Jobs number is lower than expected following yesterday’s non-manufacturing ISM miss, reports Bill Baruch.
E-mini S&P (ESZ)
Yesterday’s close: Settled at 2911.75, up 31.25
Fundamentals: Yesterday, we pointed to a lack of panic and how panic would lead to a near-term bottom in the very least. The fear gauge finally rose when ISM Non-Manufacturing missed sharply (52.6 versus 55.0 expected). It is widely believed the services sector is the last to go at the onset of a recession. This caused precipitous selling, U.S benchmarks tacked on another 1% in losses which became capitulatory and price action bottomed out just as quickly before reversing 2% off the low. Our narrative has been this market not only wants to but must make a transition from Fed easing dependence to data dependence and it had certainly shown signs of such this week selling off 3.5% into yesterday morning as the probability of an October cut rose to 75%. After the latest dismal data set yesterday, the odds of a 25-basis point cut in both October and December have now mounted to 50%. In the near-term, the market essentially threw in the towel on this transition yesterday.
The volatility, the data, the speculation; everything all week has led up to today, arguably the most macro-pivotal day of the month before the Oct. 30 Fed meeting. The September Employment Situation Report was released this morning with nonfarm payrolls up 136,000, slightly less than expected. Average hourly earnings did not grow. Job Growth is slowly making its way back to the top of the totem pole. If the U.S is at full employment and Job Growth dissipates, it is thought a recession is much closer. Earnings expected at +0.3% and +3.2% came out -0.1 and 2.9%. We maintain the better data, but not runaway inflation is bullish this market.
The day does not stop with Nonfarm Payroll, Boson Fed President Rosengren a dissenter now at both rate cuts speaks at 7:30 am CDT. Will he continue to hold ground on his hawkish rhetoric in the face of deteriorating growth? His comments will be of the upmost importance. Amid a slew of Fed speak this afternoon, Fed Chair Powell takes the stage at 1:00 pm CDT to put his stamp on the week.
Technicals: Price action slipped sharply yesterday but for the second time recently it was our minor support that saved the bulls; our level is 2952.50 and the low was 2955. This aligned multiple indicators as well as closely with a reversal low from Aug. 28.
Crude Oil (CLX)
Yesterday’s close: Settled at $52.45, down 19¢
Fundamentals: Crude oil reversed sharply yesterday finishing nearly 1.5% from the $50.99 low. This is exactly why although we have continued to hold bearish, we have also advised not to sell into new lows! Nothing fundamentally has changed between the weakness into $51 and this minor recovery up to $53 and for this reason we remain bearish and look to fade rallies. This centers around a seasonally weak time of year, deteriorating global growth and the fact Saudi Arabia has proven to be a reliable source of oil amid geopolitical hurdles.
Technicals: Just like that, price action is pushing strong resistance at $52.84; this was major three-star resistance yesterday but given the sharp reversal from oversold territory, we find the tape open to rallies testing major three-star resistance.
Gold (GCZ)
Yesterday’s close: Settled at $1,513.8, up $5.90
Fundamentals: Gold is slipping a bit despite a very mixed and arguably weak Nonfarm Payroll report. There was zero growth in Average Hourly Earnings and Jobs came in just lower than expected. However, August was revised higher, and the Unemployment Rate grabbed headlines dropping to a 50-year low at 3.5%. Today is a busy one and now that the jobs number is in the rear-view mirror, Fed Chair Powell at 1:00 pm CDT is the highlight. There are rumors we could hear something on U.S-China trade with next week’s meetings in sight. Boston Fed President Rosengren, a dissenter of both cuts, is speaking now but we don’t see any headline grabbing remarks yet.
Technicals: The intermediate to long-term trend is still higher in gold and it was proven so with such a healthy recovery from Monday’s $1,465 low. At the same time, the bounce back is technically due to settle in, especially so after failing to hold major three-star resistance.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
