The FOMC meeting brought extreme volatility, the Fed raised 75 bps as expected sending it lower but $ES_F rallied 100 handles plus when he said next month may not be as big, an allowance that the July meeting is likely to feature either a 50-basis point rate hike or a 75-basis point rate hike. Shorts got caught and the machines took over from an oversold short-term market. The rebound in the Treasury market fed the machines. That vote was not unanimous, however. Kansas City Fed President George dissented, preferring a rate hike of only 50 basis points at this 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 settle 115.83 -3.10 -2.61%
- Brent Crude Futures 118.78 0.27 0.23%
- Natural Gas Futures 7.540 0.351 4.88%
- Unleaded Gasoline Futures 3.8941 -0.0997 -2.50%
- WTI off the 2022 high price of $129.44. The highest in 2008 was $147.27.
- 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 21.690 0.736 3.51%
- Copper Futures 4.1615 0.0050 0.12%
- Corn Futures 774.50 6.25 0.81%
- Wheat Futures 1049.75 -0.50 -0.05%
- Bloomberg Commodity Index 129.44 0.38 0.30%
- Bitcoin USD 21893 208 0.96%
- Ethereum USD 1191.63 14.19 1.21%
- Ripple USD 0.3276 0.0017 0.53%
US Indices & S&P 500 sector watch:
- Dow is up 303.70 points or 1.0% at 30668.54
- S&P is up 54.53 points or 1.46% at 3790.00
- Nasdaq is up 270.82 or 2.5% at 11099.16
- Russell 2000 is up 23.31 points or 1.36% at 1731.13
- NYSE Composite 14595.23 150.59 1.04
- CBOE Volatility 29.62 -3.07 -9.39
- Advancers led decliners by a nearly 3-to-1 margin at the NYSE and the Nasdaq; 21 of 30 Dow components ended with a gain
- 10 out of 11 S&P 500 sectors closed higher. The lone loser was the energy sector (-2.1%) with lower oil prices ($115.25, -3.68, -3.1%).
- The Vanguard Mega-Cap Growth ETF (MGK) gained 2.6% versus a 1.0% gain for the Invesco S&P 500 Equal Weight ETF (RSP).
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
- Karyopharm Therapeutics (KPTI) announces in 8-K filing that Biogen (BIIB) terminated asset purchase agreement related to selective inhibitor of nuclear export compound KPT-350… KPTI down 2.9%; BIIB down 1.2%
- Multiple banks raise prime lending rate to 4.75%, including Wells Fargo (WFC); up 0.5%, Regions Financial (RF); up 0.1%, PNC (PNC); up 0.1%, and HSBC Holdings (HSBC); up 0.6%
- Rockley Photonics (RKLY) CFO to step down; reaffirms FY22 revenue guidance… no indication for RKLY
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 Wednesday on a higher note despite volatility with the FOMC decision. The late push helped most tenors reclaim yesterday’s losses with the 2-yr note ending ahead after showing relative weakness in recent days.
- 2-yr: -10 bps to 3.33%
- 3-yr: -10 bps to 3.49%
- 5-yr: -10 bps to 3.50%
- 10-yr: -8 bps to 3.40%
- 30-yr: -3 bps to 3.40%
- Federal Reserve Raises Rates 75 Basis Points as Expected – TRADERS COMMUNITY
- Around The Barrel – US Crude Production Hits Highest Since April 2020 as President Biden Ramps Up Blame Game on Big Oil – TRADERS COMMUNITY
- Total retail sales decreased 0.3% month-over-month (Briefing.com consensus +0.2%) following a downwardly revised 0.7% increase (from 0.9%) in April. Excluding autos, retail sales increased 0.5% (consensus +0.7%) following a downwardly revised 0.4% increase (from 0.6%) in April.
