E-mini S&P Futures (September)
Last week’s close: Settled at 2932.50, down 19.50
Fundamentals: Last week’s Fed cut has been overshadowed by escalating trade war tensions. With the expected cut fully priced-in the major news became President Trump’s tweet threatening to add 10% tariffs on $300 billion worth of Chinese goods by September 1st. China promised to retaliate, and this came to fruition last night. They allowed the Yuan to breach the psychological 7 mark and hit the weakest level against the Dollar since April 2008. They also asked state-owned companies to not purchase U.S agricultural products. The move is intended to poke Trump where it matters most; an attack on the currency front and one directed to hurt his U.S heartland base.
U.S benchmarks are less concerned with the Fed’s path of further cuts and more focused on the mounting uncertainties due to the trade war. Remember, the Fed has been adamant that their path of cuts is at least in part due to the trade war. As of this morning, a September cut is not only fully priced-in, but the odds of 50 basis points have risen to nearly 20%. Friday’s Nonfarm Payroll report was solid and Average Hourly Earnings increased more than expected at +0.3% MoM, June was also revised higher to +0.3% MoM. We do believe that this market does not want to see recessionary data as long as inflation is tame. ISM Non-Manufacturing is due at 9:00 am CT and this could help bring a turning point to sentiment. Fed Governor Brainard speaks at 12:30 pm CT.
Technicals: Despite a lower start to Friday, price action was arguably constructive intraday; this was because our major three-star support level at 2914.50-2916 held perfectly with a low of 2913.50. The NQ held strong support 7609.50-7637.75 and managed to settle back above 7693.75. The tables have turned to start the week and U.S benchmarks are under immense pressure and we would seemingly need some sort of panic selling before price action can turn a corner. We will continue to hold a Neutral Bias because we are not encouraging to go short down here. We see a pocket of major three-star support at 2871.50-2880.75; if this holds through the first couple hours, we could then begin to see construction. The 100-day moving average comes in at 2907.50 and strong resistance, previous support, comes in at 2914.50-2916; only a close above these levels will neutralize this damage in the near-term. As for the NQ, support comes in at 7510 but the bears are in the driver’s seat below 7561.25. Only a close back above 7693.75-7702.25 will neutralize this damage in the near-term.
Resistance: 2907.50**, 2914.50-2916***, 2932.50-2944.25***, 2955-2959.25**, 2969.25***
Support: 2871.50-2880.75***, 2845.75-2849.50***
Resistance: 7637.75-7642.25**, 7693.75-7702.25***, 7808.25-7815.25***
Support: 7510**, 7444.50-7446.25***