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

February 2, 2018 08:32 AM

E-mini S&P (March)

Yesterday’s close: Settled a 2822.50

Fundamentals: Equity markets are again under pressure this morning and investors await the release of January’s Nonfarm Payroll Report at 7:30 am Central. The S&P 500 hit our main target at 2798 with an overnight low of 2797. Stocks in Europe are also sliding sharply, the DAX is down more than 1% again today and has lost more than 5% since its peak Jan. 23. The Nikkei is down nearly 1%. Amazon is in a planet of its own, trading up about 5% after earnings last night. Apple was up more than 2% but has now gone red in the pre-market. Google is down nearly 4% this morning. The key catalyst in all of this is the rise in Treasury yields, a story we have been discussing for some time now. If you are simply watching the dollar, you might be missing the story of global growth.

The dollar is unwinding its rally that began in 2014 when the Fed was the only central bank tightening. But just because the dollar is weakening doesn’t mean the growth story isn’t there. Just yesterday, the Atlanta Fed said it projects the first-quarter GDP at a whopping 5.4%. Inflation has shown signs of rising and the Fed expects it to reach their 2% target and stabilize there later this year. All of this allowed the Fed to pave the way for four rate hikes this year at their meeting Wednesday. Treasury markets are seeing strong selling, which pushes yields higher as this global tightening gets priced in. Higher yields begin to attract investment out of the equity market and furthermore, costs more money to service.

Today’s Nonfarm Payroll will be critical in this story, strong growth in jobs and wages will likely add further pressure to equities in the near term. Expectations come in at 184,000 jobs created and Average Hourly Earnings growth of .3% on the heels of .3% last month while the Unemployment Rate is expected to be stable at 4.1%. As we discussed in the Tradable Events this Week on Sunday, the U6 Unemployment Rate has risen for the last two months to 8.1% and this is a data point to watch.

Technicals: Though are Bias has been Neutral all week, we have been adamant about a few things. The sellers are in control until a move out above first resistance while the immediate downside is exposed with a continued close below... Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and proprietary bias and levels. 

Crude oil (March)

Session close: Settled at 65.80

Fundamentals: Crude extended gains from Wednesday’s early low by more than $2.50 to 66.30 overnight. Today is Friday, and Friday’s have been very friendly to the energy complex. Today is also Nonfarm Payroll, a report that should influence the dollar. Right now, the Dollar is slightly higher on the session and this likely has a small hand in crude retreating from session highs. Do not underestimate the influence that the weaker dollar has had in crude oil above $60 and in the month of January. If the Dollar recovers firmly from oversold territory, we expect this to become a key catalyst coupled with rising North American production in sparking a correction in Crude.

Technicals: Trading to 66.30, price action has extended near the top end of its recent range. If the tape stays contained today, this could build a lower high than Monday’s peak of 66.46 and the swing high on January 25th of 66.66. Remember, the only major three-star level we have had above $60 is 66.87 and this level has held well so far. 

Gold (April)

Yesterday’s close: Settled at 1347.9

Fundamentals: We continue to believe that the long-term picture for gold is positive. However, we also maintain near-term caution. Since achieving above $1,360 our bias in gold has been Neutral and we have exuded caution to longs that are pressing their largely profitable position from mid-December. Today’s Nonfarm Payroll report is crucial, and 184,000 jobs are expected to be created. Average Hourly Earnings is expected to grow .3% on the heels of .3% growth last month. Despite the rise in Treasury yields, historically a strong headwind for gold, the metal has held ground tremendously. What Gold will not be able to ignore is a strengthening Dollar and that is why this report will be key to the near-term trade.

Technicals: A swing high of 1354.3 was achieved yesterday, but the metal struggled to hold above first resistance at 1349.7-1351.4. Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and proprietary bias and levels.

Natural gas (March)

Session close: Settled at 2.856

Fundamentals: Yesterday’s storage report came in at -99 bcf, the lowest drawdown reported since December 14th. Prices have been under pressure since the expiration of the February contract, retreating from a level in which they probably should not have tested to. Now the question is, have prices retreated too much ahead of a weekend and while headlines still warn of chilling temperatures over the next two weeks. Because of this, we would not be surprised to see a consolidation higher ahead of the today’s close. 

Technicals: Price action traded sharply below major three-star support at 2.896-2.902 and traded to a low of 2.837. Our next key support level comes in at ... Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and proprietary bias and levels.

10-year Treasury  (March)

Yesterday’s close: Settled at 121’07

Fundamentals: The global growth story is real and along with the Fed being upbeat on inflation and paving the way for four rate hikes this year, the Atlanta Fed now projects first quarter GDP at 5.4%. The 10-year yield is pushing 2.8% and on the other side of the coin, this is now weighing on equity markets and if the selling in equities picks up any more than this, we believe the 10-year will see strong waves of buying. Today’s Nonfarm Payroll is key for the trade and we have a strong focus on Average Hourly Earnings growth and the U6 Unemployment Rate that has dropped for two consecutive months. 

Technicals: We continue to have a contrarian perspective in this market and it has not paid off in a very tough week. Price action has stayed suppressed below 121’17-121’18 which keeps the sellers in clear control. 

About the Author

Bill Baruch is President and founder of Blue Line Futures, a leading futures and commodities brokerage firm. Bill has more than a decade of trading experience and focuses on developing trading strategies for both long and short-term trading approaches. Prior to Blue Line, Bill was the Chief Market Strategist at iiTRADER.  Bill is a featured expert on CNBC, Bloomberg and the Wall Street Journal as well as other top tier publications.