Major Markets Waiting on Sign from Fed

U.S benchmarks are consolidating back a bit after a constructive session and ahead of Fed Chair Powell’s Congressional testimony, writes Bill Baruch.

E-mini S&P (ESU)

Yesterday’s close: Settled at 2982, up 3.50

Fundamentals: U.S benchmarks are consolidating back a bit after a constructive session and ahead of Fed Chair Powell’s two-day semiannual Congressional testimony. This starts at 9:00 am CT with the House Financial Services Committee. For the first time in about a month, the CME’s FedWatch Tool is signaling there’s a chance the Federal Reserve leaves rates unchanged at their July 31 meeting, a probability now at 4.4%. Although meager, this is what traders must keep a pulse on over the next 48 hours. Fed Chair Powell has signaled the committee’s willingness to accommodate if signs of weakness in the economy persist; as ironic as it is, if this remains true, it will be favorable to equity prices.

However, a less-dovish Powell will reinvigorate the unchanged odds and pressure equity prices. Also, the Fed releases the Minutes from their June 18-19 meeting today at 1:00 pm CT. How steadfast was the committee in moving towards loosening policy? Strong job growth last Friday, particularly Manufacturing Payrolls on the heels of less-worse Manufacturing PMI, has completely priced-out the odds of a 50-basis point cut later this month. It may not be until tomorrow morning when we get one of the largest pieces to this near-term puzzle, the closely watched CPI inflation indicator.

Technicals: Though constructive yesterday, the overall tape is mundane in the immediate term as traders and investors await fundamental queues from Fed Chair Powell. We are slightly upbeat after prices achieved and recovered from major three-star support yesterday. Our pivot today is 2877.50-2878.25, this aligns several technical levels including our momentum indicator and yesterday’s settlement; above here the bulls gain a technical edge.

Crude Oil (CLQ)

Yesterday’s close: Settled at $57.83, up 0.17

Fundamentals: Crude oil is up more than 2% this morning and extending gains. The private API survey lit a fire under the tap after yesterday’s settlement reporting a massive draw of 8.129 mb when only a draw of 3.0 – 3.5 mb was expected. This headline number is driving prices despite a less favorable read on Distillates with a build of 3.69 mb. Also, supporting a path of least resistance higher for risk-assets this morning was the release of Fed Chair Powell’s prepared Congressional testimony. This combination of news has Crude again eyeing the $60 mark. However, traders should remain cautious on these two fronts and refrain from chasing price action. First, the API data sets a high bar relative to the official EIA expectations at -3.081 mb Crude, -1.301 mb Gasoline and +0.739 mb Distillates. Similarly, Fed Chair Powell’s prepared remarks sets a narrow path for his testimony. Awaiting confirmation on this move is recommended. Furthermore, favorable fundamentals coupled with a technical breakout would provide a formidable tailwind higher.

Technicals: As we noted yesterday, a move out above $58.16 paved the way for the bull camp. Prices have extended out above resistance at $59.09 and this aligns with yesterday’s late session high; above here the bulls are in the driver’s seat. Furthermore, there is a trend line from the front-month April 23 high that aligns with this level that price action is now out above.

Gold (GCQ)

Yesterday’s close: Settled at $1,400.5, up 0.5

Fundamentals: Gold is up strongly this morning and about $20 from its overnight low after the release of Fed Chair Powell’s prepared Congressional testimony that reiterated the Fed will “act as appropriate” to sustain growth. Pre-release, according to the CME’s FedWatch tool, there was a 4.4% probability the Fed left rates unchanged at their July 31 meeting. This was the first time the dial for unchanged moved off zero in about a month. These odds have now dissipated completely, and his remarks reinvigorated the probability of a 50-basis point cut to 21.4%. With a weaker dollar, this is a tremendous landscape for gold. Does it stick through today’s Congressional questioning, the testimony begins at 9:00 am CT? Traders should stay nimble also knowing that the FOMC releases the Minutes from their June meeting at 1:00 pm CT and a critical CPI read is due tomorrow morning at 7:30 am CT.

Technicals: Today’s move is everything gold bulls could hope for now that price action is out above 1408. This begins with a higher low on this wave compared to that from July 1. Now we must see this price action hold on a closing basis as it faces first key resistance.

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

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