Washington and the Economy on a Collision Course

US equity benchmarks are stable and lurking about 1% below their record highs, states Bill Baruch of Blue Line Futures.

E-mini S&P (March) / NQ (March)

Yesterday’s close: Settled at 3823.50, 5.25

NQ, yesterday’s close: Settled at 13,194.25, down 54.75

Fundamentals: January Nonfarm Payroll is due tomorrow and already in focus. Weekly Jobless Claims this morning, for the last week of the month, improved for the third week in a row. The better jobs picture, at least through the data, sets the economy and new Biden administration on a collision course. Republicans are pushing back on President Biden’s lauded $1.9 trillion stimulus package because Congress just passed a $900 billion spending bill in December. Of which, much has yet to be spent and what has is still percolating through the economy. Ultimately, an improving jobs landscape gives Republicans in Congress further weight in sidelining fresh fiscal stimulus. Last week’s healthy correction came in part as Senator Schumer said new measures are not likely until mid-March. The delay may now be priced in, but if the economy truly improves between now and then, it will not only be a delay but a lesser amount.

Another closely watched data point is Unit Labor Costs. Today was the first look at Q4’s read, and it snapped back from a dismal Q3. What does this mean? Wages improved and set the stage for inflationary tailwinds. Furthermore, if one couples this with the drop in Nonfarm Productivity QoQ, we learn that not only are wages rising, but the amount of work for those wages is decreasing; these are signs of inflation.

Amid a deluge of earnings today, we are most eager for Activision Blizzard and T-Mobile, two stocks owned by Blue Line Capital. PayPal is one of the biggest movers ahead of the open, up more than 5% after strong results late yesterday and announcement of a business unit invested in Crypto (also owned by Blue Line Capital).

Technicals: Both the S&P and NQ are holding ground but struggling to chew through levels of resistance overhead. Front and center is another failure for the NQ yesterday at what has been our upside target, for weeks at 13,523-13,583. Furthermore, the S&P has struggled at key resistance at 3837-3842, trading to a high of 3843.50. Let us not forget that the S&P also faces major three-star resistance.

Crude Oil (March)

Yesterday’s close: Settled at 55.69, up 0.93

Fundamentals: Crude oil has weathered each extremely well; the sharp jump in Imports on yesterday EIA report, a rising US Dollar and weakness across the metals space. Yesterday’s inventory data showed only a small drop in crude stocks by 0.994 mb, much less than the private API survey the day before predicted. However, an increase WoW in imports by 1.4 mbpd to 6.5 mbpd would account for divergence. The rise in gasoline stocks by 4.466 mb did not deter bullish tailwinds as Refinery Utilization increased for the fifth week in six. However, we are at the onset of a favorable time for gasoline demand and traders seem little concerned given the lag below the five-year average. Still, as we head into the back half of the week, the broader risk landscape does pose some risk as the US Dollar rallies and the metals complex reverses sharply from Monday’s enthusiasm; this could prove to be an undertow to even the strongest markets.

Technicals: Crude oil remains in a breakout pattern; however, our momentum indicator is catching up to the tape, now coming in at 55.80. This can allude to exhaustion and pins first key support at 55.39 in the mix as the day unfolds. We are neutral at these levels and believe traders, if they were long, should capitalize. For us, we would much rather be buyers at major three-star support.

Gold (April) / Silver (March)

Gold, yesterday’s close: Settled at 1835.1, up 1.7

Silver, yesterday’s close: Settled at 26.889, up 0.487

Fundamentals: Hindsight is 20/20; when quick rips in gold last week were sold into, and when silver roared higher Monday but Gold could not close out above major three-star resistance, the stage for a failure was set. Good thing we have been bearish on the US Treasury complex as we do believe gold’s pain is directly correlated to the rise in Treasury yields. The other major factor weighing on gold is US Dollar strength due to the economy improving on the heels of December’s fiscal stimulus. Such is a tightly wound circle, one we discussed in the S&P section; if December’s fiscal stimulus improves the economy, it may lessen the need for the whopping $1.9 trillion package that was delated to mid-March. However, in the end, if the economy can only improve due to stimulus, in and of itself, that is the case for gold. Regardless, today’s bloodbath for the yellow metal is concerning, please do not hesitate to reach out to our trade desk at 312-278-0500 to discuss today’s ever-developing situation.

Technicals: Gold’s break below major three-star support at 1829.9-1831 has garnered heavy waves of selling, bringing it to the lowest level since December 1st. Gold now faces the late November flush low and our rare major four-star support at 1767.2-1770, but first there is support being tested at 1784.8. Regardless, the situation is looking more and more bleak and a failure to attract buyers at this level as the day unfolds will likely encourage added selling overnight. For now, silver is holding above major three-star support.

Learn more about Bill Baruch at Blue Line Futures.