- Import prices increased 0.6% in May after increasing a revised 0.4% (from 0.0%) in April. Excluding oil, import prices were down 0.3% after increasing 0.4% in April. Export prices rose 2.8% in May after increasing a revised 0.8% (from 0.6%) in April. Excluding agriculture, export prices rose 2.9% after increasing a revised 0.7% (from 0.5%) in April.
- The Empire State Manufacturing survey rose to -1.2 in June (consensus 3.0) from -11.6 in May.
- Business Inventories increased by 1.2% in April (Briefing.com consensus 1.2%) after increasing a revised 2.4% (from 2.0%) in March.
- The NAHB Housing Market Index fell to 67 in June (Briefing.com consensus 68) from 69 in May.
- The weekly MBA Mortgage Index rose 6.6% to follow last week’s 6.5% decrease. The Purchase Index rose 8.1% while the Refinance Index rose 3.7%.
- The Atlanta Fed lowered its GDPNow forecast for Q2 to indicate expectations for no growth, down from the previous forecast for growth of 0.9%.
- 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
- 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 7273.41 85.95 1.20%
- Germany: DAX 13485.29 180.90 1.36%
- France: CAC 40 6030.13 80.29 1.35%
- Italy: FTSE MIB 22473.56 626.67 2.87%
- Spain: IBEX 35 8174.70 108.30 1.34%
- Stoxx Europe 600 413.10 5.78 1.42%
- Switzerland: Swiss Market 10783.59 84.52 0.79%
- The EU launched legal action against the U.K. over alleged violations of Brexit terms.
- The shadow committee of the Bank of England expects a 50-bps rate hike tomorrow.
- Eurozone’s April trade deficit reached EUR32.40 bln (last deficit of EUR16.10 bln). April Industrial P).
- Germany’s May WPI was up 1.0% m/m (last 2.1%) and up 22.9% yr/yr (last 23.8%).
- France’s May CPI was up 0.7% m/m (expected 0.6%; last 0.4%) and up 5.2% yr/yr, as expected (last 4.8%).
- Swiss May PPI was up 0.9% m/m (last 1.3%) and up 6.9% yr/yr (last 6.7%).
Index – Last – Chg – % Chg
- Hong Kong: Hang Seng 21308.21 240.22 1.14%
- Japan: Nikkei 225 26326.16 -303.70 -1.14%
- China: Shanghai Composite 3305.41 16.50 0.50%
- India: S&P BSE Sensex 52541.39 -152.18 -0.29%
- Australia: S&P/ASX 6601.0 -85.0 -1.27%
- S. Korea: KOSPI 2447.38 -45.59 -1.83%
- South Korean truckers ended their strike after coming to terms with the Transport Ministry.
- Press reports from Japan suggest that the country will issue reward points for “energy saving actions.”
- Reserve Bank of Australia Governor Lowe said that higher interest rates are needed to bring down inflation, which could reach 7.0% by Christmas. Goldman Sachs expects the RBA to raise its cash rate by 50 bps in August and September.
- China’s May Retail Sales fell 6.7% yr/yr (expected -7.1%; last -11.1%). May Industrial Production was up 0.7% yr/yr (expected -0.7%; last -2.9%) and May Fixed Asset Investment was up 6.2% yr/yr (expected 6.0%; last 6.8%). May Unemployment Rate fell to 5.9% from 6.1% (expected 6.1%).
- Japan’s April Core Machinery Orders rose 10.8% m/m (expected -1.5%; last 7.1%), increasing 19.0% yr/yr (expected 5.3%; last 7.6%). June Reuters Tankan Index rose to 9 from 5. April Tertiary Industry Activity Index was up 0.7% m/m (last 1.3%).
- South Korea’s May trade deficit reached $1.71 bln (last deficit of $1.71 bln) as imports grew 32.0% yr/yr (last 32.0%) and exports rose 21.3% yr/yr (last 21.3%).
- Australia’s June Westpac Consumer Sentiment decreased 4.5% (last -5.6%).
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!