E-mini S&P (March)
Last week’s close: Settled at 2756.75, -4% on the week.
Fundamentals: A solid headline read on Nonfarm Payroll Friday led by firm growth in wages sent 10-year treasury yields to the highest level since January 2014. We discussed throughout last week that this is the main headwind in the equity market bull-run. Price action nearly lost 1% on the open last night and consolidated to trade a high of 2756.50, a tick short of unchanged. Let’s be honest, this weakness feels foreign but, at the same time, its healthy, necessary and the market is still positive on the year.
Please read our Tradable Events this Week, posted every Sunday, to dive deeper into the catalysts for this selloff and how things could play our from here. Market Composite and Services PMIs are due out at 8:45 am CT and the key ISM Non-Manufacturing read is due at 9:00. This is a number we watch closely, and a good read should help this market. Yes, a good read could put upwards pressure on yields, but we believe much of this is already incurred from last week. ECB President Mario Draghi speaks at 10:00 am CT. Earnings this morning includes Bristol-Myers, Arconic, Booz Allen and others.
Technicals: The market lost about 1% on the open to a low of 2733 and then failed at unchanged. Price action has consolidated within this range and though buyers were few and far on Friday, we believe they will have a higher level of comfort this morning after the 8:30 am CT open.
Crude Oil (March)
Last week’s close: Settled at 65.45
Fundamentals: The U.S. dollar is holding green on the session and in yesterday’s Tradable Events this Week, we discussed how the dollar is a major catalyst for crude prices. A solid Nonfarm Payroll report is helping to support the greenback. However, the major headwind is not U.S. data but rather currencies pricing in tighter monetary policy from Europe. For that matter, the U.S. economic data has been good and though the Citi Economic Surprise Index is off the recent highs, it is still at a very elevated level. Strong data from Europe might be one of crude’s largest accomplices in keeping prices supported. Not only does it weaken the U.S. dollar but it also supports rising demand. On the other hand, Baker Hughes reported an increase of six rigs Friday and U.S production is flirting with the 10 mbpd mark.
Technicals: Price action is consolidating around the 64.98 level and a close below here would give a slight edge to the bears while a close above here will work to keep prices elevated.
Last week’s close: Settled at 1337.3
Fundamentals: Nonfarm Payroll topped headline job growth expectations, coming in at 200,000. Average Hourly Earnings grew at 0.3% and this was on top of a December read that was revised to 0.4%. The Unemployment rate remained steady at 4.1% but U6 Unemployment rose for the third straight month. Overall the U.S. dollar is attempting to work higher from oversold conditions.10-year yields jumped to the highest since January 2014 and gold could really care less.
The U.S dollar story has been extremely supportive of gold and commodities in general. We won’t go as far to say we see a new inverse correlation between gold and Treasury prices, however, there could be an argument that gold cares less because it becomes a hedge to higher risks due to higher yields. Market Composite and Services PMIs are due at 8:45 am CT while the main read today, ISM Non-Manufacturing is due at 9:00 am CT.
Technicals: Gold is testing into first key support, a level in which we said multiple times last week that we cannot make an argument to buy gold until this is tested.
Natural Gas (March)
Last week’s close: Settled at 2.846
Fundamentals: Current weather conditions are what you would typically expect for the first week of February. While risk remains to the upside, a recent overshoot in the February contract had more than compensated for this. Right here, right now, storage draw expectations are average and much lower than what we saw in January. The market has found a middle ground, but if we go much lower, the risk will then be to the upside.
Technicals: Price action is testing into first key support and this is a critical level to watch; a close below here will open the door to further weakness.
Last week’s close: Settled at 120’235
Fundamentals: With a stronger than expected read on Nonfarm Payroll coupled with an already weak tape, the 10-year finished off the week with its worst since the election. Yields are now at the highest level since January 2014 and prices the lowest since April 2011. ISM Non-Manufacturing is on our radar today but unless we see a very robust read, we believe the damage is down. We are eyeing a 3-year auction tomorrow, 10-year Wednesday and 30-year Thursday to help bottom out prices. We are also watching the Bank of England this week, if they stay pat this will also be supportive.
Technicals: Price action dipped to a new low of 120’18 overnight before reversing and retesting the 121 mark