Bill Baruch's Midday Market Minute short video here.
The markets take a breather as U.S. and China continue talks on trade. Thursday is a consolidation day.
E-mini S&P (September)
Wednesday’s close: Settled at 2861.25, down 0.50.
Fundamentals: U.S benchmarks are holding ground near record levels this morning. The FOMC’s Minutes from their August 1 policy meeting confirmed the impending hike in September.
Our two biggest takeaways were that they slightly lowered their inflation outlook and emphasized that rates are getting near neutral. This is not the rhetoric of a hawkish committee with their foot gas. These comments coupled with their concern that the international trade dispute could weigh on growth signals a committee who is using cruise control.
This narrative is important to understand as it pertains to equity markets; the market is showing a 66.1% chance the Fed hikes for the second time in December, there is a 29.5% chance they hike for a third time in March.
Yes, the market can and will price these probabilities higher as the dates near, but the impact of this pace has essentially been felt and real rates have not risen. With the Federal Reserve in cruise control, the path of least resistance remains higher for equity markets.
We now await Fed Chair Powell’s keynote speech on monetary policy at Jackson Hole tomorrow at 9:00 am CT.
What could derail this equity market? U.S and China trade of course. Yes, we have called the trade dispute a tailwind, a believe-it-or-not bullish factor for U.S equity markets. You could argue that slower growth in emerging markets due to the trade dispute has made U.S stocks more attractive. We do not disagree with that.
However, our main reasoning is that the dispute has kept the Federal Reserve in cruise control, not allowing them to speed up their pace of tightening.
Today marks the second day of trade talks between lower level delegates from the U.S and China. It also marks the official implementation of the second wave of tariffs for $16 billion of goods.
At the end of these meetings, we expect a joint statement on progress and this will be key.
What’s most important though is the third wave of tariffs, where the U.S would impose $200 billion on Chinese goods. The purpose of these talks is to delay the third wave expected next month. It would be the official start of a trade war; this third wave concerns us greatly.
Technicals: Price action has traded around resistance at 2860.25-2864.50 since the cash open Wednesday. The tape has not been able to handily take it out as it did Tuesday before the political news. Until we see a close above here, price action remains susceptible to waves of selling for a retest intraday to major three-star support at ...
Today’s economic calendar
U.S. House Price Index 2Q 2018.
Crude Oil (October)
Wednesday’s close: Settled at 67.86, up 2.02.
Fundamentals: Crude Oil gained 3% Wednesday after the official EIA data confirmed a bullish report that showed a draw of -5.836 mb of Crude. Once again, Imports played a major factor in the overall data. A sharp rise in recent weeks kept inventory levels high.
Last week, imports dropped 1.496 mbpd and Refinery Utilization remained at 98.1%. To put this into perspective, this is the highest utilization rate since July 2005 when it was 98.1 and it hasn’t been higher since 1999. Rising demand and contracting spare capacity have laid the ground work for the bullish move in Crude Oil that we pounded the table on last week; the dip during this seasonally weak time of year is a buying opportunity.
Now there are moving parts in the landscape and we must see some progress in this round of talks between the U.S and China; ultimately a delay of the third round of tariffs, a joint statement should be released today or tomorrow.
Technicals: Crude Oil has reached our target this week of 67.72-68.10. This level brings tremendous headwind and a close above here should bring further buying to the table. Ultimately, there are resistance headwinds but as we have pointed to, we see a firm move above $70 in the future; a continued close above 68.10 would open the door to ...
Gold (December)
Wednesday’s close: Settled at 1203.3, up 3.3.
Fundamentals: Gold has softened after testing our major three-star resistance head on Wednesday. Furthermore, the metal is allowed some consolidation given the $40 rally from last week’s low. The Dollar Index (DXY) also sold off 2% from last week’s high and is consolidating into this morning. Flash PMI data from the Eurozone this morning was a bit softer than we would like to see in order to signal the euro continue its rip higher this week. At best, today becomes a consolidation after Wednesday’s FOMC Minutes and ahead of tomorrow’s keynote speech at Jackson Hole from Fed Chair Powell.
Weekly Jobless Claims are out. Preliminary August PMIs are out and will be followed by New Home Sales.
Technicals: Price action hit major three-star resistance at 1210.7-1212.5 head on Wednesday before retreating and arguably held to the 1204 mark upon settlement; this is very constructive considering one week ago Gold was at 1167.1. The tape began to soften overnight, and this is normal as long as it remains constructive and constructive it has been; price action held major three-star support at ...
