Markets continue to react to rumors surrounding US-China trades talks and no one seem to know the impact of the Fed’s liquidity injections, reports Bill Baruch.
E-mini S&P (ESZ)
Yesterday’s close: Settled at 2919, up 16.50
Fundamentals: Price action continues to run in circles on the ever-revolving U.S-China trade headlines. Sentiment was roiled early last night on reports of no progress between deputy level negotiators and that China was planning on heading home early. It’s a different story at the onset of U.S hours with price action clawing back losses on renewed hopes of an interim or partial deal, that Washington would suspend a scheduled increase in tariffs and Chinese delegates are planning to stay the full schedule through Friday.
Talk this week of the Federal Reserve expanding its balance sheet have had little impact on the market with much of the focus being on U.S.-China trade talks. It also exemplifies how those expectations were already set forth and seen in action when the overnight lending rate surged to 10%; as we explained here yesterday, with the dollar underpinned by necessity around the globe, the Fed must naturally purchase more government assets. At the same time, the odds of a rate-cut later this month have mounted to 85% and two more 25-bassi point cuts this year sit at a 45% probability.
The Fed’s flexibility in doing such also relies on inflation remaining tame. Earlier this week PPI data from both the headline and core reads contracted. CPI is watched much, much more closely though and today read at 7:30 am CDT will certainly set a tone after steady strength over the last three months. Weekly Jobless Claims are also due at 7:30, Minneapolis Fed President Kashkari speaks at 11:15 am CDT, there is a 30-year Bond auction at noon and Cleveland Fed President Mester speaks at 4:30 pm.
Technicals: Price action broke to a new low on the week in both the S&P 500 and Nasdaq 100 but has steadily recovered since.
Crude Oil (CLX)
Yesterday’s close: Settled at $52.59, down 4¢
Fundamentals: Crude oil slipped sharply on the reopen last night along with the broader risk environment on a continued deterioration of trade prospects and reports China planned to cut its visit to Washington short. Those escalating fears were put to rest and sentiment has snapped back on talks of an interim deal. Overall, yesterday’s action failed to hold higher prices in what was arguably a muted inventory report that showed a fresh record on estimated production. Turkey’s military offensive in Syria remains a wild card but OPEC’s Monthly Report is capturing the headlines this morning by leaving their 2020 demand forecast unchanged. This has been supportive to prices amid weakening global growth. Furthermore, OPEC Secretary General reportedly said they plan on extending a formal invite to the U.S join OPEC+. For now, look to U.S.-China trade headlines as having the largest impact on today’s swings.
Technicals: Price action, similar to equity markets, trekked to a new swing low early last night and bled through key support at $51.90 before recovering. Overall, price action remains in a consolidation pattern amid a downtrend and at the bottom of its range on the year. Aggressive bears could have again faded yesterday’s rip that approached first key resistance.
Gold (GCZ)
Yesterday’s close: Settled at $1,512.8, up $8.90
Fundamentals: As risk assets fell sharply on the reopen last night, gold found itself hitting the highest level in a week. Unfortunately, for gold bulls the same reversion has happen as there is now a bit more optimism on U.S.-China trade talks. Yes, we must truly question this newfound sentiment, however, each side seems a bit more desperate than in the past. Still, we see any interim deal as a sell the news for risk assets and thus a potential buying opportunity for safe-havens. Today’s CPI data came in overall a tenth softer than expected across the board except for the year-over-year core which was as expected. Despite the results, gold has been moving lower, one must consider that after three stronger than expected and firm months in a row, one soft number is not changing anyone perceived trajectory enough to impact gold or the dollar against crucial technical levels. The good news for the metal is that the odds of a Fed cut later this month have mounted to 85%. The question in the near-term for this rangebound market remains U.S.-China trade headlines.
Technicals: While we remain bullish given the strong longer-term uptrend, it must be understood that gold is again failing to hold out above major three-star resistance.
