Equity markets reacted positively to a relaxation of tensions in Hong Kong and Britain’s conservatives rejecting Boris Johnson’s path to a no-deal Brexit.
E-mini S&P (ESU)
Yesterday’s close: Settled at 2906, down 18.75
Fundamentals: Global benchmarks are surging this morning after Hong Kong’s leader Carrie Lam announced the withdrawal of the extradition bill that set off weeks of violent protests. Hong Kong’s Hang Seng finished up 3.9% and U.S indices followed suit; the S&P and NQ are up roughly 1%.
Lawmakers in the U.K have also soothed angst, rejecting Prime Minister Johnson’s potential no-deal Brexit path. The British pound has snapped back from the lowest level since 1985 but the only certainties surrounding Brexit are that there are none, but the can could get kicked down the road to January. Broadly speaking, risk-sentiment is much better today despite no fresh news on the U.S.-China trade front. In fact, the rebound in commodity prices along with stocks would lead one to believe there has been progress. Amidst deteriorating economic conditions, traders and investors are placing too much emphasis on both Hong Kong and Brexit when both are overshadowed by work still to be done. Look no further than the ISM Manufacturing data yesterday that contracted at the worst pace since February 2016.
With the odds of a 50-basis point cut in two weeks mounting to nearly 10% this morning after St. Louis Fed President Bullard called for such action yesterday, today’s Fed speak is squarely in focus. New York Fed President Williams talks at 8:30 am CDT, San Francisco Fed President Bowman and Bullard both speak at 11:30 am CDT. Minneapolis Fed President Kashkari is due at noon and Chicago Fed President Evans is at 2:15. Remember, Williams, Bullard and Evans are the voters in two weeks.
Technicals: Stocks are rebounding sharply from a dull start to the week. Ultimately, strong support below held through yesterday and price action is now out above key levels that help the bulls regain a near-term edge. Still, the tape is not bullish until it can prove a breakout close above our ceiling of rare major four-star resistance.
Crude Oil (CLV)
Yesterday’s close: Settled at $53.94, down $1.16
Fundamentals: Crude oil is snapping back this morning along with the broader risk-environment. Early estimates for tomorrow’s EIA data show expectations for a draw of 3.5 million barrels of crude. This comes on the heels of last week’s massive 10.027 million-barrel draw. This is not the only energy-centric news driving prices higher. After Bloomberg reported yesterday that a large block of five OPEC producers, including Saudi Arabia, shipped an average of 736,000 barrels-per-day more in July than August there were further reports that Saudi’s exports only actually fell to nearly a two-year low. All in all, the price of crude remains in a large range consolidation pattern until it can find a catalyst to break it out form this range.
Technicals: Price action traded to a session low of $52.84 to start the week before bouncing back ahead of settlement. After hitting firs key support, it did not settle below major three-star support.
Gold (GCZ)
Yesterday’s close: Settled at $1,555.90, up $26.50
Fundamentals: After an extremely constructive technical path through the long weekend, gold found a massive tailwind with the worst ISM Manufacturing data since February 2016. This surged the metal to an overnight high of $1,559.2 before positive news out of Hong Kong poured cold water over global fears. Ultimately, not much has changed out there, but stocks are trying to tell a different story. Fed speak becomes ever important today after yesterday voting member St. Louis Fed President Bullard called for a 50-basis point cut at the meeting in two weeks.
Technicals: Price action has held first support coming back from yesterday’s high.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
