Geopolitics, Trade & Inflation Risk Hits Market

08/13/2019 11:18 am EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Major markets are dealing with various geopolitical hotspots and a higher than expected CPI number, reports Bill Baruch.

E-mini S&P (ESU)

Yesterday’s close: Settled at 2880.25, down 39.50

Fundamentals: U.S benchmarks are doing their best to stave off waves of selling as mounting recession fears and geopolitical concerns rattle risk-sentiment around the globe. But got a boost when President Trump announced some tariffs would be delayed. Germany’s closely watched ZEW Sentiment this morning was worse than expected and at the lowest level since December 2011. Hong Kong’s international airport is again closed; the ongoing protest and violence are showing no signs of dissipating. Today, Hong Kong’s leader Carrie Lam warned the city is “wounded” and the protests are pushing the city “into an abyss”.

Argentina is also sending shockwaves with a near record setting rout on a number of financial instruments after President Macri lost the primary election over the weekend. The U.S Treasury complex is acting as a barometer to these broad uncertainties; the 30-year Treasury bond yield is a hair from its record low of 2.089% in July 2016 while the two- and 10-year T-note spread is only five basis points from inverting. Expectations for three more Fed cuts this year linger at a 50% probability. Core CPI was up 0.3% for the month and +2.2% year-over-year, both above expectations and slimming the odds of a 50-basis point cut (or perhaps any cut) in September. U.S CPI is due at 7:30 am CDT. We watch the core read most closely and this crucial inflation indicator has been stable with last month showing the largest increase since January 2018. The year-over-year numbers are off last July’s peak, but not by much; stronger than expected inflation would begin tying the Fed’s hands.

Technicals: Equity markets finished sharply lower yesterday, here, we said, “First key support in the S&P 500 comes in at 2899-2901.75 and sustained price action below here will pave a path of least resistance to 2870.50-2877.75.” After hitting a low of 2872.50, the S&P settled at 2880.25. The NQ tested and held its parallel support into the close.

Crude Oil (CLU)

Yesterday’s close: Settled $54.93, up 43¢

Fundamentals: Crude oil poked its head up near a strong wave of technical resistance yesterday on hopes Saudi Arabia will rescue the market from broader weakness. With weaker demand growth squarely in focus due to deteriorating conditions further dragged by the ongoing trade war, Saudi Arabia is seen as having further vested interest in stabilizing prices with the reinvigorated Saudi Aramco IPO. Traders must keep a pulse on risk-sentiment ahead of inventory data. Analysts expectations will trickle out through today and early estimates point to a draw of 2.5 million barrels of crude. API is due after the bell at 3:30 pm CDT.

Technicals: Price action could not quite get to major three-star resistance at $55.65 to $55.97. Today’s pivot aligns previous resistance with our momentum indicator.

Gold (GCZ)

Yesterday’s close: Settled at $1,517.2, up $8.70

Fundamentals: Gold hit a fresh six-year high trading to $1,546.1 early this morning. A near record low on the 30-year Treasury bond yield and near inversion of the two- and 10-year T-notes coupled with heightened geopolitical concerns and mounting recession fears around the globe have fueled the latest leg in this bull market rally. Stronger than expected U.S inflation data this morning is pouring cold water over the latest spike. Core CPI was up 0.3% for the month and +2.2% year-over-year, both above expectations and slimming the odds of a 50-basis point cut in September. Global data remains in the forefront with a deluge from China later tonight followed by German Q2 GDP early tomorrow morning.

Technicals: As bulls, we got everything we could ask from gold in the last 24 hours. First a direct test to $1,500 coming out of the weekend that held. Next, a firm settlement that carried into the overnight before a decisive move out above our previous upside target.

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and actionable bias and levels.

Related Articles on MARKETS