Confidence is slipping and stagflating, states Bill Baruch of

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

S&P, last week’s close: Settled at 4138.00, down 5.75 on Friday and 12.25 on the week
NQ, last week’s close: Settled at 13,396.25, down 50.25, on Friday and up 78.50 on the week

Fundamentals: Friday’s fresh May Michigan Consumer survey showed deteriorating Sentiment, Confidence, and Expectations, coupled with steady inflation. In fact, five-year Inflation Expectations hit a new cycle high at 3.2%, while one-year Expectations came in a touch at 4.5% versus 4.6% in April, although remaining much higher than March’s 3.6%. Last week, we discussed the divergence between hard and soft data; negativity is screaming within the soft data, whereas hard data has been very buoyant. Tomorrow, the Atlanta Fed GDPNow model will update its current forecast of 2.7% growth in Q2, which is up from 1.1% in Q1. This does not sound recessionary. 

Consumer surveys such as the one from Michigan are prone to more headline emotion. The surge in Crude Oil to start April was followed by a rise in gas prices at the pump. Although Crude has come down a bit, the gas station is not bringing down its prices ahead of the summer driving season and the grocery bill has not improved. However, just as quickly, those gas and food prices can become normalized if they don’t rise through the summer. March’s CPI report highlighted a surge in airfares, and consumers are booking those summer trips, leading to a direct impact on sentiment. April’s CPI report last week pointed to a dip in airfares. I just so happen to be talking with friends who booked a last-minute family vacation for Memorial Weekend because they heard and then saw how cheap some tickets have become, almost overnight. The point is. if the hard data is correct in pointing to steady growth and slowing inflation, which we believe it is, sentiment and expectations will quickly follow.

People are emotional, and at times that can become a contraindicator, especially when things are trending too negative or too positive. Magazine covers and newspaper headlines exude the same type of emotion. Journalists are also tasked with reporting the news, which inherently is a trending topic, often reaching extremes. Last year, the US Dollar Index reached a 20-year high, and Barron’s cover had George Washington popping out of a US Dollar and flexing. In February, the Economist highlighted Google on its cover, asking, ‘Will the AI chatbots eat Google’s lunch?’ The Dollar Index has fallen 12% and Alphabet stock is up 24% since those covers. The latest Economist is titled “Peak China”, and comes after months of disappointing data, including last week’s disinflationary slate and miss on New Loans. Tonight, China will release a deluge of economic indicators, including the closely watched Industrial Production and Fixed Asset Investment. A reversal of the trend may not come tonight, but we must begin to believe in a limited downside.

As I am writing, fresh NY Empire State Manufacturing for May hit a four-month low at -31.80, oh the irony. In January, it hit -32.90, the lowest since the onset of the pandemic. Minneapolis Fed President Kashkari is due to speak at 8:15 am CT, a 2023 voter, Richmond Fed President Barkin at 11:30 am CT, a 2024 voter, and Fed Governor Cook at 4:00 pm CT. China’s slate of data is due tonight at 9:00 pm CT.

Technicals: On Friday, the tape remained rangebound and punished those looking for a break of that range. Price action in the E-mini S&P battled in front of our first wave of major three-star support at 4121.50-4125.50 before slipping to the next shelf at 4108.50-4112.25 with a low of 4111.75. Buyers responded and E-mini S&P futures finished little changed, just below the 4141-4143.50 level. Similarly, E-mini NQ futures violated the most elevated support at 13,352-13,370 before turning and settling back above. Most importantly, the 13,390 marking was the highest settlement for the E-mini NQ since August. Price action again tested higher overnight but is now little changed ahead of the opening bell. If momentum from late Friday is to carry early in the session, we must see the E-mini S&P and E-mini NQ hold first key support.

Crude Oil (June)

Last week’s close: Settled at 70.04, down 0.83 on Friday and 1.30 on the week

Fundamentals: Crude Oil edged higher overnight after the People’s Bank of China made strides to “maintain reasonable ample banking system liquidity”. As we noted in the S&P/NQ section above, global growth fears are boiling and act as a direct headwind for Crude Oil sentiment. Price action through last week bled off from rare major four-star support and now finds itself battling at the psychological $70 mark ahead of a critical slate of economic data from China tonight before US inventories come into the picture tomorrow.
Technicals: Price action in Crude futures slipped just below major three-star support at 69.84-70.03 overnight but have worked to rebound into the onset of US hours. It is trading below our pivot and point of balance that aligns with our momentum indicator.

Gold (June) / Silver (July)

Gold, last week’s close: Settled at 2019.8, down 0.7 on Friday and 5.0 on the week
Silver, last week's close: Settled at 24.154, down 0.27 on Friday and 1.776 on the week

Fundamentals: Silver lost 6.85% last week in its worst week since October’s -10.78%. The rise in the US Dollar, fears of China’s growth, and a small bump up in rates all acted as headwinds to the metals complex. The US Dollar is slightly lower on the session but off its low despite a big miss on NY Empire State Manufacturing, discussed in more detail in the S&P/NQ section. As the week sets up for the precious metals complex, the path of the USDCNH after tonight’s deluge of economic data from China will be paramount and sets the stage for data from the US and Fed speak, as the narrative shifts to the June Fed meeting.

Technicals: Although Silver’s momentum has been neutralized, it is battling to hold the 50-day moving average, a level that we have always said the market battles to stay above or below for extended periods of time; it's go time for Silver bulls. However, Gold’s path has been much more constructive as of yet and could be a precursor to a trend continuation. We must see Gold continue to hold first support, a major three-star level, but also constructively close out above first key resistance, whereas Silver must not close below major three-star support.

Learn more about Bill Baruch at Blue Line Futures.