Equity and commodity markets both lost ground yesterday after US Jobs and Services data both came in below expectations. The US ADP Employment Report showed a 158k increase in March versus the 200k expected and poses some risk to tomorrow’s 195k forecast for Non Farm Payrolls. Meanwhile the ISM Non Manufacturing Index is still showing expansion but fell by more than expected in March to 54.4 from 56.0 in February. Equity markets declined, with the Euro Stock 50 loosing 1% and the S&P down 1.1%. The big news overnight was Japanese shares reversing earlier losses after the Bank of Japan expanded its stimulus program in its first policy decision under new Governor Kuroda. Japan’s Topix Index reversed declines of as much as 2% to close 2.7% higher after the Central Bank said it would double its monthly bond purchases in a bid to reach 2% inflation in two years. The USD/JPY rate has moved from 93 to over 95 on this news. The BOJ said it would buy 7 trillion Yen ($74 billion) of bonds a month.
Today is dominated by Central Bank meetings, with the Bank of England rate announcement at 12.00 pm followed by the ECB at 12.45 pm. At 1.30 pm we will have the Dragi’s press conference, with Cyprus and her fallout expected to dominate the questions. There has been plenty of speculation that the ECB will cut interest rates but I see this as unlikely and Dragi may use his time to highlight why Cyprus is a special case.
This morning on the economic front we have German, UK and Euro-Zone PMI services whilst later at 12.00 pm the BOE will announce its Asset Purchase target. Later at 1.30 pm we have the Weekly Jobless Nos in the US which will be closely monitored after yesterday’s disappointing ADP report. This will be followed by Yellan, Evans and George from the Fed speaking on Monetary Policy.
June S&P 500
Well we finally got a sell extreme in the S&P and the Dow and the question is will we get follow through today or will the market bounce as it has done every time this year so far as we have not had two consecutive large down days in a row. The NYSE breadth closed the day at a negative 26/1 with 1821 more shares down than up. Today was the strongest negative breadth since before the November 16th low (when the S&P bottomed at 1340) suggesting that the character of the market has changed whilst the NYSE volume surged to 4 billion shares traded which was the highest non expiration day volume since February 21.
After the ADP report came out the S&P quickly dropped to my 1559 buy level and I was quickly stopped out of this position at 1553 and I am now flat. I do not like the fact we closed below 1554 but I am also conscious that buyers could return ahead of Non Farm Payrolls tomorrow and the positive seasonal bias lasts through Friday. Today I will be a small seller on any rally to 1556/1560 with a stop at 1568 which is just above contract highs. I am only interested in buying the market if we dip to 1539/1543 with a 1535 stop. A break and close below 1538 will be bearish.
June DOW
The Dow worked well as I basically sold the high at 14600 on Tuesday but I took profit too early at 14550 and I am now flat. Today I am a small seller on any rally to 14560/14590 with a 14620 stop which is just above the highs made on Tuesday and if I am stopped out I will be a more aggressive seller on any further rally to 14650/14680 with a 14720 stop. I do not want to be long at this time.
Euro/USD
The Euro worked well yesterday as I was able to take profit at 1.2840 on my 1.2795 long position from yesterday morning and I am now flat. Today is ECB day and for the last 4/5 press conferences from Dragi the Euro has rallied between 100/300 points. Based on the above information I am going to buy the Euro here in small at 1.2800 and I will have to leave a larger stop at 1.2745 which is just below the lows of last week. I have a very smaller position with a wider stop given the expected volatility and I do not want to be short the Euro today.
June BUND
The Bund finally hit my sell level yesterday at 145.65. I am encouraged as despite the fact that the Japanese Bond market has rallied strongly it has not followed through in the Bund. I will leave a 145.90 stop on this position which is just above contract highs made last Thursday.
June FTSE
It is typical as my first venture back into the FTSE market for six weeks and it was unsuccessful. I bought the FTSE at 6380 and I was stopped out at 6350 and I am now flat. I am going to stay flat today as I have positions in other markets as outlined above.
June DAX
Frustrating as I bought the Dax at 7895 yesterday and I had my stop too tight at 7875 and I was stopped out and now the market is higher. I still like the Dax and this morning if we can break 7920 I will buy the Dax in small with a 7890 stop.
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