The major markets are waiting on inflation numbers and clues from Trump/Xi meeting in Japan, writes Bill Baruch.

E-mini S&P (ESU)

Yesterday’s close: Settled at 2931, up 13.00

Fundamentals: U.S benchmarks are holding firm ahead of the Federal Reserve’s preferred inflation indicator to be released at 7:30 am CT. The Core PCE index which excludes food and energy is expected at 1.6%, below the Fed’s 2% target and lingering at the slowest pace in more than a year. The PCE deflator is expected to uptick from last month to 1.5% from 1.3%. This would break a downtrend since June. Earlier, Eurozone CPI was in-line with expectations at 1.2% and the core read was 1.1% edging-out expectations by a tenth. Overall, slow inflation has paved the way for dovish central bank policy and the Fed’s path is front and center. Although Fed Chari Powell’s less-dovish comments earlier this week exuding more patience than assurance of a rate cut in July, the odds still fully price-in a 25-basis point cut with a 25% probability they cut 50-bps. Stronger than expected inflation would begin to price-out these odds and the market will not find that favorable.

The G-20 Summit in Japan is underway and Saturday’s meeting between President Trump and President Xi is on everyone’s mind (tonight at 9:30 pm CT). Bloomberg reported that President XI is doing his best to “paint the U.S as the bad guy” in the U.S-China trade war. Top level trade negotiators, U.S Trade Representative Lighthizer and Chinese Vice Premier Liu He, have held meetings today in order to show the sides are making progress. This comes after U.S Treasury Secretary Mnuchin said a deal is/was 90% in place. His comments make sense and if you remember, our narrative has been the substance. All progress has lacked substance. Despite less favorable comments from White House Chief Economic Advisor Kudlow yesterday, we find it likely the two sides avoid a new round of tariffs. Still, we don’t imagine the two sides make progress on that substance; intellectual property, forced technology transfers and investment within China’s borders.

Lastly, keep an eye on the Russell 2000. This lagging index was the first to show signs of exhaustion with the 50-day moving average crossing below the 100-day a week ago. However, it led the way higher yesterday gaining 1.9%. Today is the annual rebalancing and at the end of the session this should encourage whipsaw action.
June Chicago PMI is due at 8:45 am CT and final June Michigan Consumer data is due at 9:00 am CT.

Technicals: Price action in both the S&P and NQ is lingering at our first resistance levels.

Crude Oil (CLQ)

Yesterday’s close: Settled at $59.43, up 0.05

Fundamentals: Crude oil is battling north this morning and attempting to put in a higher floor ahead of the weekend. Keeping a bid under the market are Iran tensions and a more favorable U.S supply and production landscape. Additionally, it’s hard to think the broader risk-environment is not attempting to price-in an upbeat U.S.-China trade narrative coming out of the weekend. Also, out of the weekend leads right into the OPEC and OPEC+ meetings. First, the U.S, allies and world powers have warned Iran to not break the Nuclear Deal, something they vowed to do in 10 days, just about 10 day ago. The U.S has now promised to assure no Iranian crude imports by any country. It’s likely not a coincidence that OPEC+ moved its meeting after the G-20 Summit. Not only do they want to see the outcome of the President Trump/ President Xi meeting but also between the Saudi Crown Prince and Russian President Putin. With a path of least resistance that has been higher, we imagine this is maintained into the weekend but do not forget the technical resistance levels discussed below.

Technicals: Price action has worked to build a nice floor at first key support at $58.22-$58.50. Today’s low is $59.00, and our momentum indicator has risen.

Gold (GCQ)

Yesterday’s close: Settled at $1,412, down 3.4

Fundamentals: Gold has been stable above $1,400 and after a run like we’ve seen over not only the last week but the entire month of June, this is all we could ask for. The Fed’s preferred inflation indicator, the Core PCE Index, was in line with expectations this morning. At 1.6%, it is still well below the Fed’s 2% inflation target. The odds of a rate cut in July are still fully priced-in and the probability of 50-basis points sits at 26.1%.

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

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