Gold Futures Aiming For New Highs

Top things to watch this week

The Economic Calendar:

MONDAY: Wholesale Inventories, 3-Month Bill Auction, 6-Month Bill Auction, Investor Movement Index

TUESDAY: NFIB Small Business Optimism Index, 3-Yr Note Auction, Austan Goolsbee Speaks

WEDNESDAY: MBA Mortgage Applications, CPI, Thomas Barkin Speaks, Atlanta Fed Business Inflation Expectations, EIA Petroleum Status Report, 4-Month Bill Auction, 10-Yr Note Auction, FOMC Minutes, Treasury Statement

THURSDAY: Jobless Claims, PPI, EIA Natural Gas Report, 4-Week Bill Auction, 8-Week Bill Auction, 30-Yr Bond Auction, Fed Balance Sheet

FRIDAY: Retail Sales, Import and Export Prices, Industrial Production, Business Inventories, Consumer Sentiment, Baker Hughes Rig Count

Futures Expiration and Rolls This Week:

There are no expiration or rolls this week

Key Events:

• Some global markets closed Monday in observance of Easter.
• Earnings for Q1 kick off with large banks reporting.
• The U.S. CPI (inflation) report is the focus of the week.
• Economists expect a rise of 0.3% from February and YoY to 5.2%.
• Economic reports CPI, PPI, and Retail Sales.
• FOMC minutes on the last Fed interest rate decision meeting.
• Bank of Canada interest rate policy decision.
• Fed speeches from Williams, Harker, Goolsbee, Kashkari, and Barkin.

Stock Index Futures

Stock indexes ended higher last week. The S&P 500 gained 1.36% for the week, and the Nasdaq index climbed 0.75%.

Stocks were volatile last week due to signs of a slowing economy, including weak ADP private payroll data and job openings. That changed from the previous narrative when traders cheered weak economic numbers.

Stock market traders are contemplating whether recession or rate hike worries are more meaningful to prices.

A few key short-term levels for the S&P 500:
Upside: 4160,4210,4220
Downside: 4083, 4055-60,4020

Interest Rate Futures

Current Fed Funds futures pricing shows a 71% probability of a hike and a 28% of a pause at the next Fed meeting on May 3rd.

Markets are then pricing in more than three rate cuts by year-end. So the CPI release this week will be necessary to maintain this more dovish pricing (see graphic below).

Our base case view: The credit tightening resulting from the current banking turmoil should be contained. It will not likely be large enough to push the economy into recession and force the Fed to ease aggressively to the extent markets appear anticipating.

U.S. Treasury yields current yield compared to the last newsletter:
30-Year yield  3.62% vs. 3.65%
10-Year yield  3.41% vs. 3.47%
5-Year yield  3.51% vs. 3.58%
2-Year yield  3.99% vs. 4.029
2-10 Yield spread  -0.58% vs. -0.55%

Source: CME Group FedWatch

Gold Futures

Gold futures are trading higher and through key levels above $2000. The most active June (M) 2023 contract settled at $2039.40. That puts gold within striking range of the all-time high of $2088.

Weak U.S. economic data was the primary fundamental event that started the gold futures rally. In addition, data suggests the Federal Reserve could slow and pause rate hikes sooner than expected.

Also, China’s on a gold buying spree as the latest data from the People’s Bank of China bought 18 tonnes last month.

Analysts say that China is expected to continue to increase its official gold reserves as it builds international credibility for the yuan and competes with the U.S. dollar as a world reserve currency.

CPI Report

Traders will be focused on the U.S. CPI report for March this Wednesday. It follows a downside surprise in the latest PCE report for February, as well as an array of weaker-than-expected data this week, with markets increasingly focusing on the growth outlook and the likelihood of a recession.

Economists see a +0.3% Month-Over-Month increase for the headline rate and a consensus of 5.2% for Year-Over-Year inflation.

Company Earnings for Q1

S&P 500 Q1 earnings season will kick off this Friday. Large Financial stocks, including BlackRock, Citigroup, and J.P. Morgan, will announce earnings.

Over the next few weeks, 87% of the index will release Q1 earnings results by May 5th. The analysts expect EPS to fall 7% YoY, the most significant decline since 3Q 2020.

Analysts project the Materials, Health Care, Communication Services, and Info Tech sectors are expected to announce year/year EPS growth declines. However, on the more positive side, Energy, Industrials, and Consumer Discretionary sectors are expected to post year/year EPS growth.

Valuations for stocks overall are also high historically, with the S&P 500 trading at about 18 times forward earnings estimates compared to its long-term average P/E of 15.6x, according to Refinitiv Datastream. Note below the stretched P/E ratio of NVDA at 159x and the Software Applications industry.

Morgan Stanley strategists said earnings estimates were 15-20% too high even “before the recent banking events.”

Crypto

Can you say “Mega Bull” on the future of Bitcoin?!

Asset Class Performance Summary

This performance chart tracks the daily, weekly, monthly, and yearly changes of various asset classes, including some of the most popular and liquid markets available to traders.

Thought of the Week

Just because you had a losing day using your current trading strategy doesn’t mean you return to the drawing board and start changing stuff.

Trust me! It won’t change anything. So please stick to your trading plan and track for at least 30 days before you make significant changes.

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.