Are lifting of tariffs part of Phase One trade deal? Uncertainty over this has confused markets, reports Bill Baruch.
E-mini S&P (ESZ)
Yesterday’s close: Settled at 3086, up 10.50
Fundamentals: U.S benchmarks settled in after yesterday’s early exuberance and are sitting near unchanged ahead of Friday’s opening bell. China’s Foreign Ministry announced yesterday that the two sides would agree to rollback tariffs in phases upon signing an interim “Phase One” trade deal. The headlines sound very copasetic right? The only problem, the United States had not confirmed this.
Markets reacted positively to the headlines leaving the Administration reluctant to deny it, ramping up pressure for a favorable response. As the morning developed there were rumors of discontent and disagreement among key White House officials on rolling back tariffs. In the end, the White House confirmed this news, but it would seem only because they were backed into a corner.
Trade Balance data from China and Germany last night and this morning was much better than anticipated. In China’s case, both imports and exports fell less than expected. As for Germany, the data showed steady gains for imports and exports. Fed Governor Brainard speaks this morning at 7:30 am CST and at 9:00 we get a look at fresh November Michigan Consumer data. If this read beats expectations and the news cycle doesn’t take a turn for the worse, we imagine equity markets are looking to finish the week on a healthy note.
Technicals: Yesterday was a solid session but U.S benchmarks pulled back from fresh records to settle on a duller note. The S&P 500 failed to reach 3100 and the Nasdaq 100 failed to settle above a rising trend line from April. Still, this has been an extremely constructive week and one where major three-star support levels in the S&P 500 and Nasdaq 100 held.
Crude Oil (CLZ)
Yesterday’s close: Settled at $57.15, up 80¢
Fundamentals: Crude oil followed the broader risk-environment higher into 11:00 am CST before paring gains. Rumors of disagreement among White House officials in rolling back tariffs threw cold water over crude oil’s tape more than other risk assets because it’s not comprised of 500 stocks with largely better than expected earnings. Remember, Wednesday’s EIA data was overall bearish and at these elevated levels there is little value in betting that OPEC+ will raise production cuts at the December meeting regardless of what Saudi Arabia pushes for ahead of the Aramco IPO. Data overnight from China showed less of a drop in imports and exports than expected accompanied by record crude oil imports and a yearly jump of 11.5%.
Technicals: Crude oil continues to struggle at the 200-day moving average which comes in today at around $57.26 (continuous-daily). Price action traded out above there each day this week and hit a new swing high yesterday but has failed to settle above here on each attempt. The tape has not traded here today. Still, we remain neutral near-term while crude oil continues to hold major three-star support.
Gold (GCZ)
Yesterday’s close: Settled at $1,466.4, down $26.70
Fundamentals: Gold got smoked yesterday, plain and simple. It’s been a tough week for the metal on the heels of last Friday’s better nonfarm payroll, a strong ISM Non-Manufacturing on Tuesday, positive trade headlines and with U.S equity markets setting fresh records on a daily basis. But this is the washout we have been waiting for and one that we believe brings a tremendous seasonal buying opportunity. We noted earlier in the week that the Commitment of Traders net-long position is holding at the highest level in two years and this would cause sharp waves of selling as the crowded trade gets liquidated. Fed Governor Brainard speaks at 7:30 am CST and at 9:00, we get fresh November Michigan Consumer data.
Technicals: Losses are extending into an area of support that we find attractive as long as a trader can withstand continued volatility and is prepared to see a test to major three-star support at $1,413.2 at minimum. We expect the landscape to remain volatile after a break to the lowest level since the Aug. 5 surge and breakout. For this reason, there a number of ways to play gold over the intermediate and long-term with defined risk and prepare for seasonal bullishness around the corner.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
