A day after the Fed announced a quarter percent interest rates hike, President Trump says he will add a 10% tariff on $300 billion of Chinese goods.
E-mini S&P (ESU)
Yesterday’s close: Settled at 2952, down 30.25
Fundamentals: U.S benchmarks finished sharply lower yesterday after President Trump announced via Twitter a Sept. 1 deadline before adding a 10% tariff on $300 billion of Chinese goods. It has not been uncommon to see volatility in the days following a Fed meeting and now we have the one-two-three punch from the Fed, the trade war and Nonfarm Payroll which is on tap at 7:30 am CT. The S&P is at the lowest level in more than a month, testing the 50-day moving average overnight.
Given odds for another two cuts this year, Fed Chair Powell’s dovishness underwhelmed markets when he said the 25-basis point cut was merely a “mid-cycle adjustment and not the start of a lengthy cutting cycle” in Wednesday’s press conference. Volatility ensued in what was a black box overreaction and markets roared higher on the open yesterday. Weak ISM Manufacturing actually added a tailwind as the market proved it was not ready to transition from bad news being good news. Odds for future cuts are elevating to the highest level yet after ISM data and as equities are weak in part due to President Trump’s comments and China’s promise overnight to retaliate.
The chance of a follow-up cut in September based on the price of Fed Fund futures is now flirting between 95-100% but the real news is a third cut in October has now reached 60% and a fourth cut in December has more than a 25% chance. Fed Fund futures are pricing in a lengthier easing cycle and the problem is the S&P has now fallen 2.5% on the week. Does the S&P want good news or bad news from Nonfarm Payroll today? We feel most confident saying that as long as Average Hourly Earnings don’t come in hot above the +0.2% expectations and +3.1% annualized, equity markets can find this favorable. However, there is reason to believe the market wants to see steady job growth. Remember, the consumer is driving the economy right now, without healthy job growth and thus a healthy consumer, the trade war and potential tariffs on consumer products will continue to send shockwaves through the tape.
Technicals: U.S benchmarks closed weaker yesterday than Wednesday after reversing sharply from what began as a constructive session. The S&P 500 is trading at major three-star support at 2944.25, this is the gap from the June 28 close and proved to be a great quick buy opportunity on the first test yesterday. The NQ has a bit to go before it covers its gap, major three-star support at 7693.75. The most important thing to know here, is that a decisive move through here on strong volume can quickly become very bearish; we saw similar such moves in October and December.
Crude Oil (CLU)
Yesterday’s close: Settled at $53.95, down $4.63
Fundamentals: Crude oil posted its worst session in more than four years after President Trump announced he would add a 10% tariff on $300 billion worth of Chinese goods. The global economy is in rough shape already and his comments dimmed hopes of a quick-fix trade deal, although such was certainly never expected. Price action is recovering a bit this morning. There are reports that Russian Energy Minister Novak will meet with his Saudi counterpart Falih in preparing for President Putin’s visit to Saudi Arabia in October. With OPEC’s production already at the lowest level since 2014, there is a clear willingness to stabilize prices and the meeting has traders’ attention. Also buoying the tape is news that Libya’s Sharara oilfield is again closing. Today will be very reliant on the overall risk environment and traders should keep a pulse on equity markets post-Nonfarm Payroll.
Technicals: Crude did not rally early intraday yesterday as equity markets did and this became concerning.
Gold (GCZ)
Yesterday’s close: Settled at $1,432.4, down 5.4
Fundamentals: Gold rallied 3% from its session low yesterday to a high of $1,458.2 making a more than round trip from Wednesday’s high of $1,447.8 before falling out post-Fed. The technicals were massive in signaling a developing low yesterday morning, but it was President Trump’s tweet that set the global landscape on fire. Not only has the S&P shed 2.5% from its intraday high yesterday, the 10-year Treasury yield fell to a low of 1.83% the lowest since the 2016 election and rate cut odds are soaring. A follow-up cut in September is now fully priced in, a third cut in October sits at a 60% probability and a fourth cut in December has risen to 25%.
Technicals: Gold held our major three-star support yesterday perfectly at $1,410 and settled within the crucial 1432.9 to 1437.9 pocket. The rally continued post-settlement and front-month gold spiked to the highest since May 2013. The December contract faces key resistance at its July 19 high of $1,467. As we said Monday, a close positive for Gold on the week is a win.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
