Trade tensions are ramping up following last week’s Fed focus, reports Bill Baruch.
E-mini S&P (ESU)
Last week’s close: Settled at 2932.50, down 19.50
Fundamentals: Last week’s Federal Reserve’s Open Markets Committee (FOMC) cut has been overshadowed by escalating trade war tensions. With the expected cut fully priced-in the major news became President Trump’s tweet threatening to add 10% tariffs on $300 billion worth of Chinese goods by Sept.1. China promised to retaliate, and this came to fruition last night. They allowed the yuan to breach the psychological 7 mark and hit the weakest level against the U.S. dollar since April 2008. They also asked state-owned companies to not purchase U.S agricultural products. The move is intended to poke President Trump where it matters most; an attack on the currency front and one directed to hurt his U.S heartland base.
U.S benchmarks are less concerned with the Fed’s path of further cuts and more focused on the mounting uncertainties due to the trade war. Remember, the Fed has been adamant that their path of cuts is at least in part due to the trade war. As of this morning, a September cut is not only fully priced-in, but the odds of a 50-basis-point cut have risen to nearly 20%. Friday’s Nonfarm Payroll report was decent and average hourly earnings increased more than expected at +0.3%, June was also revised higher to +0.3%. We do believe that this market does not want to see recessionary data as long as inflation is tame. ISM Non-Manufacturing is due at 9:00 am CDT and this could help bring a turning point to sentiment. Fed Governor Brainard speaks at 12:30 pm CDT.
Technicals: Despite a lower start to Friday, price action was arguably constructive intraday; this was because our major three-star support level at 2914.50-2916 held perfectly with a low of 2913.50. The NQ held strong support 7609.50-7637.75 and managed to settle back above 7693.75. The tables have turned to start the week and U.S benchmarks are under immense pressure and we would seemingly need some sort of panic selling before price action can turn a corner. We will continue to hold a Neutral Bias because we are not encouraging to go short down here. We see a pocket of major three-star support at 2871.50-2880.75; if this holds through the first couple hours, we could then begin to see construction. The 100-day moving average comes in at 2907.50 and strong resistance, previous support, comes in at 2914.50-2916; only a close above these levels will neutralize this damage in the near-term. As for the NQ, support comes in at 7510 but the bears are in the driver’s seat below 7561.25. Only a close back above 7693.75-7702.25 will neutralize this damage in the near-term.
Bias: Neutral
Resistance: 2907.50**, 2914.50-2916***, 2932.50-2944.25***, 2955-2959.25**, 2969.25***
Support: 2871.50-2880.75***, 2845.75-2849.50***
NQ (September)
Resistance: 7637.75-7642.25**, 7693.75-7702.25***, 7808.25-7815.25***
Pivot: 7561.25
Support: 7510**, 7444.50-7446.25***
Crude (CLU)
Last week’s close: Settled at $55.66, up $1.71 on Friday and down 54¢ on the week
Fundamentals: We introduced a slight bearish bias last week and Friday’s close was not convincingly above major three-star resistance. The sellers have stepped back in coming out of the weekend with the U.S-China trade war weighing heavily on sentiment. Friday’s can be favorable to the tape given that traders do not want to be short and locked out of the market over the weekend, especially during times of heightened geopolitical tensions in the Middle East; which encourages buying/short covering. News that Iran seized a tanker for the third time in the Strait of Hormuz has been largely swept under the rug with the major focus being deteriorating global growth thus weakening demand due to the ongoing U.S and China trade war.
Technicals: Crude oil is back below the $54.82 pivot, a level that it held intraday Friday. Below here the bears are in the driver’s seat and the path of least resistance is to strong major three-star support at $53.20.
Bias: Neutral/Bearish
Resistance: 55.59***, 56.20-56.43**
Pivot: 54.82-54.85
Support: 53.20-53.59***, 50.90-51.15***
Gold (GCZ)
Last week’s close: Settled at $1,457.5, up $25.10 on Friday and up $25.30 on the week
Fundamentals: Gold is at the highest level since May 2013 and capitalizing on low U.S Treasury yields, negative sovereign debt around the globe and a weaker U.S dollar. Most interestingly, gold is ignoring the weaker Chinese yuan, which is at the lowest level against the dollar since April 2013. With the U.S and China trade war hitting arguably the worst point yet, the odds for additional Fed cuts this year are mounting and is driving strong demand for safe-haven assets. ISM Non-Manufacturing is due at 9:00 am CDT.
Technicals: As we stated since last Monday, a positive finish for the metal on the week was bullish. Price action shrugged off an upbeat jobs report and finished up by nearly 2%. We continue to hold our belief from Friday that Gold is breaking out and the bulls are in the immediate-term driver’s seat above 1447-1454.4 and with a path of least resistance is to 1484.5.
Bias: Bullish/Neutral
Resistance: 1484.5***, 1500**
Pivot: 1467
Support: 1447-1454.4***, 1432.9-1437.9***
Use the above technical support/resistance levels, which Bill Baruch provides on all markets throughout the week at BlueLineFutures.com.
