Daily markets morning round-up: E-mini S&P, gold & crude

E-mini S&P 500 (September)

Yesterday’s close: Settled at 2738.50, up 25.25

Fundamentals: U.S. tariffs on $34 billon of Chinese goods went into effect at midnight ET and the S&P 500 spiked higher 10 minutes later. The market was technically positioned to do such, and it has pared those gains since. As expected, China quickly retaliated with symmetrical tariffs of their own. President Trump reiterated late last night that another $16 billion will be imposed in two weeks and another $200 billion is in the works. However, it does not stop there, as long as China retaliates, there will be another $300 billion targeted. Markets are holding surprisingly we given President Trump’s fresh remarks on the latter. In total, $550 billion exceeds the $505.6 billion imported from China in 2017 but this is not a moot point; he is clearly saying that the United States will impose tariffs on every single item coming from China.

We believe these comments are something that will gain traction as the day unfolds and any further comments from the White House supporting such are likely to get investors very jittery. With the S&P trading more than 1% from its recent swing low and the NQ only 3% from a recent record high, the market has clearly anted into the same game of chicken that the United States and China are playing. 

Today is Nonfarm Payroll Friday and as we all know; the major focus is now on wage growth. Average Hourly Earnings are expected to increase by 0.3% MoM, annualized at 2.8%. Also, job growth is expected at 200,000. In June, the Federal Reserve hiked for the second time this year and projected two more hikes. Equity markets have not shown the same fear for such that they did earlier this year and that is partly because Treasury yields have slowly backed away from their highs. The 10-year is trading at 2.833% this morning, well off its high of 3.128% almost two months ago. A lack of wage growth has played a big hand in this, as well as trade fears and ultimately what we have been saying for months; the Fed will never be as hawkish as they were in December 2016 and that peak of sentiment will keep yields from going higher for longer.

Essentially, the Fed could be less than two years away from ending their hiking cycle and the market knows that. With such an emphasis on trade and a clear picture painted by the Federal Reserve through Chair Powell in June and yesterday’s Minutes (no expectations that inflation will run away, and that trade brings uncertainty), this might be the least important jobs report of the year. Do not get us wrong though, a much stronger than expected read on wage growth will reinvigorate the engine in yields which would potentially place in question the longer-term bullish thesis behind this market. 

Technicals: Price action closed right at first key resistance yesterday and this pivot level today will be a marker in the case of an inside session given that the overnight high tested and failed once again at our major three-star resistance. Of course, a close above major three-star resistance at... Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and proprietary bias and levels.

Crude oil (August)

Yesterday’s close: Settled at 72.94, down 1.20

Fundamentals: Given how bearish yesterday’s headline EIA inventory report was, Crude is holding rather well. Expectations were for -5.2 mb crude and API the evening before showed -4.5 mb. The official number was a surprise build of 1.245 mb. The fact that crude has held so well shows the strength of technical support at 72.35-72.90, the uncertainty of the geopolitical landscape with Iran and the fear of reduced spare capacity. Keeping prices elevated was also a draw of 2.113 mb at Cushing, Okla., and a drop in estimated production of 45,000 bpd from Alaska and unchanged in the lower 48 states. Now though, there is another uncertain factor, the effect of tariffs given that in the second round, which could come in two weeks, China is expected to add Crude to the list. Being bullish has treated us well, and while we remain long-term bullish, we are now going to begin "Neutralize or Bias" to exude caution.

Technicals: Price action is trading into major three-star support and though it has breached such, it has held well. 

Gold (August)

Yesterday’s close: Settled at 1258.8, up 5.3

Fundamentals: Gold has recovered well from its low on Tuesday’s session, but the dollar is strengthening against the yuan again today and this is holding the metal back. While we maintain that the dollar/yuan is the most important factor in gold right now, today’s Nonfarm Payroll report could be critical. Average Hourly Earnings are the most closely watched component and are expected to come in at +0.3% and annualized at 2.8%. Job growth is expected at 200,000. An overall deviation from this will drive the dollar and thus gold. Still, it is important to remember that as trade tensions heat up, gold has not been a beneficiary as China is devaluating their yuan, arguably exporting deflation and thus hurting Gold. 

Technicals: Yesterday settled above the pivot and it will be important for Gold to continue to do so after checking off the long-term trend line from December 2015. However, first key resistance at... Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and proprietary bias and levels.