Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude, and Treasury markets and today’s economic report calendar. Follow his reports Monday-Friday on MoneyShow.com and short Midday Markets video.
Bill Baruch’s Midday Market Minute short video: USD strong, could weigh on markets. Equities still bullish. Metals hit. Crude stalling. Keep an eye on Banking. No safe haven for gold. Here.
1. Turkey and the Geopolitical Landscape
Friday was a sea of red, the Turkish lira (TRY) fell nearly 20% after the U.S ramped up pressure on the country to release an imprisoned American pastor. After imposing sanctions earlier in the week, the proverbial shoe dropped when President Trump said he would double steel and aluminum tariffs on Turkey.
The U.S dollar (USD) gained against all major currencies except the safe-haven Japanese yen (JPY) and global benchmarks from the S&P 500 (SPX) to the DAX, Nikkei and Hang Seng were tagged.
As the situation worsened, the fear of a contagion to the Eurozone spread and particularly for the banking sector. The euro (EUR) lost 1.5% on the week with the brunt of it coming on Friday. Major three-star resistance at 1.1646 held price action in check until Friday’s escalation. The euro closed below our rare major four-star support at 1.1474 which secured a bear flag breakdown. On a pure technical basis, this opens the door to the 1.12 area where multiple key indicators align; only a close back above 1.1538 will neutralize this immediate term weakness.
The dollar’s strength in the current geopolitical landscape is nothing new, in fact it has been a common theme. The Russian ruble (RUB) lost 6.5% on the week with the potential of new sanctions coming down the pipeline. The Chinese yuan (CNY) finished weaker against the dollar for the ninth straight week and has lost nearly 10% since March.
The economic calendar is jammed through the week.
Early on our focus will be Industrial Production and Fixed Asset Investment data out of China Monday night.
On Tuesday, regional CPI data from Europe (ahead of Friday’s final July Eurozone read), Claimant Count (jobs) from the U.K, Sentiment data from Germany and Eurozone GDP and Industrial Production are all extremely crucial.
Additionally, July Retail Sales data is due on Wednesday at 8:30 am EDT.
All the while, the developing situation in Turkey could continue to take precedent.
2. Retail: Watching Home Depot, Macy’s Walmart
Given Friday’s panic selling ahead of the weekend, to not lose ground was a win in and of itself. SPDR S&P Retail ETF (XRT) is the biggest Retail sector ETF and it gained 0.06% on Friday as investors look to a big week with earnings getting underway.
The three biggest names we will be watching all report before the bell; Home Depot (HD) on Tuesday, Macy’s (M) on Wednesday and Walmart (WMT) on Thursday. Additionally, July Retail Sales data is due on Wednesday at 8:30 am EDT. In fact, the XRT gained 2% on the week and set a new record high. Though it did not close above that April 2015 high on Friday, the chart has consolidated beautifully after a sharp rally in June and is setting up for a bull-flag breakout.
Shifting gears to the broader market, on Friday, the S&P did trade 10 points below major three-star support at 2836 to hit our next key level. However, all, the Retail sector could bring some much-needed leadership to the S&P in face of global uncertainties.
3. Crude Oil: Can OPEC report keep momentum intact?
Crude Oil was the brightest spot on Friday, gaining 1.23% after the IEA said the “cooling” of the market may not last. They described short-term supply concerns as easing but essentially pointed to spare capacity becoming an issue in the later part of this year.
With the U.S set to impose sanctions on Iran in November, this, if coupled with production problems elsewhere would be a very bullish factor. Not only so, this has heightened an already fickle geopolitical landscape in the Middle East.
Price action on Friday set a key reversal, taking out Wednesday’s new swing low before closing above Thursday’s high. Facts are facts and Crude Oil is in a bull market. Though it finished the week 10.6% from the high of the year this was also 160% from the February 2016 low. Furthermore, it has gained about 60% since last June, a level in which you can draw a trend line that was tested and held for the third time this week.
Yes, the net-long position is extremely crowded at 47:2, but this tends to happen in such strong bull markets. Additionally, access to the market itself is much easier than it once was within Open Interest has steadily increased. It is also important to note that the most recent Commitment of Traders shows the long position itself falling to the lowest in two months, a level Crude rallied almost 20% from in the front month August contract.
Yes, this is more of a loll season for Crude, however, estimated U.S production has shaved 200,000 bpd over the last two weekly reports. There will be a tremendous emphasis on Monday’s OPEC Monthly Report; can it keep Friday’s momentum intact?
