The Federal Reserve begins its two-day policy meeting today and will conclude with a statement at 1:00 pm CT, notes Bill Baruch, president of

According to Fed Funds futures via the CME FedWatch Tool, there is a 76.3% probability they hike 75 basis points. There is also a 49.7% probability they hike by at least 150 basis points between this meeting and September, to 3.0%.

On Friday, SPGI Manufacturing PMI for July topped expectations (52.3 v 52.0 exp) but came in at the lowest since August 2020. Whereas Services PMI showed a surprise deterioration (47.0 v 52.6) and was the lowest since June 2020.

From SPGI Chief Economist: “The preliminary PMI data for July points to a worrying deterioration in the economy. Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates, and growing gloom about the economic outlook.”

Q2 GDP is due Thursday. Although it is a backward-looking indicator, at times, it can show a trend. The Atlanta Fed GDPNow model expects Q2 GDP at -1.6%. However, analysts estimate Q2 GDP at +0.4%. With the final Q1 GDP at -1.6%, another contraction will define a recession.

The FedWatch Tool signals a 40.8% probability the Fed raises rates to 3.25% and a 30.8% probability to 3.50%.

By June 2023, the highest probability across a wide distribution shows that 30.5% odds rates will be back to 3.0%. Cuts are becoming priced in. At a minimum, there is a clear expectation for the pace of hikes to slow down after September.

The Bloomberg Commodity Index finished last week 15.7% from its June peak. Gasoline futures have fallen 25% and more than $1 from their June peak while retail gas is now widely seen at and below $4.00.

Expectations for inflation, according to the Cleveland Nowcast model, show it holding steady in July at 8.9% headlines and 6.05% Core, versus 9.1% and 5.9% in June. However, the MoM rise in July is expected to come in sharpy at 0.33% headline and 0.48% Core, versus 1.3% and 0.7% in June.

There are signs some job market frothiness is being relieved, something that is further supported by the surprisingly sharp deterioration in July Services PMI. Also, did last week’s Philly Fed Manufacturing signal a reversion in producer prices? It dropped from 65.5 in June to 52.2 in July.

The Fed is not going to begin any sort of victory lap in its fight against inflation this week, especially given it is too early and evidence is still developing, but market participants will be looking for any signal of a slowdown in the aggressive nature of the bank’s tightening. Coca-Cola (KO), McDonald’s (MCD), UPS (UPS), Raytheon (RTX), Unilever (UL), General Electric (GE), Microsoft (MSFT), Alphabet (GOOGL), and Visa (V) all report after today’s bell.

E-mini S&P

Significant levels of resistance were achieved on Friday. For the S&P 500 (SPX), this was rare major four-star resistance aligning with the settlement before the May CPI release on June ninth at 4017.50-4019. For the Nasdaq 100 (NDX), this was our next upside target at 12,646-12,686.

Throughout the week, here and via the Midday Market Minute, we discussed the importance of capitalizing on long positions into this resistance and ahead of this week’s Fed meeting and earnings deluge.

We remain cautiously Bullish in Bias over the intermediate to long-term from this broad level and lower. The emphasis is a bit lower and we will continue to look for constructive pullbacks as buying opportunities.

A shelf of support in each of the S&P and NDX developed from Friday at 3950-3951.50 and 12,343-12,373.

Crude Oil (September)

Recession fears weighed on Crude Oil ahead of the weekend after poor Eurozone PMIs and given continued mass testing in China. Also, a bearish EIA report and Libya production coming back online added negativity to the. Libya is now seen ramping to 1.2 mbpd over the next two weeks.

A return of geopolitical premiums after Russia attacked the Odessa, Ukraine port only one day after inking a deal to allow the traffic of exports?

Bullish response this morning to major three-star support at 92.83-92.97, aligning with the July sixth low, creates a right shoulder of a bullish inverse head and shoulders pattern.

Strong overhead technical resistance persists due to a steep trend line from Jun 14 high. Look for momentum to shift with a close above the 21-dma at 99.49 today. Must close above major three-star resistance at 96.52-96.97 to encourage added buying.

Gold (August) / Silver (September)

The U.S. Dollar Index has slipped by 2.9% from its July 14 peak, yet Gold and Silver have shown very little life. However, the USD CNH remains +0.84% on the month and elevated just below the 6.80 mark.

The U.S. 10-year yield sliced below 3.0% last week and hung just above 2.8%. Not bringing the supportive force one would think.

Thursday’s post-ECB reaction in Gold did create a bullish engulfing bar, but a gain of less than 1% on Friday after failing against major three-star resistance at 1735.5 encouraged a slip by 0.5% from session highs exudes how shorts are still defending their position. As of last Tuesday, the Managed Money net-short position more than doubled from the prior week to 18,738 contracts.

Silver’s rebound has been more muted than Gold's.

Learn more about Bill Baruch at Blue Line Futures.