After weeks of back of forth, new tariffs on China kick in with little optimism on a trade deal, reports Bill Baruch.
E-mini S&P (ESU)
Last week’s close: Settled at 2924.75, down 2.00 on Friday and up 69.25 on the week
Fundamentals: On Friday, the S&P 500 was rejected by major four-star resistance for the fifth time. Slight weakness ensued ahead of the long Labor Day weekend and for good reason; outside of upbeat jawboning from both the U.S and China, there was absolutely no evidence the two sides had taken any real steps forward since announcing new tariffs on Friday Aug. 23. Not to mention, those new tariffs kicked-in on Sunday. Yesterday, it became apparent that hopes of a September meeting between the two sides were dissipating and the S&P 500 slipped back below the round 2900 mark, a psychological level it is hugging at the onset of U.S hours. China also said yesterday it logged a formal complaint to the World Trade Organization and the Chinese yuan settled at the weakest level against the U.S. Dollar since February 2008; these occurrences are not signaling progress but instead budding headwinds.
Coming out of the long weekend, an event driven week begins to unfold. ISM Manufacturing is due at 9:00 am CDT and remember, we believe slowing data will weigh on market sentiment. Boston Fed President Rosengren, a dissenter to the July rate-cut, speaks at 4:00 pm CDT. Weaker than expected Chinese Manufacturing Friday night did not help the open Sunday night, however, the HSBC private read Sunday night was better, and this lifted sentiment. Outside of budding trade headwinds between the U.S and China, the Brexit remains a complete mess. The British pound is at the lowest level since May 1985 and new Prime Minister Boris Johnson faces opposition to leave the EU with or without a deal on Oct. 31, which could lead to a No-Confidence vote. Remember, this data heavy and headline driven week concludes with Nonfarm Payroll Friday.
Technicals: Price action has gyrated back and forth during the thin holiday hours and our pivots today will be watched most closely in order to gain an edge on near-term direction.
Crude Oil (CLV)
Last week’s close: Settled at $55.10, down $1.61 on Friday and up 0.93 on the week
Fundamentals: Crude oil failed at resistance and slipped back below the pivot on Friday; sellers did not strike despite the long weekend ahead. Still, we noted here, “If price action remains technically contained as it has, this could quickly bring a sell opportunity coming out of the weekend.”
While Hurricane Dorian wrecked the Bahamas and is barreling towards Florida’s east coast, it is not expected to hit the Gulf and disrupt production. One thing we like to remind people during natural disasters is that the first thought is a production disruption, however, sometimes it is more common to find a demand disruption due to closings, outages and lack of travel. A number of fresh developments added additional pressures. Bloomberg reported that OPEC increased their production in August and the U.S and China escalated trade tensions.
Technicals: As we noted here Friday, we expected to extend our bearish bias coming out of the weekend as long as price action and the storm stayed contained pertaining to crude oil. Although we are not advising to chase the tape lower, we believe rallies should be sold into.
Gold (GCZ)
Last week’s close: Settled at $1,541.9, down $7.50 on Friday and down $8.20 on the week
Fundamentals: Gold is moving very well from session lows as both the fundamental and technical environment remains extremely constructive. This data and headline driven week will be pivotal for the metal. Increasing angst that a September U.S.-China trade meeting won’t occur has hurt risk sentiment coming out of the long weekend. ISM Manufacturing is due at 9:00 am CDT. Boston Fed President Rosengren who dissented at the July meeting will speak at 4:00 pm CDT. Gold’s largest achievement in the last 48 trading hours is being able to edge higher despite a bullish breakout in the Dollar Index due to euro weakness.
Technicals: Gold has battled tremendously at major three-star support at $1,530 and is back to a crucial pocket of resistance with silver dragging it higher upon new swing highs. As we have noted here, Gold is bullish within all timeframes.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
