Markets failed to maintain yesterday’s momentum on today’s open, reports, Bill Baruch.
E-mini S&P (ESH)
Yesterday’s close: Settled at 2865.75, up 118
Fundamentals: U.S benchmarks roared higher into yesterday’s close but quickly faded after the new session open. Stocks in Europe saw an uptick on their open, but this too has faded, and the headline gains are certainly a bit less enthusiastic than the tape.
Ahead of the ECB’s scheduled meeting tomorrow, the Bank of England surprised with a 50-basis point rate cut amid poor economic data this morning. The British Pound was down 2¢ or 1.5% yesterday; someone out there was not surprised. ECB President Lagarde is warning of a crisis if countries do not act on fiscal measures. There is a clear concern that not only is monetary policy not enough, these central banks simply don’t have the bullets.
Asia is all lower; the Hang Seng and Shanghai Composite are battling, down less than 1%, however, it is the Nikkei leading the way -2.25%. This begs Lagarde’s question, what fiscal measures will these governments take? Although details are unknown, moves from the United States to U.K and Japan are all expected in the coming days and weeks.
Much of the economic calendar is taking a back seat to headlines and continued developments on the Covid-19 outbreak. The United States has now surpassed its 1000th case and at least 12 states have declared a state of emergency. On the political front, as expected, Democratic Presidential candidate Joe Biden continues to pull away from Bernie Sanders for the party’s bid to face President Trump in November. On the economic calendar, we do have U.S CPI at 7:30 am CST. One of the more pivotal reads comes Friday as we look to fresh March Michigan Consumer data. Next week, February data from China, March regional Manufacturing from the U.S and March German Sentiment could finally give us a glimpse at early stage deterioration.
Technicals: Yesterday’s late surge was constructive, but quickly faded. Although the S&P 500 settled at 2865.75 and above major three-star resistance at 2853.25-2864, this was not convincingly. The NQ settled at 8331.50, above 8310.50, but merely failing at last week’s late low. What matters here this morning is that each is decisively back below our momentum indicators.
Crude Oil (CLJ)
Yesterday’s close:Settled at $34.36, up $3.23
Fundamentals: Crude oil firmed-up into yesterday’s close from drastically oversold price levels and rallied overnight, however, the crude and the broader risk-environment soured a bit overnight. We discussed here Saudi Arabia’s plan to increase production to 12.3 million barrels-per-day (bpd), an increase of 2 million bpd from current levels. The caveat being this move is 0.3 million bpd more than their capacity and they would pull from storage to meet these targets. In other words, it was unsustainable, eluding to a goal of getting back to the negotiating table to stabilize prices. Bringing early pressure to the complex this morning are developments that Saudi Arabia will increase that production capacity to 13 million bpd. Although this will take time and money, it is a steadfast sign of sticking to their guns and hardline tactics.
Official inventory data is due at 9:30 am CST. Last night, the tape battled the private API survey headline showing a massive build of 6.407 million barrels of crude. However, gasoline and distillates drew down a combined 7.769 million barrels, which offset such and worked to buoy the tape. Expectations for the official EIA read are for +2.266 million barrels of crude, -2.482 million barrels of gasoline and -1.911 million barrels of distillates.
Technicals: The overnight high of $36.35 ran right into our major three-star resistance level at $36.22. This resistance aligned multiple indicators as well as a rising channel from the Monday’s late low, a channel that price action has slipped below today (now bottom side $35.50).
Gold (GCJ)
Yesterday’s close: Settled at $1,660.3, down $15.40
Fundamentals: Gold is up about 0.5% on the session and 1% from its low. The Bank of England surprised with at 50-basis-point rate cut and the pound is stronger. More global central bank easing combined with a weaker U.S. dollar is a perfect scenario for gold. The ECB is on deck for tomorrow. Additionally, equity markets and thus the broader risk-environment have peeled back from yesterday’s closing high, supporting safe havens such as gold and Treasuries from levels seen into that close. U.S CPI data this morning was in-line with expectations and although this is a lagging number and especially so given recent developments, firm inflation should not hurt gold as it is certainly not seen to keep the Fed ‘patient’ anymore.
As seen through yesterday’s dollar strength coupled with equity strength, gold will be pushed by broader gyrations. We do feel and have expressed that there is a budding ceiling at $1,700 given how expectations for a full 1% rate cut became priced-in Monday and have since dissipated to a 75-basis point cut. However, this certainly does not mean gold cannot chew through here as the landscape developments. Still, traders must be weary upon precipitous selling in equities as cash could be raised by selling Gold in the near-term.
Technicals: Gold has traded constructively now upon two tests to major three-star support at $1,642.9; the first being post-nonfarm payroll last Friday and the second being into yesterday’s close. The $1,640-$1,700 range seems to be budding as a definitive pocket that gold is consolidating within and a breakout could be imminent over the coming sessions.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com. Sign up for a complimentary two-week trial of 1 or all 6 of our daily Blue Line Express commodity reports!Please sign up at Blue Line Futures to have our research emailed to you each morning.
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