The Inflation Hurdle | Morning Express

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

S&P, yesterday’s close: Settled at 4218.50, down 7.25

NQ, yesterday’s close: Settled at 13,814, up 2.75

Fundamentals: Today’s CPI data is due at 7:30 am CT and has haunted markets all week. With this in site, the S&P, NQ, and Dow have each struggled to carry bullish tailwinds from last Friday’s Goldilocks jobs report. For months, we have discussed the rise in real prices like lumber, the grocery bill, gas, and more. However, it is the Core data from both CPI and PCE that matters most, and this excludes food and energy. Furthermore, a 10% rise in the price of used cars alone brought YoY Core CPI for April from a meager +2.3% to +3.0% (Source: Bloomberg). As for the MoM read, used car sales helped lift it by +0.9%, the largest spike since May 1982. What does this tell us? Such a pace of change is unsustainable. Expectations for today’s read are +3.4% YoY and +0.4% MoM. It is our belief that portfolio managers and traders must prepare for a hot read because of the implications of such. However, if Core CPI is only slightly strong, it may impact markets in the same manner as a miss, as it simply does not give credence to tightening the Federal Reserve’s timeline to taper their bond purchases. Why? Well, this brings us to our discussion on Tuesday; higher base comparisons through July and August last year coupled with an unsustainable pace of change could be the recipe for deflation.

Let us also not forget today’s ECB policy meeting and weekly Jobless Claims data. The ECB left policy unchanged and renewed their pledge for faster bond buying. ECB President Lagarde holds a press conference set to begin at 7:30 am CT, just as CPI data and Jobless Claims are released.

Technicals: Although we remain overall Bullish in Bias, as we have been, we do invite some caution through today’s fundamental data and given the S&P’s inability to even trade into rare major four-star resistance, nonetheless attempt to clear it. However, if inflation does not run hot, we theoretically have a similar green light as the one last Friday’s jobs report brought. The S&P has so far responded to major three-star support at 4206-4209.25 and continued price action out above here is very healthy on the week as we build for a bullish breakout of a cup and handle pattern. As for the NQ, although it has been tethered to previous major three-star resistance at 13,790-13,818, even closing above, it has not been able to shake loose as it builds a bullish cup and handle. This too is the byproduct of the looming inflation data. However, simply holding ground in this manner is constructive; we have continuously held at or above last week’s close, which is essentially the high of the week. In the instance of a pullback, there is strong support underneath the market 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.

Crude Oil (July)

Yesterday’s close: Settled at 69.96, down 0.09

Fundamentals: Crude Oil has rebounded from yesterday’s post-settlement weakness to regain the psychological $70 mark. As we noted in our Midday Market Minute, the massive build in Gasoline stocks was a blow to the ongoing demand optimism at this seasonally bullish time of year. Although Crude Oil inventories fell by 5.24 mb and Refinery Utilization surged by a WoW increase of 2.6%, the largest jump since late March, the products refined were created a 11.5 mb build between Gasoline and Distillates combined. With a critical CPI read due at 7:30 am CT, just as the ECB discusses policy, OPEC will release their monthly report. Traders must stay nimble and understand that Iran talks will restart over the weekend and plan for added risk if holding positions after Friday’s close.

Technicals: Price action bled into first key support at 69.35-69.55 but has responded nicely. Such weakness sloped our momentum indicator lower to 69.85 (from 70.00 early yesterday) and this wave higher has now ... 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 (August) / Silver (July)

Gold, yesterday’s close: Settled at 1895.5, down 1.1

Silver, yesterday’s close: Settled at 28.002, up 0.271

Fundamentals: Rally attempts early yesterday were met with steady selling and although Silver notched a firm session, Gold’s inability to hold higher prices certainly has set the stage for today’s weakness. The precious metals space is moving sharply lower ahead of today’s CPI data and it is this Core read that today’s session will rely on. Hot inflation will slam the metals, however, it is our belief that tradesr unwound bullish positions in the fear of such and even a slight beat will open the door to repositioning. Yesterday, we discussed the potential of deflation and how inflation and deflation at different times through the economic cycle will have different impacts.

Technicals: It is our belief that Gold is in a bullish breakout while out above major three-star support at 1843-1850 and we believe dips are a buying opportunity until we see a close below here. Despite Silver’s strength yesterday it still failed at first key resistance at 28.01-28.10. Today our momentum indicator for Gold is slopping lower and brings 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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Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.

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