On again, off again progress on the so called “Phase One” trade deal is whipsawing equity markets, reports Bill Baruch.
E-mini S&P (ESZ)
Yesterday’s close: Settled at 3109, down 9.50
Fundamentals: U.S benchmarks are back to the baseline and holding steady. The U.S-China trade narrative is dominating headlines and drowning out the minutes from the last Federal Reserve Open Markets Committee (FOMC) meeting released yesterday.
Also yesterday, it was rumored that an interim “Phase One” trade deal would not be signed this year and equity markets quickly slipped before competing headlines exuded confidence that negotiations to achieve a deal this year are ongoing. Although price action was stable into the close, the Hong Kong Human Rights and Democracy Act nearly unanimously passed the House and news that President Trump will sign it into law hit the tape early last night. The revolving door of trade headlines continued overnight and into this morning as Bloomberg reported Vice Premier Liu He is “cautiously optimistic” before the Wall Street Journal reported that China invited U.S Treasury Secretary Mnuchin and U.S Trade Representative Lighthizer to Beijing for a new round of talks face to face. What remains in the balance is a fresh round of tariffs set for Dec. 15 and as trade headlines drive price action up and down 0.5%, what really matters is whether or not those tariffs are implemented.
On the economic calendar this morning, Weekly Jobless Claims came in at the highest level since June although Philly Fed Manufacturing beat expectations. Cleveland Fed President Mester did not comment on monetary policy this morning and Minneapolis Fed President Kashkari speaks at 9:10 am CST. Both are 2020 voters.
Technicals: Price action has taken out major three-star support in the S&P 500 and Nasdaq 100 at 3095.50-3099 and 8250-8265.50 respectively, but ultimately not by much and not for a sustained amount of time. These were each kneejerk moves, however, given the volume upon the first violation yesterday, we must say it is rare to see gap levels taken out with such ferocity and still ultimately hold. This certainly exudes the broader momentum and strength of the market.
Crude Oil (CLF)
Yesterday’s close: Settled at $57.01 up $1.66
Fundamentals: Crude oil surged by 3% yesterday and recovered more than Tuesday’s losses. Driving price action has been news OPEC is likely to extend the production pact at the December meeting. Although this was nearly a foregone conclusion, the emphasis has moved from deepening the cuts to more realistically heightened compliance. This started yesterday when Russia voiced it would comply with its ceiling for November. Gyrating optimism that a watered-down US-China trade deal is achievable has also lifted sentiment. Although yesterday’s headline EIA report was not bullish, it was such in comparison to the private API survey from Tuesday and this added a tailwind to the tape. However, that the United States was again a net exporter even though imports increase from the previous week was bullish factor.
Technicals: Crude oil shredded through a crucial level at $56.20 which neutralized our minor bearish bias upon a test to this level yesterday. Price action did not close out above the 200-day moving averages yesterday but did create a bullish engulfing daily bar which has powered the tape higher this morning.
Gold (GCZ)
Yesterday’s close: Settled at $1,474.2, down 0.1
Fundamentals: Gold is seeing a renewed safe-haven bid as President Trump is expected to sign the Hong Kong Human Rights and Democracy Act passed by Congress yesterday. However, risk assets are holding ground incredibly well given that U.S Treasury Secretary Mnuchin and U.S Trade Representative Lighthizer were invited to continue trade talks face to face in Beijing. These two competing narratives will be a price driver for gold. Additionally, yesterday’s Fed minutes exuded that the committee is likely to hold off from any further rate cuts and gold has held very well given that the odds for a cut in December have completely disappeared and there is now a 2% probability the Fed raises in December. The economic data this morning was mixed with weekly Jobless Claims coming in at the highest level since June while Philly Fed Manufacturing beat expectations.
Technicals: Gold is holding well against resistance at $1,471.9 but has been unable to hold higher ground with major three-star resistance overhead.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com. Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and actionable bias and levels.
