) and NAB Business Confidence 6 (last 10)
- The Bank of Japan offered to buy JPY100 bln worth of 10- to 25-yr JGBs and JPY50 bln worth of long duration JGBs in addition to its scheduled buying scheme.
- Samsung warned that its factories in South Korea are dealing with disruptions due to the truckers’ strike.
- China Securities Journal speculated that the People’s Bank of China has room to lower the reserve requirement ratio in the second half of the year.
Most of us are familiar with QE but what is QT? When the Fed reduces its balance sheet it is known as quantitative tightening, the flipside of quantitative easing. The US Federal Reserve at its December FOMC put the world on notice that tighter financial conditions are ahead. What does it mean? The possible Bifurcations would make Mandelbrot wince.
- Traders Market Weekly: The Fed’s Fight Against Inflation – TRADERS COMMUNITY
- Monday: Nothing of note
- Tuesday: May NFIB Small Business Optimism Index (prior 93.2) at 6:00 ET; May PPI (prior 0.4%) and Core PPI (prior 0.5%) at 8:30 ET
- Wednesday: Weekly MBA Mortgage Index (prior -6.5%) at 7:00 ET; May Retail Sales (prior 0.9%), Retail Sales ex-auto (prior 0.6%), May Import/Export Prices, and June Empire State Manufacturing (prior -11.6) at 8:30 ET; April Business Inventories (prior 2.0%) and June NAHB Housing Market Index (prior 69) at 10:00 ET; weekly crude oil inventories (prior +2.03 mln) at 10:30 ET; June FOMC Rate Decision (prior 0.75-1.00%) at 14:00 ET; and April net Long-Term TIC Flows (prior $23.10 bln) at 16:00 ET
- Thursday: Weekly Initial Claims (prior 229,000), Continuing Claims (prior 1.306 mln), May Housing Starts (prior 1.724 mln) and Building Permits (prior 1.819 mln), and June Philadelphia Fed Survey (prior 2.6) at 8:30 ET; and weekly natural gas inventories (prior +97 bcf) at 10:30 ET
- Friday: May Industrial Production (prior 1.1%) and Capacity Utilization (prior 79.0%) at 9:15 ET
Trust you all had a great day, sleep well and get your trading plan sorted.
Any questions please feel free to ask them below. Trade Smart!