U.S benchmarks continue their march higher and the S&P is nearly 1% from erasing December’s losses, writes Bill Baruch, President of Blue Line Futures.
E-mini S&P 500 (ESH)
Yesterday’s close: Settled at 2721.25, up 17.00
Fundamentals: U.S benchmarks continue their march higher and the S&P is nearly 1% from completely erasing December’s loss. There has been an incredible range between now and then but if you take a step back, not a lot has changed; first quarter growth has likely been slower, as expected, a government shutdown still looms and there has been zero substance on U.S.-China trade. Earnings have been better than the lower expectations, which has kept market participants intrigued and less cautious.
The largest storyline is the Fed and their U-turn between the December and January meetings. Their rhetoric last week overshot the market conditions and expectations. This ups the ante on a list of speakers this week. Last night, Cleveland Fed President Mester supported the Fed’s policy comments but added the committee will have to raise rates if the economy continues to do well. Tomorrow, Fed Governor Quarles speaks and on Thursday Fed Vice Chair Clarida and St. Louis Fed President Bullard each speak. Late last week, the CME FedWatch Tool showed a zero percent probability the Fed will hike in March, this morning it sits at 3.9%.
All of these storylines will be present later tonight when President Trump delivers his State of the Union to Congress but none more than the standoff over the border wall.
Crude Oil (CLH)
Yesterday’s close: Settled at $54.56, down 70¢
Fundamentals: Crude ping-ponged between strong resistance and support yesterday to settle right in the middle of its range. Inventory data is quickly coming into the picture with not a lot of fresh news flow outside of that coming from Russia. Supporting prices yesterday were reports that Russia’s production in January fell below expectations following the OPEC+ cut deal. Although the sellers defended strong resistance in the $55 ballpark again this morning, a dip aligned with comments from Russian oil giant Rosneft after earnings. One comment noted that they do not expect a decline in oil output at its projects in Venezuela. Additionally, they said there are different expectations for OPEC and non-OPEC according to any deal in place. It appears that Rosneft has until July 1 to reduce production 90,000 barrels-per-day, 19,000 of which has already been done. We look at this from the perspective, Rosneft may slow any cuts now that Brent is handily above $60.
Gold (GCJ)
Yesterday’s close: Settled at $1,319.3, down $2.80
Fundamentals: Gold is consolidating in a healthy manner after rallying $50 since Jan. 21. Over the next 24-48 hours, a deluge of data and Fed speak will be crucial for the metal. Furthermore, we can expect volatility in the dollar with tonight’s State of the Union. ISM Non-Manufacturing is due today at 9:00 am CT and tomorrow we begin to see some of the government shutdown cancelled releases trickle out. In the immediate-term gold will see volatility due to a confirmation or denial of the Fed’s newly more dovish rhetoric. Regardless of such, we believe there are bigger forces behind this, and the best has yet to come.
