This week’s price action across U.S. benchmarks has been broadly mixed. The S&P is unchanged, the Russell 2000 is up 2.5%, and whereas the NQ is +0.5%, the Dow is -0.5%., states Bill Baruch of Blue Line Futures.

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

S&P, yesterday’s close: Settled at 4225.75, up 0.25

NQ, yesterday’s close: Settled at 13,811.50, up 7.25

Fundamentals: Tech capitalized terrifically on Friday’s lukewarm jobs report and lower rates have buoyed the sector this week. In fact, the U.S. 10-year yield is down more than 5 basis-points this week to leak below 1.5% this morning. Furthermore, 10-and 30-year futures are trading at the highest levels since the first days of March. Wait a minute, what about all this inflation everyone is anticipating? Exactly. This move in rates comes ahead of tomorrow’s pivotal inflation data, but highlights our ongoing discussion. We might be seeing peak inflation, right here, right now.

Last night, inflation data from China was mixed. CPI was below expectations at 1.3% YoY and -0.2% MoM. PPI was firm at 9.0% versus 8.5% expected, the highest since October 2008.

Today’s economic calendar is quiet. Traders will look to the EIA’s weekly Petroleum Status Report (crude and product inventories) at 9:30 am CT and a 10-year Note auction at noon CT. Tomorrow is the data dump; ECB policy decision at 6:45 am CT, presser at 7:30 am CT, along with Core CPI and Jobless Claims. One might wonder, why are you so bullish on Crude Oil and the energy space, yet believe we are at peak inflation. A great question. That is because we believe inflation via the Federal Reserve’s metrics, Core PCE and Core CPI, is peaking. Remember, these Core reads exclude food and energy. Essentially, they exclude what hits your pocket!

Technicals: In yesterday’s Midday Market Minute, we discussed the early slip, but the constructive response to supports. Although the S&P lost 4226 early, it held our first layer of major three-star support perfectly at 4206-4209.25 and then rallied to a high of 4332 before hugging 4226 into settlement. All things considered, it did absolutely nothing wrong. Similarly, the NQ slipped below the 13,790-13,818 pivot, and previous resistance, for less than 30 minutes and buyers stepped in well in front of what was first key support at 13,715.

Crude Oil (July)

Yesterday’s close: Settled at 70.05, up 0.82

Fundamentals: Crude Oil is holding well at the $70 mark ahead of today’s EIA data. Underpinning higher prices in none other than dissipating enthusiasm for an Iran Nuclear Deal. Who would have thought? Oh yes, us. Crude Oil was lower by about 1% early yesterday to 68.51 but made a U-turn after U.S. Secretary of State Blinken said hundreds of sanctions will remain in place on Iran, even if a deal is reached and they return to compliance. This highlights the true tensions and a quote we have used several times from an unnamed official last week, “the toughest decisions lie ahead”.

Today’s EIA data is due at 9:30 am CT. Yesterday’s API was seen as headline supportive, but a draw in Crude was offset by builds in the products. Estimates for today’s official report are -2.036 mb Crude, +0.698, and +1.358 mb Distillates. As always, Refinery Utilization is in focus, too. Last week it improved 1.7% WoW, however, it is expected at +0.6% today. A positive number indicates more Crude Oil is being drawn by refiners to create products. An improving number is the byproduct of seasonal Gasoline demand. Yesterday, the EIA raised their Gasoline demand estimates for 2021, and mounting expectations due to reopening and summer travel, not only domestically but abroad, have been a tailwind for higher prices. Yesterday, the U.S. loosened travel warnings for Canada, France, and Germany.

Technicals: Our momentum indicator is rising behind the tape and now aligns with $70 perfectly. This is our Pivot and point of balance on the session, continued action above here points to higher prices. First key support aligns with where price action settled in after the initial rip higher yesterday.

Gold (August) / Silver (July)

Gold, yesterday’s close: Settled at 1894.4, down 4.4

Silver, yesterday’s close: Settled at 27.731, down 0.287

Fundamentals: Gold and Silver continue to have a quiet week that has been intermittently interrupted by waves of selling. It would seem the ‘powers-to-be’ are keeping a lid on the tape and therefore we must see a catalyst. In comes tomorrow’s data dump, with CPI being the most crucial part. To continue our inflation discussion from the S&P/NQ section yesterday (and today), we want to use today to highlight inflation’s importance on Gold. Look no further than rising inflation expectations in Q4 last year and the rise via the metrics through April.

Gold priced in April’s inflation data before it was ever incurred by falling precipitously through the end of March. At this time, inflation was bad for Gold as inflation will pressure the Federal Reserve to tighten policy sooner than later. However, real inflation through last summer was a tailwind for Gold as the Federal Reserve’s unprecedented monetary policy measures were working through the system still and there was no timeline in sight to tighten.

Similarly, the deflation caused by Saudi Arabia’s production announcement in March 2020, coupled with impending lockdowns, drove Gold lower, however, deflation is not always bad for Gold. We believe the economy sees peak inflation this month, therefore, a contraction is deflationary. However, at this time, such will allow the Fed to elongate their easy money policy, therefore supporting Gold. Feel free to reach out to our trade desk at 312-278-0500 to discuss in more detail.

Technicals: Gold continues to waffle around our Pivot and recurring major three-star level at 1894.5-1896. The tape has responded to strong support building at yesterday’s quick low and above, we will edit first key support to now stand at 1885.7-1889.5 and we will look to this week being constructive while Gold holds above here. As for Silver, it has also responded to first key support. However, rally attempts have been short lived since the May 6th spike.

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.