Where's the Beef in China Truce? Weaker USD Lifts Commodities. Gold Up

12/04/2018 12:00 pm EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Skepticism about the US-China truce. Crude awaits OPEC likely cuts, as a weaker dollar lifts commodities. Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude, Forex and Treasury markets and today’s economic calendar.

Bill Baruch’s Midday Market Minute short video for Dec. 4 here.
Stocks retreat ahead of President Bush 41 funeral when markets are closed. S&P is down 2%, 2758. Trump called himself the tariff man, this took any wind out of the sails of the exuberant open Sunday. What's given back most is Russell 2000. Uncertainty. Stay nimble.

 

E-mini S&P (December)

Monday’s close: Settled at 2790.75, up 32.50.

Fundamentals: U.S. benchmarks continue to shake off the Sunday night exuberance with the realization that there is little substance behind the U.S. and China trade truce. Doubling down on that, markets began pricing in this probable outcome last week upon the tailwind provided by Fed Chair Powell’s less hawkish comments; that interest rates are “just below zero” and the Fed is not on a preset course.

Souring the boisterous risk-on open has been conflicting reports and wide-ranging questions as to the details of this trade truce. The market is doing its best to cling to gains but strong overhead resistance has also contracted investors’ appetite. Whether the S&P (SPX) is at 2800 or if it’s within an earshot as it is this morning, the risk at this level begins to outweigh the reward.

Related: Uncertainty surrounds White House agreements on trade with China, North America, reports the Washington Post.

Our narrative has been that the easier money or the “meat in the middle” of this run was made by positioning long on weakness when we went outright Bullish in Bias through the Thanksgiving week.
Today, NY Fed President Williams, who did not make headlines Monday, speaks at 10 am EDT. His comments will be watched closely as the Fed’s more recent less hawkish rhetoric has been a key catalyst in inverting a part of the yield curve. Monday, the yield on 3-year Treasury notes began trading higher than that of the 5-year. The 2-year and 10-year spread is watched most closely and while this has yet to do so, the overall sentiment around such is not supportive to markets and is seen as recessionary precursor.

Tomorrow will be a national day of mourning for the 41st President George H.W. Bush who passed away at 94 on Friday; equity and interest rate markets will be closed, government data will be pushed to Thursday and Fed Chair Powell’s Congressional testimony is postponed.

Technicals: Our technical gut sees no intermediate-term edge from either side, but this does not mean there’s no trade. We have adjusted major three-star support to ...

 

Crude Oil (January)

Monday’s close: Settled at 52.95, 2.02.

Fundamentals: The EIA has officially rescheduled Wednesday’s inventory release for Thursday at 10:30 am EDT. Interestingly enough, OPEC begins their meeting on Thursday where they are expected to cut production. While the EIA data will remain crucial, the delay does diminish its potential effect given that the major focus during that time will be OPEC. In fact, after 10 straight weeks of Crude builds, the delay likely helped Monday night’s path of least resistance higher as Crude works to claw back an awful two-month stretch. A weaker U.S. dollar (USD) has also lifted commodities broadly and the stronger Chinese yuan (CNY) allows their currency to stretch farther. The OPEC and non-OPEC alliance is expected to cut somewhere in the ballpark of 1 mbpd, we maintain that we must see something of at least 1.3 mbpd in order for this market to breakout above the $55 mark on that news solely. Monday, Bill Baruch joined Bloomberg to discuss what the U.S and China trade truce means for Crude Oil.

Technicals: Crude Oil hit major three-star resistance squarely overnight at ... 

 

Gold (December)

Monday’s close: Settled at 1239.6, up 13.6.

Fundamentals: Gold is up for the second day in a row and at the highest level since making its recovery swing high on October 26 which was 1252 in the February contract. However, it has taken out the December front month high of 1246 with a trade of 1246.9. While the Dollar Index (DXY) is down 0.65% on the week, the Chinese yuan is the big factor on this front as it has gained 1.75% against the dollar this week. Remember, the weakening of the Chinese yuan against the dollar in June was the major catalyst in Gold’s fallout. The other key factor over the last two weeks has been a less hawkish Fed and today we look to comments from NY Fed President Williams at 10:00 am EDT. Treasury prices are surging this morning with the 30-year Bond up a point. The move is riding a wave of strength after the 3-year and 5-year spread inverted; this is seen as a recessionary precursor and is bringing support to the precious metals sector. The economic calendar is light otherwise and tomorrow’s schedule has been pushed out in observance of the national day of mourning for President George Bush.

Technicals: We might sound like a broken record, but we remain unequivocally long-term bullish Gold, however, maintain that gains ... 

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

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

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