February 3, 2023
World Equity Index Cash & US Futures
Post FOMC hangovers continued for the Hang Seng (21,660 -1.36%) and Shanghai Comp (3,263 -0.68%) with both closing near the lower end of their weekly ranges; on the other hand, the Kospi (2480 +0.47%) and Nikkei (27509+0.39%) closed near their highs, amounting to nothing more but a week of consolidation for the region. Onto Europe and despite divergent overnight performances between the DAX (15,433-0.49%) and FTSE (7,855 +0.68%) the general tone for the region is positive heading into the weekend. North American majors were called lower into the sunrise and those losses accelerated following the 8:30 payrolls report.
Looking at the YTD numbers, the (mini) Nasdaq leads with +13.8%, Russell +12.0%, S&P +7.0% and Dow +2%. There was a lot of upside momentum heading into Wednesday’s FOMC announcement and the immediate price follow-through was impressive; all the majors except for the Dow busted through their December highs. Yet, will bids continually arrive in order to build a foundation of support? Remember, the mini-Dow was the first to challenge these levels back in mid-November and has struggled to break new ground; and with the S&P and Russell now reaching similar levels (and when stepping back, the upper end of their sideways ranges) will they struggle as well? Alternatively, the Nasdaq has room since it’s underperformed by a wide margin, but it’s been a one-way trade since early January. Remember, bull markets need fuel to keep their fires burning. If these early morning losses do not reverse, it’ll be a long weekend.
Fixed Income Futures
The complex followed Wednesdays gains with a higher but unimpressive close on Thursday. The early call was roughly unchanged ahead of the numbers to nobody’s surprise; there’s been some acceleration appearing within the trend but for me challenging the January highs is the true test; and right now, prices have now come under pressure since the payrolls release, returning the complex back into heavy consolidation. We’ll see what the rest of the day brings.
Cash Currencies.
Catching up…on Wednesday the USD was quickly put into defensive mode following the FOMC announcement. However, those gains were partially reversed on Thursday, and the complex was quiet heading into the 8:30 numbers. These reversals continued and sharpened in trend following the release. The complex (and much like fixed income) had struggled to match the post-FOMCE enthusiasm seen in the equity indexes, so I’m not sure how much of this is a surprise. These steep trends have looked ripe for corrections and with the passing of a busy week of headlines, and it appears that time has arrived.
Metals
Impressive post-FOMC gains on Wednesday followed with a negative session on Thursday and now this morning’s losses post the 8:30 release suggests deeper corrections may be upon the complex. Both Gold (1907.5 -23.30) and Silver (23.215 -0.395) have some room below without damaging larger sentiments; however, HG Copper (4.10 +0.01) recent losses have been accelerating. So far, the Red Metal is supported in the early going; we’ll see how the rest of the day goes, I’m not sure it’s out of the woods quite yet.
Energy
Crude oil’s (75.87 -0.01) steady erosion off its recent highs looks not dissimilar to HG Copper action; yes, the uptrend here was much shorter term in duration however it was also similarly backed (at least the past two months) by Chinese reopening enthusiasm. Crude oil’s unchanged opening places it in the middle of a four-month trading range, so what’s next isn’t clear; curve spreads are steady following bouts of softness. Both Distillate (2.8925 -0.0042) and RBOB (2.4447 -0.0076) have been struggling; Distillate spreads have been getting hit hard as winter wastes away while impressive RBOB spreads action has stalled suggesting the curve may have gotten a bit too far ahead of itself. Natural Gas (2.454 -0.014) entices bottom pickers with its low pricing and spreads seem to have at least stop bleeding for now; but that’s a countertrend trade and a tough one at that if it’s your style.
Agriculture
The complex is softer this morning; corn (672.75 -2.50) continues to underperform but doesn’t seem in a rush to completely break down; Wheat (752.50 -8.50) has been trending higher in the short-term, but similar to corn the action is “ho-hum”; Soybeans (1530.00 -4.75) look poised to end the week in the middle of their trading range and that’s that. Looking at the individual summer curves, both corn and soybeans are softer but still remain at extremely wide levels; looking way ahead, it seems like a lot is going to ride on the upcoming US crop. Wheat spreads aren’t showing anything spectacular, let’s say just an ever-so slight bid that I’ll be keeping an eye on for fun.
Crypto Futures
Both ETH (1,530 -4.25) and BTC (23,495 -510) are under early pressure; as I suspected, their fortunes are tied directly to speculative interest (and thus tied to the tech sector bid). Both appear a bit extended and are heavily reliant on continuous bids to hold; a sudden buyers strike and these markets are vulnerable to a sharp correction.
Good luck today!
John
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