Technical/ Macro update: SP500 at critical support

The SP500 fell about 6% from its all-time highs, but it remains up 13% YTD. So far, most market were relatively resilient (except for Chinese stocks) as investors still assumed trade talks will continue and a deal will ultimately be reached. This is about to change unless we not see signs of improvement very quickly. Trade talks have been ramping up since Huawei was added to the Entity list, and important deadlines are approaching fast. New tariffs on the remaining 300B imports could be legally be announced as soon June 24th, few days ahead of the G20 on June 28th.

Keep an eye on USDCNY. The Yuan reacted sharply to trade headlines and is a good indicator for how trade negotiations are evolving. The USDCNY held below key resistance and psychological level at 7.00, but a breach above should add significant volatility across risk assets (global equities, EM currencies, oil…)

Economic indicators: US employment and consumer confidence remain solid, but leading indicators such as manufacturing, and ISM orders are stalling. The ISMs for the month of May will be released next week and will be important to watch. Macro indicators also failed to meaningfully rebound in Europe and China.

Growth concerns still in play: US Q1 earnings were better than anticipated, but not great. Earnings barely grew compared to double digit growth the same quarter last year. Margins were flat, and analysts downgrades still exceeded upgrades. China & EM earnings were also weak relative to expectations, despite stimulus efforts. The strong performance YTD is mainly attributable to multiple expansion supported by dovish central banks and hopes of a rebound in Q2/Q3. Those hopes could be dashed should trade tension extend and escalate further. Additionally, past Fed rate hike cycles are known to have a lagging and lasting impact on growth.

SP500 Key levels: technically the US index sits at critical support. A daily close below 2780 would most likely trigger further downside. Next levels in line are at 2720 (38.2% retracement), then 2640 (50% retracement). Resistance are visible at 2835 (week pivot), then 2870 (50D MA).

Reversal on US crude oil?: $60 turned out to be a critical level, where a move below led to a sharp move down on strong volume. The $60/61 area should now act as major resistance, and any bounce back near these levels would be an opportunity to short, with $55 and $51.60 as potential targets.

Gold continue to trade sideways despite yields hitting 3 month lows, which should lower the, shud opportunity cost of gold. A breach above 1300 would be needed to consider the uptrend has resumed.