E-mini S&P Futures (September)
Yesterday’s close: Settled at 2933.50, up 7.25
Fundamentals: The Federal Reserve did not cut rates yesterday but removed ‘patient’ from their statement and said the case for a cut is building. They cited slowing global growth, inflation persistently below their 2% target and headwinds due to the U.S and China trade war as reasons to accommodate the economic expansion. With the odds for a 25-basis point cut in July now fully priced-in, the probability for a 50-basis point cut has ballooned to 34.3%. Furthermore, the U.S 10-year Treasury Note edged 2% for the first time since ripping back above that level after the 2016 Presidential election. U.S benchmarks are roaring higher on looser policy and the S&P traded to a new front-month record high this morning.
Poor economic data has paved the way for the Fed to take this policy stance. Earlier in the week, fresh June NY Empire State Manufacturing slipped at the worst pace in about three years. Although yesterday the Fed did not hit on data dependence as they have in the past, you can bet your bottom dollar they certainly are. The economic data going forward will shape the expectations for a cut in July day by day. The technical landscape, as we have discussed over the last week is extremely strong due to the bull-flag breakout. However, as markets race to price in the accommodative Fed, we must see one of two things on the fundamental side to continue fueling this rally. The first is Goldilocks data. We cannot see dismal reads that echo a recession. At the same time, it cannot be too robust pricing-out a rate cut. The other component is U.S and China trade. While the backdrop of today’s rally as well as that for the entire year is Fed induced, an upbeat narrative on U.S and China trade is bringing a helping hand this morning. Earlier in the week, President Trump talked about his productive call with President Xi and how they have officially scheduled their meeting at the G-20. Today, China’s Commerce Ministry confirmed that high-level officials will restart talks.
As for that data, fresh June Philly Fed Manufacturing is due at 7:30 am CT and we get Flash PMIs tomorrow to close out the week.
Technicals: The bull-flag breakout continues, and the S&P has achieved a new record high trading to 2961.75 this morning. Quickly and quietly, immediately after the release of the policy statement both the S&P and NQ pinged our major three-star support and provided those with sitting bids a tremendous buying opportunity. For each, major three-star support comes in today aligning previous resistance levels with yesterday’s settlement prices; today’s gap higher creates strong support here. What you do not want to see in the near-term is price action trade through here which would create a potential failure. To the upside, the S&P has major three-star resistance at the front-month high and key resistance at the September high; a close above each of these levels will fuel the next leg to 3000. We are eyeing an overhead trend line connecting previous tops at roughly 3035 this week as the next upside target upon such a breakout. The NQ is still about 1% below its record high but it is trading into strong resistance at 7803.50-7834.25. It does not need to close out above here today, but again what you do not want to see is a complete rejection that goes negative on the session. We have been and still are Bullish in Bias but remain cautiously such as we anticipate higher volatility moving forward.
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Resistance: 2961.25***, 2967.75**, 3000**, 3023.25-3035***, 3057.75**
Support: 2949.50-2953.50**, 2932.50-2938***, 2911.50-2915.75***
Resistance: 7803.50-7834.25***, 7879.50***, 7910.75-7930****
Support: 7766*, 7702-7721.75***, 7616.50-7626.25***, 7544.25-7561.25***