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Is Good Retail Sales Bad for Market?

07/17/2019 10:41 am EST


Bill Baruch

President and Founder, Blue Line Futures

U.S benchmarks finished lower yesterday after testing strong resistance and as positive news affected the expected Fed rate cut, writes Bill Baruch.

E-mini (ESU)

Yesterday’s close: Settled at 3007, down 10.25

Fundamentals: U.S benchmarks finished lower yesterday. Overhead technical resistance and strong Retail Sales data brought an early ceiling to price action. Retail Sales has trended better since February and coming on the heels of stronger CPI, solid job growth and less-worse Manufacturing it begins to raise longer term doubts to the path of Federal Reserve rate cuts already priced into the market. Fed Chair Powell spoke and hit on many of the same points we heard last week at his Congressional testimony; uncertainties due to the trade war, debt ceiling and inflation persistently below the Fed’s target.

Right now, those trade uncertainties are becoming the leading catalyst for the Fed to move later this month. In fact, it was comments from President Trump yesterday on trade with China that sent stocks lower. After positive developments were reported by U.S Treasury Secretary Mnuchin early in the session, President Trump said there is still a long way to go and he could add tariffs on the other $325 billion of Chinese goods. Powell’s comments on the debt ceiling were also timely, although it does not come into play until September, Congress takes summer break at the end of the month and does not return until the week after Labor Day.

We are diving headfirst into earnings season. Bank of America (BAC) reports ahead of the bell today and after a more or less dull reaction to bank earnings Monday and Tuesday. Earnings from Netflix (NFLX), IBM, Alcoa Corp. (AA) and eBay Inc. (EBAY) after the bell promise to bring some excitement. Building Permits and Housing Starts are due at 7:30 am CT, Crude inventory data is out at 9:30 am CT and the Fed releases their Beige Book at 1:00 pm CT.

Crude Oil (CLQ)

Yesterday’s close: Settled at $57.62, down $1.96

Fundamentals: Crude oil’s sharp slide yesterday was attributed to U.S Secretary of State Mike Pompeo saying Iran is ready to negotiate about its missile program. Although this was a catalyst, it certainly was not the only one. President Trump’s comments on trade and tariffs with China did not do the tape any favors. Also, in our Midday Market Minute yesterday, we cautioned regarding the failure to regain $60 ahead of inventory data. In fact, today’s options expiration likely brought strong resistance to the $60 mark where there is tremendous open interest. Although we are upbeat on the recent trend of inventory data, last night’s private API survey was bearish.

Technicals: Our rare major four-star support at $59.06-$59.20 has been broken and this negates the near-term uptrend and solidifies a rangebound market.

Gold (GCQ)

Yesterday’s close: Settled at $1,411.2, down 2.3

Fundamentals: Gold continues its constructive battle despite yesterday’s dollar strength on the heels of better Retail Sales data. Lifting sentiment towards the metal this morning is a resilient Treasury complex overnight followed by poor U.S housing data. The price action in silver cannot go unnoticed as it trades at four-month highs. silver is finally doing some of the heavy lifting for the complex. Overall, pullbacks in gold have been sharp in recent years partly due to the lack of interest in silver. Fed Chair Powell stayed the course yesterday confirming expectations for the Fed to cut later this month. Large banks have also hopped on-board with expectations mounting for a 50 basis points cut.

Technicals: Price action hit a low of $1,401.3 overnight and this comes after a soft tape yesterday held $1,408 on a closing basis. In fact, this extremely choppy price action is exactly what we have referred to as seeing constructive closes; an initial low of $1,403.7 before ripping to $1,414.8 ahead of settlement and back to a new session low of $1,402.1. The tape battled above $1,400 overnight and is attempting to solidify a near-term floor.

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