The following analysis originally appeared on Blue Line Futures
E-mini S&P (March)
Yesterday’s close: Settled at 2739.25, up 16
Fundamentals: Nonfarm Payroll is due at 7:30 am CT and will provide the most important read on wages ever. Yes, ever, but each successive read this year will be in the same ballpark or more important. Expectations officially come in at +0.2 percent MoM and for the annualized rate to hold steady at 2.9 percent. While a read of 0.3 percent is likely to knee-jerk the market lower at minimum, the question then would be how does the rest of the report sit? Job growth is expected to come in at 200,000.
Many believe weather factors could weigh on Average Hourly Earnings while job growth comes in much stronger. The private ADP survey on Wednesday showed 235,000 jobs gained. This scenario would be bullish for the market. Key to the effect that wage growth will have on the market is where the 10-year Treasury yield is trading, despite a quick drop midweek, it is holding just below 2.90 percent. Very strong wage growth, Average Hourly Earnings at 0.4 percent or annualized at 3.1 percent or higher is likely to spike yields towards the recent swing high of 2.957 percent.
A speedy move towards 3.0 percent is the biggest foe of the equity market. Yesterday, President Trump formalized the steel and aluminum tariffs and just as we have been calling for all week, the fear was exacerbated. The S&P has found itself in a relief rally now that Canada and Mexico are officially exempt indefinitely and others such as Australia can apply. Furthermore, an American importer has the ability to ask for a waiver under certain circumstances.
Technicals: Price action traded to a high of 2744.50 early last night but has struggled to accelerate out above major three-star resistance at 2735.25-2738 after settling at 2739.25.
Crude Oil (April)
Yesterday’s close: Settled at 60.12, down 1.03
Fundamentals: Crude Oil is higher this morning after holding the psychological $60 level and losing as much as 5 percent from its high on the week due to a stronger Dollar, inventory builds, added U.S production and news yesterday that government will sell 7 mb of its oil reserves. Now, with the tariff news in the rear-view mirror there is a global risk-on trade. This news brought relief because the tariffs were not as harsh as initially anticipated, something that we have been saying all week. Adding further support was a very strong CPI read out of China last night; 2.9 percent YoY versus 2.5 percent expected.
Combining all of this and coupling it with today being Friday, it is no surprise that Crude is fighting off yesterday’s weakness. It will be key to watch the Dollar’s reaction to Nonfarm Payroll. While a stronger Dollar usually weighs on Crude, strength today due to a strong report that does not spark risk-off fear in the equity market is likely to not weigh on Crude today, a Friday, but could set a tone for next week. Baker Hughes rig count data is due at noon CT.
Technicals: Price action traded as low as 59.95 and the strong waves of selling did not show up on a close below 60.45-60.90.
Gold (April)
Yesterday’s close: Settled at 1321.7, down 5.9
Fundamentals: Today is all about the jobs report but Gold is seeing pressure from yesterday’s risk-on trade carry over. President Trump formalized the tariffs on steel and aluminum and included exemptions for Mexico and Canada indefinitely while leaving the door open to others on a case by case basis. Equity markets, as well as the Dollar and Treasury, yields strengthened. The Bank of Japan did not bring any surprises while strong inflation data from China coupled with that stronger Dollar and risk-on trade actually pushed Gold to a session low of 1317.3. As we said above, today will be all about Nonfarm Payroll with a strong emphasis on wages; job growth is expected at 200k while Average Hourly Earnings is expected at +0.2 percent and annualized at 2.9 percent.
Technicals: First key support was breached overnight as the bears now have the immediate term-upper hand. Price action traded lower at 8:30 am CT as the Dollar strengthened, this was the first lower low in five sessions.
Natural Gas (April)
Session close: Settled at 2.756, down .021
Fundamentals: Yesterday’s storage report showed a draw of slightly less than expected at -57 bcf versus -58 bcf. As we discussed yesterday, the market is beginning to price in the cold and/or snowy weather through much of the country; draw expectations over the next two and three weeks have increased, and this has elevated Natural Gas. Still, the market remains very contained.
10-year (March)
Session close: Settled at 120’055, own 0’045
Fundamentals: Wages, wages, wages. Today is about just that as Nonfarm Payroll is due at 7:30 am CT. the 10-year has consolidated into an extremely tight range leading up to today’s report. Expectations for Average Hourly Earnings officially come in at 0.2 percent and annualized to hold stead at 2.9 percent. Analysts believe due to weather factors wages could hold more steady. However, our initial expectation was for 0.3 percent. With a read of 0.3 percent we would expect pressure on more of a technical basis due to the wedge consolidation. However, this would put more of an emphasis on job growth which is expected to come in at 200k. An Average Hourly Earnings read of +0.4 percent MoM would lay the groundwork for a path for a 3.0 percent 10-year. Yields are steady just below 2.90 percent and have recovered from the weekly low as President Trump formalized a less harsh tariff plan.
Technicals: Price action has consolidated right at our pivot level of 120’01. The 10-year has made a tight wedge pattern leading up to today’s data.
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