The market is higher as Eurozone cuts rates and signals renewed QE, reports Bill Baruch.
E-mini S&P (ESU)
Yesterday’s close: Settled at 3011.75, up 9.75
Fundamentals: The S&P 500 is holding ground just below its record high of 3029.50 amid a whirlwind of news. Yes, the European Central Bank (ECB) cut rates and announced a plan to restart bond buying at a pace of €20 billion while also providing a tiering program for banks. However, ECB President Mario Draghi’s emphasis on the need for fiscal policy signaled the central bank could be running out of dry powder. Who would have thought this was the case after cutting rates to -0.50%? Overshadowing the ECB was fresh jawboning on trade. Sentiment was further boosted after reports President Trump would consider an interim deal with China to avoid fresh tariffs. This was denied and briefly poured cold water over the tape. Overall, the atmosphere around U.S and China trade has taken a turn for the positive through the week lifting the S&P 500 to nearly a record high. This began with the ousting of National Security Advisor John Bolton; the S&P 500 rallied from its low of the week on this news. Looking to capitalize on the tailwind of positivity, it was reported overnight that China is considering resuming U.S agricultural purchases.
With next week’s Fed meeting in focus, today’s slate of data will be crucial. Currently, there is a dissipating 86.5% probability they cut rates by 25 basis points. Retail Sales this morning was mixed. The headline number came in stronger than expected at 0.4% versus +0.2%. However, the Core number excluding automobiles was flat when 0.1% was expected. Yesterday’s Core CPI read was stronger than estimates and this cannot go unnoticed. Inflation is telling us that it is firming, although it certainly is not running away. Will it begin to tie the Fed’s hands? The first look at September Michigan Consumer data is due at 9:00 am CDT. Outside of inflation, our narrative here has been the market wants to see stronger economic data and recessionary reads would weigh on sentiment; other than Manufacturing, a gloomy picture is beginning to look much better. However, does some of this positivity begin throwing doubt over next week’s ‘secured’ cut. As we have said, we believe this market will find a point in which it transitions from Fed dependence in the immediate-term, but it would seem U.S-China trade may have to be a part of that transition.
Technicals: The S&P 500 is an eyelash below its record high, and this is major three-star resistance at 3025.75-3029.50. The NQ is lagging the S&P in relevance to its record high.
Crude Oil (CLV)
Yesterday’s close: Settled at $55.09, down 66¢
Fundamentals: Crude oil is battling higher ahead of the weekend on positive sentiment around trade and after achieving our immediate-term technical downside target. This does not change the larger fundamental picture described by the IEA yesterday and the fact that crude oil, roughly speaking has averaged a loss of about 8% over the last 20 years when seasonally peaking through September and selling off into December.
Technicals: We have only reduced our bearish bias due to our downside target being triggered. Furthermore, recovering from such price action did not settle below major three-star support.
Gold (GCZ)
Yesterday’s close:Settled at $1,507.4, up $4.20
Fundamentals: Gold failed at major three-star resistance yesterday when it looked the most bullish; trust the levels. As we spoke of in our Midday Market Minute, the tiering by the ECB and emphasis of fiscal policy coupled with positive sentiment surrounding trade poured cold water over the safe-haven rally. One could justify gold’s failure too by looking at the stronger than expected Core CPI data (although the Dollar also failed, it was more so due to Euro strength). All in all, gold has battled to hold the psychological $1,500 mark amid a mixed wave of near-term fundamentals, but the longer-term fundamental and technical trend both remain very strong and constructive. Retail Sales data today was overall better, and we look to Michigan Consumer data at 9:00 am CDT as next week’s Fed meeting nears.
Technicals: If you trusted the levels and bought gold at major three-star support at $1,498.60 to $1,500 and sold at major three-star resistance at $1,529.10 you had a terrific day.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
