The Market Brief
Hey team. U.S. futures rose overnight, supported by strong quarterly earnings from major banks, as investors await the U.S. inflation report at 8:30 AM.
Let’s re-cap the prior session and see what’s next!
Impact Snapshot
🟥 CPI Inflaiton - 8:30am
🟧 Beige Book - 2:00pm
Macro Viewpoint
Strong quarterly earnings from Wall Street's leading banks lifted U.S. stock index futures on Wednesday, with investors turning their attention to a pivotal inflation report scheduled at 8:30am. JPM 0.00%↑ C 0.00%↑ GS 0.00%↑
On Tuesday, equities gained early momentum following a softer-than-expected rise in the producer price index for December. However, the report had a limited impact on altering expectations regarding the Federal Reserve's monetary policy trajectory for the year.
Strong economic growth and worries that Trump's tariff policies might amplify inflationary pressures have prompted markets to reduce their expectations for the Federal Reserve's pace of monetary easing this year.
Traders remain wary ahead of the forthcoming inflation data, arriving at a pivotal moment for global markets already under pressure from reduced expectations of rate cuts by the Federal Reserve and other central banks.
Prior Session Deep Dive
The power of what we do, as mentioned in our Sunday brief called “Field of Vision”, lies in understanding market complexities and nuances, and anticipating them as expected outcomes, often days or hours before the fact.
Yesterday’s session presented a lot of cumulative evidence of data points, which prompted a bias towards the direction the market has taken.
Once again, the market was dealing with an extreme overnight inventory—in this case, long—far away from the settle, which is an indication of weaker-hand traders getting ahead of themselves.
There was a significant disconnect between price and value. The previous value area was far below the price at which the market was ranging.
Most economic reports, when the environment allows for it, will see a directional emotional swing at the time of the report, followed by an equal reversal swing.
Understanding the market environment ensures that you don’t get caught up in the initial emotional reactions of the market. The way we communicate where we think the market will go, if it was going to break down, is through the pivots.
In this case, despite the market being higher and a great distance from the first downside pivot of 5844, we understood the consequences of a potential trap that would lead the market to break all the way toward this reference—which it did.
As we always say, entering a trade doesn’t take time; preparing and waiting for it should. The initial “extreme opportunity” was a 75-point short, with the market having plenty of room to fall toward the pivot, followed by a 50-point bounce long.
