U.S. Equities Under Pressure on Stalled Trade Deal

02/08/2019 11:33 am EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Weaker global growth got the ball rolling yesterday as the market found itself extended and exhausted says Bill Baruch President of Blue Line Futures.

E-mini S&P (ESH)

Yesterday’s close: Settled at 2704, down 7.50

Fundamentals: U.S benchmarks are gyrating through a healthy paring of gains and that is exactly what it is at this point, a health paring. After a nearly 18% run from the December lows, this is not even in ‘healthy correction’ territory yet. 

Weaker global growth got the ball rolling yesterday as the market found itself extended and exhausted in the near-term with strong overheard technical resistance. However, it was the fresh trade headlines that added pressure. White House chief economic advisor Larry Kudlow said there was a “sizable distance” between the two sides. Furthermore, for now, it does not appear President Trump and Chinese President Xi will meet ahead of the March 1st deadline. Although it is unclear whether tariffs will increase immediately at that point or the deadline will get kicked, investors prepare for the less favorable outcome and take some of the premium out of the market. Additionally, traders want to keep an eye on another ‘sizable distance’. It appears all may not be well with the tariff truce between the U.S and the EU according to Bloomberg reports; if this continues to erode, it will certainly weigh on sentiment.

This morning’s economic calendar boasted better trade numbers from Germany, but another poor Industrial Production read from the Eurozone, this time from Italy. On the earnings front, Hasbro, Phillips 66, Exelon and others headline the morning.

Crude Oil (CLH)

Yesterday’s close: Settled at $52.64, down $1.37

Fundamentals: A whirlwind of oil-related news has reversed price action over the last 24 hours. Most importantly we want to point out strong technical support just above the $50 level. Overall though, fears of weak global growth have weighed on the broad risk appetite and just as equity markets have had a historical run to start the year, crude oil is up 16% year-to-date; a health paring of gains on a very technically damaged chart should be expected and is almost necessary. Adding to uncertainty is a bill in Congress that was passed yesterday. It would make it possible for the U.S government to prosecute OPEC for manipulating or fixing prices. The idea behind such is that it would stop OPEC from agreeing to cut production and thus lift prices to levels that the White House finds unfavorable. Baker Hughes rig data is due at noon CT.

Gold (GCJ)

Yesterday’s close: Settled at $1,314.2, down 0.2

Fundamentals: Gold is trading higher this morning as a strong technical landscape and a partial return of Asian interest has lifted the metal. China is still on holiday, but Hong Kong did return. This is typically a time of year that Gold sees a slight consolidation lower with an absence of that Asian demand and after a seasonally bullish start to the year. The dollar has held ground and is ultimately quiet, but it is important to note that Treasury prices have responded to global growth fears and slight weakness in the equity markets and this is also supportive to the metal as a safe-haven. Overall, if gold can hold this ground into the close on the week, it will be a very healthy one at that.

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