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Watching Treasury Yields. Bulls Drive Crude. USD Stronger. Buying Gold

10/09/2018 10:34 am EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude, Forex 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 for Oct. 9 here.
Equity markets are bouncing from early morning low. You could see accelerated selling. Bears in driver's seat. RUT testing new lows. Crude resistance $75.27. Gold pressure, Treasury auctions this week.

E-mini S&P (December)

Monday’s close: Settled at 2893.75, down 0.25.

Fundamentals: U.S. benchmarks have seen continued pressure to start the week, but major three-star support encouraged buyers to step in on Friday and it absorbed a direct hit Monday. The technicals have provided a tremendous landscape through this minor correction and that is exactly what we are experiencing, a minor correction. However, a close below major three-star support would likely accelerate selling.

Here, we have continued to emphasize the significance of the move in Treasury yields and we elaborated on this theme in Sunday’s Tradable Events this Week. One aspect of rising yields is that companies now pay more to service their debt, and this is a direct hit to their bottom line.

The other is the attraction of guaranteed return at these levels; the 10-year tagged 3.25% overnight and the average dividend yield of the S&P 500 (SPX) is 1.83%. Today starts a three-day run where yields will be at the forefront. The U.S. Treasury is set to auction $74 billion in paper beginning with 6-month and 52-week bills today. Tomorrow, 3-year and 10-year notes hit the market and Thursday adds 30-year bonds.

Massive supply hitting the market to fund the government’s budget is nothing new but at these yields this creates a different dynamic and we believe that money is going to come from somewhere to purchase this paper. Remember, the Bond market was closed Monday when the S&P traded to a low of 2866, today the Bond market will be begging for investors’ cash.

U.S and China trade tensions are also heating up. The relationship was out of the headlines last week during China’s Golden Week, but Sunday started with a bang as the China devalued the yuan (CNY) by 1%. The White House took notice and expressed their displeasure. China has fired back saying that “higher tariffs will not force their capitulation.” After losing 3.7% Monday, the Shanghai Composite is holding ground this morning. However, the MSCI Emerging Market Index and the Nikkei are both down more than 1%.

Chicago Fed President Evans speaks at 10:00 am EDT. He is not a voting member in 2018, but with a December hike all but secured, investors are now focused on the path of hikes in 2019. Next year, Evans is once again is a voting member. His comments today, tomorrow and Thursday will be crucial.

Technicals: After bouncing into the close once again, price action fizzled out immediately last night. Major three-star support at ...

 

Crude Oil (November)

Monday’s close: Settled at 74.29, down 0.05.

Fundamentals: Crude Oil is back on its bullish track with the emergence of Hurricane Michael heading toward the Gulf of Mexico. Although its path is expected to leave production untouched, uncertainty brings a premium. Monday, companies had to take precautionary measures and evacuated 13 platforms which halted as much as a fifth of the production in the region. This coupled with the ongoing narrative that Iranian supply is coming off the market has the bulls right back in the driver’s seat.

Data for the first week of October shows Iran exported 1.1 mbpd, down from their average of 1.6 mbpd in September. However, Saudi Arabia and Russia are doing their part in trying to tame bullish expectations by jawboning increasing production. Bill Baruch discussed this Monday on Bloomberg. Inventory expectations will trickle out today and add to the volatility. API is due at 4:30 pm EDT.
Technicals: We Neutralized our Bias midweek last week in order to exude caution from overextended territory. However, our long-term bias has been unequivocally Bullish, and we maintain our expectation for $80 before the end of the year. We are reintroducing a bit of Bullish Bias today after a test and hold of major three-star support Monday at ... 

 

Gold (December)

Monday’s close: Settled at 1188.6, down 17.0.

Fundamentals: Gold incurred its worst session loss since August 13 but did not break major three-star support and is battling with a higher low on today’s session. The shock of China devaluing the yuan by 1% was absorbed and now it is time for the bulls to step back to the plate just as they did early last week. The U.S. dollar (USD) is higher today on euro (EUR) weakness but the euro weakness in and of itself is supporting Gold as a safe-haven. Furthermore, the IMF lowered its growth forecast for this year and next year.

Today, we are most looking forward to comments from Chicago Fed President Evans. Evans dissented at his last Fed vote in December 2017. Although he is not a voting member this year, with December all but secured, investors are now focused on the path of hikes next year when Evans again becomes a voting member.

Technicals: Gold is battling at major three-star support and we said here last week that this is not when you want to sell Gold but instead when you want to buy Gold. First key resistance comes in at ... 

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Bill Baruch’s FX Rundown for Oct. 8-9: Neutral euro. Safe-haven for yen. Aussie gains. CAD chills.

View a short video: Bill Baruch: Trading Futures. Gold, USD, yuan.

Recorded: TradersExpo Chicago July 24, 2018.
Duration: 4:34.

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