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Major Markets are Lower on Trade War Fear & Antitrust Threat

06/12/2019 1:23 pm EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Markets are under pressure on numerous fronts, though inflation numbers increase the likelihood of a rate cut writes Bill Baruch, President of BlueLineFutures.com.

E-mini S&P (ESM)

Yesterday’s close: Settled at 2887, down 2.25

Fundamentals: U.S benchmarks are edging lower this morning amidst trade worries, weakness in Asia and as antitrust headlines creep back into the picture. U.S CPI data is on deck at 7:30 am CT and this pivotal inflation indicator is the highlight of the week. We watch the core read most closely (excludes food and energy), its expected at +0.2% for the month and +2.1% year-over-year. The Federal Reserve is in the driver’s seat. A stronger than expected read will pour cold water over the odds of a Fed rate cut as early as the July 31 FOMC meeting, those odds currently sit at 78.1% based on Fed Fund futures. Slowing inflation has paved the way for the Fed to loosen policy and another soft read should help lift sentiment today.

The Hang Seng finished down 1.73% as police battle with protesters. Just days after the 30th anniversary of the Tiananmen Square massacre, protesters are pushing back against a new bill to allow extradition to China. The region is already on shaky ground due to slowing growth from the ongoing trade war and this put a dent in yesterday’s fresh fiscal measures out of China.

With the S&P 500 on its high yesterday, President Trump tweeted touting the stock market’s gains. Of course, that marked a top with the S&P 500 shedding more than 1% from that level. However, this price action more truly comes from his more hardened comments on trade with China; that he won’t accept a deal less than the one negotiated before tensions escalated about a month and a half ago.
Lastly, Department of Justice antitrust chief Delrahim in a speech yesterday sent warning shots to tech behemoths comparing them to Standard Oil and saying they can’t escape scrutiny simply because their platforms are free.

Technicals: Price action in the S&P 500 slipped below 2894 and although 2886.25-2889.25 did give you that quick trade opportunity and was settlement, it’s more important to understand that the bulls lost the driver’s seat.

Crude Oil (CLN)

Yesterday’s close: Settled at $53.27, up 0.01

Fundamentals: After a quiet back and forth session, API reported another surprise build in Crude inventories. With inventories bloating consistently week after week, at what point is it no longer a surprise? The results for API were +4.852 million barrels of crude, +0.829 million barrels of gasoline and -3.461 million barrels of distillates. The price of crude is sharply lower this morning but attempting to find support at a critical long-term level. Pressuring the tape is also a weaker demand outlook amidst rising production. Furthermore, Goldman Sachs (GS) noted that OPEC’s production pact can only do so much if U.S production continues to increase. Today’s official EIA data is expected at -0.481 million barrels of crude, +0.743 million barrels of gasoline and +1.138 million barrels of distillates. With API already being priced in, the headline crude read will be pivotal along with estimated production.

Technicals: In yesterday’s Midday Market Minute, we pointed to the first test to major three-star support being a buy opportunity (this happened Monday into Tuesday). However, a second test is more of a failure. We added that another big build in inventories should encourage new swing lows. The tape is playing out exactly like this. We want to be bearish but do not want to chase price action ahead of data

Gold (GCQ)

Yesterday’s close: Settled at $1,331.2, up 1.2

Fundamentals: Gold traded to a high of $1,342.3 overnight and price action has dissipated since CPI data came in soft. Core CPI came in below expectations by one tenth and furthermore, the probability of a Fed cut by the July 31st meeting has moved from 78.1% to 83.4% after the data. Not only is the reaction in gold unenthusiastic but such is the same for the Treasury complex. It is odd that gold cannot extend gains on such news and for this reason we advise those who followed us in buying against major three-star support yesterday, to capitalize in one manner or another with more than a $10 swing into this morning.

Technicals: Gold traded just shy of strong resistance at $1,344.9 t=to $1,349.8. This aligns multiple indicators as well as Sunday’s gap lower.

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

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