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Q2 Starts with Fireworks. What Feeds It? | Morning Express

E-mini S&P (June) / NQ (June)


S&P, last week’s close: Settled at 4010, up 42.50 on Thursday and 45.25 on the week


NQ, last week’s close: Settled at 13,316, up 226.25 on Thursday and 349.25 on the week


Fundamentals: U.S. benchmarks finished Q1 and started Q2 with fireworks before Friday’s Nonfarm Payroll report brought added tailwinds. We now view the next two to three sessions as critical in solidifying investors’ appetite for the next three-week narrative and defining a very bullish technical breakout. Friday’s report showed 916,000 jobs being added in March: for all intents and purposes, a blowout number. As expected, leisure and hospitality led the gains with 280,000 new hires, across the board education added 190,000, and construction posted 110,000. This is what a reopening looks like, but it’s the report in entirety that may be most bullish. Average Hourly Earnings fell shy of expectations at -0.1% MoM versus +0.1% and 4.2% YoY versus 4.5%. Lower paying jobs are coming back to the workforce and its watering down wage growth, this is the Goldilocks scenario the Federal Reserve has expected. Remember, they have steadfastly called for an uptick in inflation this summer to only be transitory. By their metrics, we have not even begun to see that uptick, for February, Core PCE was 1.4% YoY and Core CPI 1.3%. It won’t so much be the March ‘Year over Year’ reads in April, as those remained steady in 2020, but beginning with the April reads in May expectations are for unusually high comparisons. At the end of the day, the Fed is focused on full employment and 21.6 million jobs were lost at the onset of the pandemic one year ago. We have since recouped 13.6 million, but this leaves 8 million to go. Even with heightened expectations over the next four months given reopenings and seasonal jobs being added that number is only cut in half, still leaving 4 million. Those last 4 million may be most important, because that is the Fed’s emphasis, those jobs that are never coming back, and the part of the country hardest hit by the pandemic. This, coupled with only transitory inflation, is why they will be extremely patient in removing accommodations.

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Of course, markets like to price in expectations far ahead of time. We believe the Goldilocks report from Friday is enough to create the next bull leg higher in equities if the next two to three sessions hold such technical construction. Another thing to account for is the velocity in which rates rose has now likely been digested. Strength across risk-assets over the next three weeks will bring buoyancy to rates but within a much more contained environment, at least, that is our expectation through the bulk of April. However, we may find ourselves at another inflection point come May.

Services sector data is in focus this morning with final March Services PMI due at 8:45 am CT, followed by the more closely watched ISM Non-Manufacturing at 9:00 am CT. Factory Orders are also due then. Much of the globe is still on holiday, Easter Monday, and the economic calendar is a bit quieter this week, but we look to the Minutes from the latest Fed meeting on Wednesday. President Biden’s $2.25 trillion infrastructure spending plan will remain in focus. Last week, rates retreated on the notion tax hikes will account for much of the cost. As the week unfolds, traders must keep a close eye on rates and the GOP reception of the price tag of this plan.

Lastly, fears of a third or fourth wave are very relevant. Through the holiday, the closely watched 7-day moving average of U.S. cases tapered off from its March 30th peak. Will this continue? However, India hit 100,000 new daily cases for the first time, France extended their lockdown, and there are fears other parts of the world may have to do the same.


Technicals: We took an outright Bullish Bias through the end of last week and will maintain this given several well-defined circumstances. First, the S&P and NQ must hold out above their breakout points. The good news, this gives each a wide berth down to major three-star supports. For the S&P, this is 3998.50-4000, defining a break above a rising trend line from the 3948.50 and 3978.50 highs. For the more volatile NQ, this could be arguably as low as 12,878, but we will focus on the round 13,000 area for now. Second, in a more ideal scenario, each will hold out above their closing levels from Thursday. For the S&P, this is major three-star support at 4010 and for the NQ this is major three-star support at 13,313 that aligns with previous resistance at 13,287. It is our belief that a constructive session through Wednesday’s close following the Fed Minutes will lay the groundwork for a move to ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Crude Oil (May)


Last week’s close: Settled at 61.45, up 2.29 on Thursday and 0.48 on the week


Fundamentals: Crude Oil slipped overnight, breaking from a more risk-on environment seen in equity markets on mounting fears of a new Covid-19 strain. New daily cases in India hit 100,000 for the first time, India accounts for about 5% of the world’s Oil consumption, the third largest single country. Whereas France entered a four-week lockdown, other countries across Europe, including the U.K., may increase restrictions. Japan, which accounts for the fourth largest Oil consumption, is also considering lockdowns to battle a new wave of cases. Last week, OPEC+ said it will gradually bring back supply. Although we see their maneuver as well-planed and thus quickly digested, such headwinds will be exacerbated due to lockdown fears. The other focal point in question this week would be nuclear talks between the U.S. and Iran. The new White House has shown interest, but Iran says it will not until sanctions are loosened. A nuclear agreement would bring added supply to the market, however, Iran is already selling Oil to China. The wild card amid this all are potential geopolitical flare-ups; Russia-Ukraine, Iran-Israel, China-Taiwan, and overall Russia-Iran-China testing the new White House.


Technicals: Price action has crossed the $60 mark for each of the last twelve sessions, but one. Lows have been playing off support seen through the 50-day moving average and this is one reason we remain intermediate to long-term technically positive on this market. This will serve as first key support today at 59.69. A continued close above here is crucial to remain constructive, but it is second key support that may be most critical at 58.85-59.16 where lows of last week and the close on Wednesday align; a break below here will prove negative. Our momentum indicator comes in at 60.65 and while below here the bears have an edge on the session. The bulls must achieve a close above major three-star resistance at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Gold (June) / Silver (May)


Gold, last week’s close: Settled at 1728.4, up 12.8 on Thursday, and down 6.3 on the week


Silver, last week’s close: Settled at 24.948, up 0.416 on Thursday, and down 0.166 on the week


Fundamentals: Gold and Silver have retreated a bit from Thursday’s strong rebound session after March Nonfarm Payrolls showed job growth near 1 million. However, a slip in Wage Growth has suppressed any U.S Dollar rally attempts while keeping a bid under metals. Still, rates edged higher overnight and remain a headwind to the previous metals sector. With some headlines pointing to Iran-Israel tensions once again, it is an ever-present reminder that geopolitical flare-ups are likely not factored in. Russia-Ukraine and China-Taiwan are both also very relevant. These could easily offset a rise in rates due to reopenings and an uptick in economic activity. The rate-Dollar story will also be in focus for Services sector data this morning with final March Services PMI due at 8:45 am CT, followed by the more closely watched ISM Non-Manufacturing at 9:00 am CT. Factory Orders are also due then. Much of the globe is still on holiday, Easter Monday, and the economic calendar is a bit quieter this week, but we look to the Minutes from the latest Fed meeting on Wednesday.


Technicals: Gold and Silver have both been constructive from late last week, but neither has extended gains past the prior week’s close. Those closes from March 26th, bring key resistance and a line in the sand to invite added buying. A failure to move through here early in the week, would begin to deteriorate last week’s late rebound. For now, our momentum indicators provide a point of balance at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.


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