US Equity markets have shrugged off their disappointment at last Friday’s below-consensus Q1 GDP number to post solid gains of around 0.75% however US Bond Yields are little changed and the US Dollar is weaker across the board. So in contrast to early-year market dynamics where US Economic optimism drove Stock prices, Bond Yields and the US Dollar all higher, we are now back in an environment where, in the absence of clear evidence that the recent run of soft US data is temporary, the a promise of an extended period of $85 billion of monthly Fed Asset Purchases together with the expectation of fresh ECB easing measures on Thursday is driving sentiment and flows. European Business Climate Indicator fell to -0.93 in April from a revised -0.75 in March and German CPI has significantly undershot expectations (1.2% down from 1.4% in March and 1.4% expected). The Euro was helped higher by a stellar Italian Bond Auction after the weekend political news of a new Italian Government. Italy sold €3 billion of 5 Year Bonds at 2.84%, down from 3.64% a month ago, and €3 billion of 10 Year Bonds at 3.94%, down from 4.66% last month, which are the lowest yields since October 2010.
Today is month end and we have a lot of economic data due. This morning we have German Retail Sales and Unemployment, UK Net Consumer Credit, Euro-Zone CPI and Unemployment data followed in the US by NAPM, Chicago Purchasing Managers and Consumer Confidence. The US also releases its Employment Cost Index.
June S&P 500
The S&P closed at a record high yesterday as the market was driven higher by month end buying but although the rally was broad it was on light volume. Yesterday was the 4th day in a row that the S&P has closed over 1570 and this is the key level to watch as we will need a break and close below here to get bearish. The S&P opened and rallied all day and finally entered my sell level at 1591 late on. As today is month end I do not want to be short the market and I have covered this position this morning at 1588 and I am now flat. As I said in yesterday’s commentary, the real area that I want to get short is from 1608/1612 with a 1615 stop. I will leave my sell level the same this morning and I will be a small buyer on any dip to 1577/1581 with a 1575 stop.
Euro/USD
The Euro worked well yesterday as the market finally traded up to my 1.3110 sell level. I am surprised athow strong the Euro is given how weak Bond Yields are in the Euro-Zone and the mantra that all bad Economic news leads to higher equities and thus the Euro continues. Given that it is month end I have taken profit this morning on the Euro at 1.3075 and I am now flat. I will still look to buy the Euro at 1.3010/1.3040 with a 1.2970 stop. Given the continued strength of the European Equity markets I do not want to be short at this time.
June DAX
The Dax worked really well as shortly after I posted yesterday we were trading at the 7830 buy zone. I bought the Dax at 7840 and I took a gain at 7880. The Dax then rallied hard from here and I went short at 7910 and I was stopped out of this position this morning at 7935 and I am now flat. The Dax is setting itself up for some disappointment for Thursday’s ECB meeting and it is now up over 500 points since last Tuesday’s very weak PMI Services data. Even though it is overbought and with the market closed tomorrow for May Day, as well as today being month end, I do not want to be short the Dax. If the market drops back to 7870/7895 I will be a small buyer with a 7845 stop.
June FTSE
The FTSE worked really well yesterday as the market dropped down to my 6380 buy level before month end factors kicked in. I took profit at 6430 yesterday evening and I am still flat. I still like the FTSE and I will use any sell off to the 6390/6410 to reset my long position with a 6375 stop. Again because of month end factors I do not want to be short the market at this time.
June BUND
I am so surprised at how resilient the Bund is and despite the Equity sell off the Bund will not fall. With the market closed tomorrow I have covered my 146.30 short position for a small loss at 146.60 and I am now flat. I am going to stay flat and I will take another look on Thursday.
Gold Rolling Contract
Very unlucky as Gold just missed my 1480 sell level and I am still flat. This 1475/1490 is still key resistance and it will need a break and close over 1500 for the market to get short term bullish. I still feel the market is going to have some difficulty breaking this level in the near term. Today I will lower my sell level to 1472/1487 with a 1495 stop.
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