Major markets are waiting on the the policy statement coming out of the FOMC later today, writes Bill Baruch, President of BlueLineFutures.com.
E-mini S&P (ESM)
Yesterday’s close: Settled at 2836.50, down 4.00
Fundamentals: It’s Fed day and the committee releases their policy statement and quarterly economic projections at 1:00 pm CT and Chair Powell will hold a press conference after at 1:30 pm CT. Beginning with the Tradable Events this Week, we have made it a point to emphasize the importance of today’s dot plot. With the CME’s FedWatch Tool not pricing in a hike all year, the committee will be expected to echo this through their dot plot. Furthermore, they will be expected to firm up a timeline to finish unwinding their balance sheet this year; known as Quantitative Tightening or QT. The Federal Reserve is in the driver’s seat, they are far and wide what matters most to this market. The fact that the CME’s FedWatch Tool has priced-in a zero probability the Fed hikes this year and a 26.7% chance they actually cut rates has fueled this historical run in equity markets. If they do not minimally confirm the high probability of no hikes this year and the timeline to end QT, equity markets will likely take a swift kick to the gut.
The S&P 500 and Nasdaq 100 furthered their breakout yesterday before mixed news on U.S.-China trade encouraged a wave of profit taking and risk-reduction. Bloomberg first reported U.S officials are concerned China is taking offers off the table. Other outlets then reported U.S Treasury Secretary Mnuchin and U.S Trade Representative Lighthizer are traveling to China next week and a deal is in the final stages. Overall, this bit of uncertainty rattled what has been an unfazed risk-appetite. Not so much because of the U.S.-China trade news, but more-so as investors and traders alike looked to today’s crucial Federal Reserve meeting as a reason to deleverage. However, let yesterday serve as a reminder that U.S.-China trade is not as completely irrelevant as it has felt since they delayed a Trump-Xi meeting.
Technicals: The S&P traded out to a high of 2858.75 shortly before the wave of mixed news.
Crude Oil (CLK)
Yesterday’s close: Settled at $59.29, down 0.09
Fundamentals: Crude oil is slightly lower this morning and about a dollar from yesterday’s high of $59.86. Broader risk-sentiment is coming in just a bit ahead of today’s FOMC meeting and this can be seen in a few sectors. In fact, a bullish private survey from API yesterday after the bell could not really excite crude bulls at this level. They reported a -2.133 million barrel crude draw, a -2.794 million barrel gasoline draw, a -1.607 million barrel distillates draw and a -0.317 drop at Cushing. Expectations for today are at +0.309 million barrel crude, -2.414 million barrel gasoline and -1.094 million barrel distillates. Overall, yesterday’s API has set a bullish bar that the market could not react to, if the data is closer to the EIA expectations, we imagine crude will trade lower. As the afternoon develops with the Fed, traders must keep an eye on that broader risk-environment.
Technicals: We have been vocally Neutral in Crude after our upside resistance of $59.63 was achieved. Given yesterday’s direct test and failure at $60, we are now cautious.
Gold (GCJ)
Yesterday’s close: Settled at $1,306.5, up 5.0
Fundamentals: Gold is consolidating above the psychological $1,300 mark as we look to today’s FOMC meeting. They release their policy statement and economic projections at 1:00 pm CT and we have emphasized the importance of today’s dot plot. Fed Chair Powell follows with his press conference at 1:30 pm CT. They must echo little to no probability of a hike this year and firm-up their plans to finish unwinding their balance sheet. If this is merely confirmed, it should send gold and Treasuries higher and the dollar lower.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com
