U.S benchmark finished lower yesterday, a day after President Trump poured cold water over trade hopes, writes Bill Baruch.
E-mini S&P (ESU)
Yesterday’s close: Settled at 2985, down 22.00
Fundamentals: U.S benchmark finished lower yesterday, a day after President Trump poured cold water over trade hopes. One topic at our trade desk yesterday morning was the resilience in U.S Treasuries ahead of U.S hours, as if they were the canary in the coal mine for a weak session to come. Housing data also underwhelmed, and it seemed to set a tone after the bell. Bad housing data raises recessionary concerns. After a substantial run since the June 3 bottom to record highs and out above 3000 since, price action is/was due for a breather and therefore we began neutralizing our bias.
Talk is mounting for the Fed to cut 50 basis points later this month, hitting a high above 36% this morning. This certainly tells the story of the U.S 10-year Treasury note yield, which cannot keep its distance from 2%. Today, we look to Philly Fed Manufacturing. Remember, manufacturing beginning with June ISM on July 1 was less-worse followed by Manufacturing Payrolls for June which were surprisingly strong. On Monday, fresh July NY Empire State Manufacturing bounced back solidly from a dismal June read. One thing we are on the lookout for is peak “bad news is good news”. We believe that this market wants to see a healthy Philly Fed number today to begin paring yesterday’s losses. Atlanta Fed President Bostic speaks at 8:30 am CT but NY Fed President Williams will be watched much more closely at 1:15 pm CT.
As we dive into earning season, led by the banks, the Financial Select Sector SPDR Fund (XLF) lost 0.89% yesterday despite Bank of America (BAC) gaining 0.69% reporting ahead of the bell. JPMorgan (JPM) and Goldman Sachs (GS) who reported Tuesday led the march lower. Morgan Stanley (MS) is down nearly 1% premarket after reporting beats this morning. The NQ is doing a fine job of ignoring Netflix (NFLX), which missed earnings after the bell and is down more than 10% premarket. IBM is also down about 1% after reporting. Honeywell, UnitedHealth (UNH) and others report ahead of the bell today and Microsoft (MSFT) will lead after the close.
Technicals: Price action in the S&P began slipping when a trend line from the June 27 low was decisively taken out. This aligned with our major three-star support at 3004-3006. A poor finish yesterday has been buoyed overnight and ultimately the settlement prices in both the S&P and NQ were not below our next crucial levels of support.
Crude Oil (CLU)
Yesterday’s close: Settled at $56.92, down 0.82
Fundamentals: Crude oil is trying its best to hold ground near a crucial support level. August options expired yesterday, and September is now front month. Yesterday’s EIA report was bearish and weighed on an already soft tape due to rising trade war fears. Although the headline draw of 3.116 million barrel of crude was more than expected, much larger builds of gasoline and distillates than expected more than offset the headline. Keeping a bid under prices early today was news that Iran’s Revolutionary Guard seized a foreign oil tanker claiming it was smuggling 1 million liters of fuel. Tensions remain high surrounding Iran and the country’s Foreign Minister has threatened to close the Straits of Hormuz. We expect crude to trade in a choppy pattern through today, but if it can hold a technically constructive landscape, we imagine there’s reason for buyers to step in ahead of the weekend.
Technicals: Amidst weakness late in the session, price action held major three-star support.
Gold (GCQ)
Yesterday’s close: Settled at $1,423.3, up 12.1
Fundamentals: Silver hit $16 for first time since February and it’s finally doing some of the heavy lifting for the precious metal complex. Silver severely lagged Gold’s June rally and now that Gold is consolidating, it needs Silver to keep buyers on board. Today is a perfect example; Philly Fed Manufacturing blew out expectations causing the 30-year Bond to lose nearly a point. Gold which was already off its overnight high of 1431.9 (separate technical story) only bounced around in $7 range post-Philly thus far and has arguably held ground extremely well and credit that to Silver. Still, we are not saying everything is in the clear fundamentally or technically simply because of Silver; we have concerns that the Fed’s rate cut path is too highly priced to reality and this could be a headwind for Gold. For now, for this hour, the precious metals complex is winning the battle. NY Fed President Williams speaks at 1:15 pm CT.
Technicals: Gold remains rangebound and overnight was the fifth and latest failure at our major three-star resistance at $1,432.9. Failing to settle out above here has kept our bias more neutral than bullish. After pulling back by more than 1%, it is so far holding a constructive floor in a higher volatility consolidation.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
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