U.S.-China Trade Threats & Inflation Roil Markets

05/22/2019 1:48 pm EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Trade tensions increase and Fed hints that inflation may not be tame is affecting major markets, notes Bill Baruch, President of BlueLineFutures.com.

E-mini S&P (ESM)

Yesterday’s close: Settled at 2866, up 22.00

Fundamentals: U.S benchmarks struggled overnight to pad yesterday’s recovery. Tech is again weighing on sentiment after it was reported the White House is considering adding five Chinese tech companies to their blacklist who are tied to the manufacturing of surveillance equipment. The Shanghai Composite finished down 0.49% today but is still up 0.33% on the week. For U.S companies, Reuters reported nearly half of those operating in China have been hit with retaliatory measures in recent weeks. Furthermore, they noted a poll conducted by the American Chamber of Commerce in China and Shanghai where 40.7% of respondents are considering relocation. On the flip side, Chinese officials last night expressed interest in resuming trade talks, however, markets barely budged upon these reports.

The Federal Reserve will release the Minutes from its April 30-May 1 meeting at 1:00 pm CT. Remember, at this meeting Fed Chair Powell called slowing inflation growth transitory. This implied he expects inflation to pick up later this year. If that occurs, it would foreseeably price-out any chance of a rate-cut if growth is steady. Traders and investors alike will look for broader clues from the meeting on inflation expectations. Additionally, where does the committee fall on growth after a headline strong Q1 with bloated inventories or headwinds due to an escalating trade war. This morning, the CME’s FedWatch Tool shows a 64.8% chance the Fed cuts rates this year.

Technicals: The tape is under a bit of pressure this morning and the NQ is facing a strong level of support.

Crude Oil (CLN)

Yesterday’s close: Settled at $63.13, down 0.08

Fundamentals: Last night’s API data smacked a firm tape. Crude oil has failed to extend gains, but at minimum it has held ground this week. The private API survey after the bell reported a build of 2.4 million barrels of crude oil and this in only the immediate-term was the straw that broke the camel’s back. Do misunderstand us here, Crude can certainly reverse losses today, but as we have known, it will rely on today’s official EIA data. API also reported a build in Gasoline at 350,000 barrels which was offset by a small draw in Distillates at 240,000 barrels. Geopolitical developments will remain crucial but today will depend on EIA inventory data and estimated production. Those expectations are for -0.599 mb Crude, -0.816 mb Gasoline and -0.48 mb Distillates. Yesterday’s API composite read was +2.51 mb, keep an eye on EIA’s official composite for comparison.

Technicals: Price action settled again at the $62.92-$63.27 mark but quickly slipped on today’s session. First key support at $62.01 held early selling attempts and now the bulls must regain.

Gold (GCM)

Yesterday’s close: Settled at $1,273.2, down 4.1

Fundamentals: Gold is certainly not going down without a fight. Despite lower lows yesterday it is buoying above that set on May 2 ahead of today’s FOMC Minute. Ultimately, the 1:00 pm CT release will be all about the reaction of the dollar and rates. Remember, at this meeting Fed Chair Powell called slowing inflation growth transitory. This implied he expects inflation to pick up later this year. If that occurs, it would foreseeably price-out any chance of a rate-cut if growth is steady. Dallas Fed President Kaplan said in an interview with Bloomberg that the Fed may have “slightly overdone it” when referring to the December hike. On this flip side, maybe the inflation comments were added by Powell and not reiterated much within the discussion, this could support gold. Regardless, the dollar is finding more support from the weakness of its peers; euro, Chinese yuan and British pound. Traders must keep a close eye on the 98.00 mark for the Dollar Index.

Technicals: We remain Neutral in gold.  

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.

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