Equity and crude oil rallies may be nearing exhaustion as Chinese trade figures do not bode well for ending trade impasse reports Bill Baruch.
E-mini S&P (March)
Last week’s close: Settled at 2595, up 63.75 on the week.
Fundamentals: Equity markets are under a bit of pressure Monday morning. Price action finished last week right below the near-term exhaustion point in this recovery. Sunday night, the latest trade figures from China whiffed with imports down 7.6% year-over-year versus expectations of 5.0% growth and exports down 4.4% year-over-year vs. an expected 3.0% jump. China’s trade surplus widened to $323 billion, which won’t help trade negotiations.
This morning, Eurozone Industrial Production contracted to -1.7% for the month missing expectations, and was down 3.3% year-over-year. Economic indicators from around the world continue to echo slower growth and trade war headwinds.
The government shutdown may leave many U.S. economic indicators out to dry. Retail Sales, Building Permits and Housing Starts are just a couple of the casualties this week. GDP for Q4, out later this month, is likely to be negatively affected, even if the government reopens today. This will heighten the importance of an already crucial earnings season.
This morning, Citigroup (C) kicked things off and missed revenues but beat on adjusted earnings per share; the stock is down 0.6% premarket. Today’s calendar is bare otherwise and the tape will be very technical, and headline driven.
Technicals: On Friday, 2600 remained elusive and price action traded to a lower high of 2597.75. Despite settling at 2595, the tape gaped lower on last night’s open. This type of price action is certainly a sign of exhaustion. However, when these dips hold it helps refresh the tape.
Crude Oil (February)
Last week’s close: Settled at $51.59, up $3.63 on the week.
Fundamentals: On Friday, we introduced a slight bearish bias in crude oil. This aligns with the narrative we have held in the S&P (SPX) at 2600+. The recovery is reaching its near-term exhaustion point.
Jawboning from Saudi Arabia and thus OPEC last week boosted crude oil to the highest level in a month, but the internal fundamentals remain poor. Week after week we see inventories added and economic indicators from around the world continue to point to a slowdown. Trade data from China last night certainly added pressure to the tape. Given crude oil’s strong gains last week, it would be nice to see the Commitments of Traders report, but the government shutdown has temporarily delayed its publication.
Gold (February)
Last week’s close: Settled at $1,289.5, up $3.70 on the week.
Fundamentals: Gold is holding well at the $1,290 area as it stares down the psychological $1,300 barrier. There is a lack of economic data to boost or dissipate recent gains for the metal but misses around the globe, specifically China and the Eurozone, continue support a slower growth environment, which is favorable for the metal. Earnings season is underway, and this will also be a way to keep a pulse on growth. Today’s calendar is bare but tomorrow, despite the government shutdown, we get the Producer Prices Index (PPI) and NY Empire State Manufacturing along with Fed speak. We remain bullish gold, but the near-term upside may be limited.
