Last Week's Close

E-mini S&P 500 Futures (June): Settled at 4245.75, up 7.75 on Friday and 17.50 on the week

E-mini Nasdaq-100 Futures (June): Settled at 13,994.25, up 34.50 on Friday and 227.50 on the week

Friday certainly left something to be desired. We viewed Thursday’s CPI data as the biggest hurdle of the week, and it was. The S&P withstood a rise in inflation to close at a fresh record high. Also, other U.S. benchmarks and risk assets seemed to be on the verge of breaking out themselves.

Fridays have typically been strong when such green lights have emerged and although stocks finished higher, it was broadly a lackluster session. What changed? Quietly, the Federal Reserve’s Reverse Repo Operations were also gathering steam. Demand for the Fed’s facility mounted for the last couple of weeks as financial institutions had more and more cash on hand.

In fact, during the last week of May, the Fed’s daily operations exceeded $400 billion for the first time since December 31, 2016 and it has yet to sink back below that watermark. The previous record was on December 31, 2015 at $474 billion. This was taken out on May 28th and a new record was set each day last week, leading up to Friday’s $547 billion.

What does this all mean? Given the mounting liquidity, it gives credence to the Fed tapering bond purchases. Coincidentally, the Federal Reserve begins a 2-day policy meeting tomorrow and we look forward to their decision and quarterly projections due Wednesday at 1:00 p.m. CT. We plan to provide more context on these developments as the week unfolds into Wednesday.

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