How Large Are Bullish Risks Skewing?

Our daily research overs the S&P, NQ, Crude Oil, Gold, Silver, Currencies, Corn, Soybeans, Wheat, Livestock, and Softs markets. Went out to brokerage clients before the bell

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

S&P, yesterday’s close: Settled at 3995.00, up 5.25

NQ, yesterday’s close: Settled at 12,228.25, up 59.25

Fundamentals: E-mini S&P and E-mini NQ futures finished well yesterday by digging out of session lows but turned lower overnight. Markets have been heavy ahead of tomorrow’s Nonfarm Payroll report as they discount a more hawkish Fed path. According to the CME’s FedWatch Tool, there is now an 80.8% probability the Fed hikes by 50bps at their meeting in two weeks. One week ago, this was a 31% chance, and it only emerged after January’s Nonfarm Payroll report on February 3rd. Here is the thing, if markets are perfectly efficient at all times, there is very little opportunity. We see this mounting probability of a 50bps hike in March and a rate of 5.50-5.75% by June, if not higher in the second half of the year, as opportunity. Just two weeks ago, Fed Funds futures were still pricing in a terminal rate of 5.00-5.25% before a rate cut at yearend. The odds have done a complete 180, but has the flip been too much too quick? That is where the opportunity is found. With rate cuts priced in, good economic data was going to weigh on the market in order to discount a higher terminal rate. At current levels, a solid jobs report and firm, but not hot inflation, could actually become a tailwind for risk-assets such as stocks. Furthermore, as we discussed earlier this week, Fed Chair Powell has gone from a victory lap touting disinflation to nearing his Jackson Hole demeanor; he seems lost and now chasing himself around. We have only had one month of strong data, a month that we expected due to social evolution around the holiday season and New Year data distortions. It is easy to forget the Fed has been tightening policy, not just rate hikes, but cumulatively for a year now; the data will slow, and now the risks are skewed.

Weekly Initial Jobless Claims are due at 7:30 am CT, and the U.S. Treasury will auction $18 billion of 30-year Bonds after a tepid 10-year auction yesterday. Challenger Job Cuts for February softened this morning to 77,770 from 102,943 in January, which has led markets to believe Nonfarm Payrolls could be hotter. Fed Governor Barr speaks at 9:00 am CT, and traders should be on the lookout for added Fed speak before the blackout period begins Saturday.

Technicals: Price action in both the E-mini S&P and E-mini NQ futures could not get through first resistance, a major three-star level yesterday, highlighted below. Much of the battle has been around our Pivot and point of balance at 3982.50-3985.25 in the S&P and 12,159-12,170 in the NQ. We are beginning to see leadership emerge among the chips, and this has underpinned relative strength…. Click here to get our (FULL) daily reports





NQ (March)





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On the date of publication, Bill Baruch did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.