Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold and Crude markets today as European equity markets react to a rising euro, U.S. jobless claims down, Crude hangs well. Bullish Gold. Follow his reports Monday-Friday on MoneyShow.com.
E-mini S&P (September)
Wednesday close: Settled at 2779, down 9.25
Fundamentals: The Federal Reserve hiked interest rates by a quarter point Wednesday and signaled that two more hikes are on the way this year. The Fed’s statement was overhauled and pointed to stronger growth and spending.
However, they did maintain their “symmetric 2% inflation objective.” This arguably relieved some thoughts that the Fed would allow themselves to move faster than a gradual pace if inflation picked up.
While the statement was certainly more hawkish than the last, after a solid run on economic indicators over the last two weeks, much of this was priced into expectations. Furthermore, Fed Chair Jerome Powell did a tremendous job tempering expectations and massaging the statement through his press conference. Most importantly, he emphasized that their models have given them no reason to believe inflation would run away to the upside.
The Dot Plot signals three hikes in 2018 and one additional hike in 2019; the endgame also helped temper hawkish fears. The S&P 500 (SPX) finished more than 0.5% from its session high and traded down to a crucial support level of ours overnight.
Still, the broader market is battling very well given the one-two punch of a more hawkish Fed and news that the White House will discuss Thursday and potentially announce Friday additional tariffs on China.
China’s foreign ministry has already said that an announcement of new tariffs will toss out any agreements and progress recently made. This is a developing situation that traders and investors must keep an eye on.
Coming under direct focus this morning is the ECB who announces a policy decision at 7:45 am EDT. Last week, Chief Economist Praet said that they will discuss making a policy change and potentially announce the end of QE and/or beginning of a taper when their bond purchases expire in September.
ECB President Draghi held a press conference at 8:30 am EDT and said ECB's decisions on QE are patient and prudent.
Traders want to keep a close eye on how European equity markets react in the face of a rising euro (EUR). While a weakening dollar (USD) is helpful to U.S multinationals, pressure on overall global markets will likely spread. However, if they do not make a policy change and/or and the dollar rallies because such is priced in, this could bring its own burden.
Additionally, traders must watch for the reaction in the Treasury markets. Yields have barely budged due to Fed Chair Powell’s great press conference and as risk premium picks up with China and U.S trade talks in the news. However, rising yields do to a very hawkish ECB is another component that could weigh on markets into the weekend.
From the U.S this morning, a key read on Retail Sales this morning were $502 billion in May, an increase of 0.8% from the previous month. Also this morning, weekly jobless claims. (A total of 218,000, down 4,000 from previous week.)
Data out of China last night that included Fixed Asset Investment and Industrial Production missed expectations. Tonight, the Bank of Japan holds a policy meeting.
Technicals: Price action yesterday again stalled in the 2794.25 area before settling right at first key support at 2779.50. Overnight weakness traded to our crucial level at 2770.50-2774.75; we discussed yesterday how this is not a major three-star support, but a move below here would open the door to at least another 1%.
Crude Oil (July)
Wednesday close: Settled at 66.64, up 0.28
Fundamentals: Wednesday was the bullish EIA inventory read that we have been waiting for. However, it came with a large increase of 100,000 bpd in U.S shale production.
The EIA said Crude inventories drew down 4.143 mb, much more than the -1.44 expected. Additionally, Gasoline was -2.271 and Distillates were -2.101, both were expected to see minor builds.
Crude Oil is hanging well into this morning, but the production data held back further gains. We continue to believe the risk is to the upside here and the OPEC meeting late next week has already priced in a rise of nearly 1 mbpd in production.
The wild card is something less or no increase at all. Remember, Saudi Arabia already began increasing production last month, this is priced in. Additionally, an increase of production brings down spare capacity to the lowest since 1984, another reason to believe the risk is to the upside.
Technicals: Minor resistance at 66.73-66.97 has held much stronger than expected, however, price action overall has been in our favor. The longer it stays against here, the higher the probability we see a move to major three-star resistance at ...
Gold (August)
Wednesday close: Settled at 1301.3, up 1.9
Fundamentals: Gold is performing very well into Thursday morning despite the Federal Reserve predicting two more rate hikes this year, four in total. Fed Chair Powell did a tremendous job with the press conference yesterday and reining in the hawkish statement.
Volatility in the currency sector is picking up this morning after the ECB left rates unchanged. They plan to wind down QE by the end of the year but do not see a rate hike until the latter half of 2019.
ECB President Mario Draghi held a press conference at 8:30 am EDT. U.S Retail Sales and weekly Jobless Claims out at 8:30 am (above).
What traders must keep an eye on is the White House’s decision to revisit imposing new tariffs on China in a discussion today and a potential announcement tomorrow. With markets seemingly overpricing in central bank hawkishness, Gold has benefited thus far. A reinvigoration so the U.S and China trade war would be very bullish Gold heading into the weekend.
Technicals: We are Bullish in Bias Gold and have been. While the fundamentals are seemingly lining up, a close above major three-star resistance today will be huge in reinviting buyers back to the table on a technical basis. This could send the metal to our next major three-star level.
