Momentum carried into the open last night with the S&P trading to a high of 2551.75 but this slowly dissipated into the morning. The same three headwinds remain. Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude, Forex.
E-mini S&P (March) Last week’s close: Settled at 2531.25, up 83.50.
Fundamentals: On Friday, the S&P (SPX) closed at the highest level since December 18. As we stated here Friday morning, sentiment got a healthy start overnight on news the People’s Bank of China will broadly cut their Reserve Requirement Ratio on January 15 and lower-level trade representatives from the U.S. and China will begin meeting today in Beijing.
Nonfarm Payroll then blew-out expectations posting an increase in wages of 0.4% in December with a creation of 312,000 jobs. Typically, a number this strong would put pressure on risk-assets as it encourages the Federal Reserve to tighten policy at a faster pace. However, Thursday night, the CME’s FedWatch Tool had the probability for the Fed to leave interest rates unchanged in March at 85.4% with a 14.6% chance they cut. That probability is now 98.9% and 1.1% this morning. Given this favors the outside chance of a cut in March over another hike, the strong wage number did not deter the healthy risk-appetite. Fed Chair Powell’s comments added a tailwind, he said there will be flexibility in rates and signaled the Fed is not on auto-pilot.
Momentum carried into the open last night with the S&P trading to a high of 2551.75 but this slowly dissipated into the morning. Despite news that the trade talks got off to a good start with the unexpected attendance of Chinese Vice Premier Liu He, there is still little to no fresh substance.
Furthermore, the same headwinds remain.
First, the government shutdown enters its third week.
Second, in November and December we constantly wrote how traders must not underestimate the effects of a souring Brexit is negotiation. With talks now back in the picture, the March deadline for a hard Brexit will certainly weigh on sentiment.
Lastly, economic growth is in serious question. We touched on it in last night’s Tradable Events this Week. Nonfarm Payroll was a massive number but last week U.S. ISM Manufacturing posted the slowest growth since November 2016. Eurozone Manufacturing PMI was at three-year lows and the Composite read five-year lows. Let’s also not forget that Chinese Manufacturing PMI contracted. This morning, German Factory Orders came in worse than expected at -1.0%. Although, German and Eurozone Retail Sales were healthy, Factory Orders echoes the trade war. It looks like U.S Factory Orders will be postponed and become the latest data casualty to the government shutdown. ISM Non-Manufacturing will be a crucial number. Atlanta Fed President Bostic speaks at 12:40 pm EDT.
Technicals: Price action is near unchanged this morning after paring early gains from last night. The important technical theme to understand right here more than anything is that ...
Crude Oil (February) Last week’s close: Settled at 47.96, up 0.87 on Friday and 2.63 on the week.
Fundamentals: Crude continues its recovery from the lowest level since June 2017 on a healthier risk environment coupled with news last week that OPEC production fell 530,000 bpd in December. The market was also oversold and although growth concerns persist, a repositioning of longs is carrying Crude back near the $50 mark. Today’s session high comes in at 49.47 but as it nears that psychological mark, without fresh bullish news Friday’s EIA data could begin to weigh on the tape. Let’s not forget that despite news China plans to cut its RRR and trade talks restarted this week that EIA inventory data on Friday showed a composite build of 16.426 mb. Furthermore, Cushing added storage for the 14th time in 15 weeks; Crude cannot fully recovery until we begin seeing consistent drawdowns in bloated inventories.
Technicals: Price action is off to a great start but runs into major three-star resistance at ...
Gold (February) Last week’s close: Settled at 1285.8, down 9.0 on Friday and up 2.8 on the week.
Fundamentals: What if we told you that Nonfarm Payroll blew the doors off expectations with an Average Hourly Earnings increase of 0.4% and a creation of 312,000 jobs and Gold is trading higher this morning than it was prior to the number? Well you should not be too surprised because we told you right here on Friday that a strong number would hit Gold but there is an opening between the report at 8:30 am EDT and Fed Chair Powell’s panel at 10:15 am EDT that would present a strong buying opportunity. Gold is holding ground tremendously well, however, ISM Non-Manufacturing is out. During a week in which many economic reports could be postponed due to the government shutdown and on the heels of the ISM Manufacturing whiff, this read is absolutely crucial. Although we are Bullish in Bias Gold for the foreseeable future and find dips a buying opportunity, a strong read here given the proximity to the psychological $1300 mark would likely weigh on the tape into Wednesday.
Technicals: Gold did not give the perfect price for buyers to step in on Friday as it only went to a low of 1278.1, however, we had first key support at ...
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