E-mini S&P and E-mini NQ futures snapped a three-day win streak but finished yesterday’s session off the worst levels of the day, states Bill Baruch of BlueLineFutures.com.

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

S&P, yesterday’s close: Settled at 4190.50, down 24.50
NQ, yesterday’s close: Settled at 14,300.50, down 96.25

Fundamentals: First and foremost, a consolidation lower was more than necessary given that three-day ascent last week in which the E-mini NQ gained as much as 6.7%. Igniting the rebound was the emerging theme the Fed may “skip” a rate hike at its meeting in two weeks. Both Fed Governor and Vice Chair nominee Philip Jefferson and Philadelphia Fed President Harker, a 2023 voter, reiterated this theme in speeches yesterday, helping to stoke stock prices higher. Last night, Nick Timiraos of the Wall Street Journal, known as the ‘Fed whisperer’, published an article titled, ‘Fed Prepares to Skip June Rate Rise but Hike Later’. This one-two punch found added risk-on tailwinds from better-than-expected Chinese Manufacturing PMI. On Tuesday night, the China state read showed a larger contraction than expected, however, last night’s Caixin private survey signaled an expansion at 50.9. All the while, the debt ceiling deal seems to be sliding its way through Congress after passing the House last night. Still, the May Nonfarm Payrolls report due at 7:30 am CT tomorrow overshadows either side of the risk environment.

The first glance at May jobs via the private ADP survey this morning showed much stronger growth than expected at 278k versus 170k, and Initial Jobless Claims eked out a beat at 232k versus 235k, though last week was revised higher by 1k. However, the larger story within the data dump came from Unit Labor Costs for Q1. On May 4th the preliminary q/q read printed 6.3%, higher than the 5.5% expected, but was revised down to a final 4.2% today. Additionally, Nonfarm Productivity accompanied the print and came in at -2.1% versus -2.7%. In other words, labor did not cost as much, and workers were more productive in the first quarter than initially thought which should factor into the Fed’s decision.

After peaking above a 60% probability this week, the CME’s FedWatch Tool now signals a 28.5% probability the Fed hikes 25bps on June 14.

Technicals: The E-mini S&P responded so perfectly to our major three-star support yesterday that we were unsure whether it was our levels or the Fed driving the late-day rebound. Of course, we say this facetiously, but it is an ever-present reminder of how important the technicals are within any trading environment. Price action is still working to digest the recent rally, and understandably so given the aforementioned three-day 6.7% ascent in the E-mini NQ, and how this holiday-shortened week builds into an ever-important Nonfarm Payroll report tomorrow. For now, a continued constructive consolidation is key. Remember, this is a bull market, and a baby pullback is not going to kill it. It is okay for price action to extend its range below yesterday’s low. We still have major three-star support at 4173.25-4178.50. However, below there was rare major four-star support.

Crude Oil (July)

Yesterday’s close: Settled at 68.09, down 1.37

Fundamentals: Crude Oil futures have attempted to rally after last night’s Caixin Chinese Manufacturing PMI showed an expansion at 50.9, but concerns remain persistent ahead of the June 4th OPEC meeting. Furthermore, the cartel has not invited the Wall Street Journal, Reuters, Bloomberg, and other news sources, though the Financial Times, CNBC, and others were invited to report on the meetings in Vienna this weekend. This begins to highlight how close OPEC+ is keeping the meeting to the vest, especially after the misreporting of comments from the Saudi Energy Minster a week ago. US inventory data will be front and center, due at 10:00 am CT. Expectations are for -1.101 mb Crude, -0.369 mb Gasoline, and -0.118 mb Distillates.

Technicals: Price action responded to major three-star support at 66.82-67.16 yesterday but rally attempts have stalled between first and second key resistance. We do believe one reason for support to act strongly is the Option Skew, which we noted here yesterday. Most simply, the CME’s OPEC Watch Tool highlights the probability of a production increase, decrease, or no change. Due to the sharp slip to start the week, put premium picked up at a fast pace, and there is now a 50/50 chance OPEC will increase production or leaves it unchanged, and we view this as an opportunity. Price action must close back above major three-star resistance. 

Gold, yesterday’s close: Settled at 1982.1, up 5.0
Silver, yesterday’s close: Settled at 23.587, up 0.348

Fundamentals: Gold and Silver had been working higher on the final day of a poor month and found added tailwinds from those Fed comments highlighted in the S&P/NQ section. After today’s economic data slate, also discussed in detail in the S&P/NQ section, the US Dollar Index turned negative back to the 104.00 mark, and Treasury yields continued to slip with the ten-year reaching 3.6% from a peak of 3.86% Friday. While this helps underpin strength in precious metals, despite the Caixin China Manufacturing beat, there has been little light at the end of the tunnel for Chinese Yuan strength. This will continue to be a true headwind for any sustainable strength.

Technicals: Gold futures continue to battle at major three-star resistance at 1984.5-1985.6, and despite spiking to a high of 1993.1 yesterday, they settled below this resistance pocket. It remains the key hurdle between Gold and regaining the $2000 mark. As for Silver, the first key resistance at 23.64-23.67 continues to be a barrier to added strength.

Learn more about Bill Baruch at Blue Line Futures.