Stocks traded higher overnight with the US Dollar sliding, both continuing a path from Friday, as probabilities shift to 67% for the Fed to hike by 75 basis points next week, thus eroding a 100 basis points hike to a 33% chance, notes Bill Baruch, president of BlueLineFutures.com.
Odds for back-to-back 75 basis points hikes in July and September settle in at 52%.
Fed starts blackout period ahead of next week’s meeting.
A busy week of earnings kicks off with Bank of America missing estimates, weighed on by a drop in investment banking revenue, and Goldman Sachs (GS) crushing projections, helped by strong trading revenues. IBM due after the bell.
Johnson & Johnson, Novartis, Lockheed Martin, Netflix, and more tomorrow. Tesla reports Wednesday after the bell.
The US economic calendar has a slow start to the week after a deluge of inflation data, Retail Sales, and more to finish out last week.
Europe leads with CPI tomorrow ahead of the ECB policy meeting announcement Thursday. The bank is expected to raise rates by 0.25% from -0.50% to -0.25%.
On Friday, we noted headlines within China real estate space:
- China's real estate sector is facing hurdles as homebuyers are refusing to pay mortgages and protesting developers who have not delivered presold homes.
- Evergrande, China’s second-largest developer, has resumed construction of 59 property projects, involving 12,00 workers. This is good news.
Update: Chinese authorities ordered lenders to provide credit to eligible property developers to complete unfinished homes. This loosens lending restrictions imposed last year.
USD-CNH flat since Thursday and rally attempts have so far stalled, helping to provide relief to commodities, specifically metals.
US Dollar Index slips below the 107.50 pocket we discussed on Friday as Euro rebounds ahead of this week’s ECB meeting.
US ten-year yield retests 3.0% as risk assets continue to improve.
Buoying Treasury yields is a rise in Crude Oil after President Biden left Saudi Arabia with few developments on Crude Oil. Saudi officials reiterate that OPEC+ is the deciding body and spare capacity is limited, therefore it must be approached with caution.
E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 3865.00, up 71.75 on Friday and down 36.25 on the week.
NQ, yesterday’s close: Settled at 12,007.50, up 210.00 on Friday and down 144.25 on the week.
As we dive into earnings season, multiples have already come in drastically and a popular view is that earnings growth is to follow, making the way for the next leg down. We do not share this view. Instead, we believe expectations of market participants and not necessarily expectations of the earnings themselves are already very low, paving the way for positive responses to underwhelming reports.
Guidance will be more critical than actual results.
Higher open is pointing for a test of the July eighth gap, marked by major three-star resistance at 3901.25 and 12,138-12,152. Must see strength through this level or door open for back and fill.
The gap from Friday’s settlement brings rare major four-star support at 3865-3973 in the S&P, holding above here defines a new leg that is set to cover the 4017.50 gaps from June ninth.
NQ gap support from Friday at 11,985-12,007.
Crude Oil (September)
Yesterday’s close: Settled at 94.57, up 1.74 on Friday and down 6.96.
Before Friday’s rally, we noted that Crude never settled below 94.85-95.47 in the August contract.
The rebound comes after August options expired Friday.
Global recession fears amid a potential new wave of lockdowns in Shanghai dented Crude last week ahead of President Biden’s visit to Saud Arabia. Through last week, none of the three fears lived up to the market’s risk management of such = a rebound. China virus cases are still a headwind.
US Dollar weakness, broadly, helping to lift commodities.
Gold (August) / Silver (September)
Gold, yesterday’s close: Settled at 1703.6, down 2.2 on Friday and 38.7 on the week.
Silver, yesterday’s close: Settled at 18.594, up 0.369 on Friday and down 0.642 on the week.
On Friday, we noted, Dollar Index below 107.50 would help ignite a strong rebound in metals.
So far, a consolidation from oversold territory, but must constructively close above resistance in order to continue.
Remain upbeat over the longer term from these levels. Such sharp intraday drops last week gave no reason to adjust the longer-term view here.
Supportive tailwinds from China fiscal talks and property development efforts. Coupled with probabilities for a 100 basis point hike by Fed eroding, for now.
Learn more about Bill Baruch at Blue Line Futures.
