The FOMC, as expected, announced a further $10 billion reduction of its QE Bond buying programme which is now down to $45 billion per month from $85 billion last November. It also indicated, in its post meeting statement, that economic activity had picked up recently after having slowed sharply during the winter, in part because of adverse weather conditions.
Earlier in the day the US ADP Employment Survey came in at 220k which was just above expectations and despite the bad rap this report has received of late, it cements expectations for a 200k+ rise in Non Farm Payrolls to be reported tomorrow. Together the FOMC and ADP news might have been expected to provide some upward impetus to Bond Yields and the US Dollar but it turned out that the unexpected weakness in both Q1 GDP and the Q1 Employment Cost Index are what carried the day.
US GDP printed at just 0.1% annualised against +1.0% expected. Furthermore the Consumption Component was flattered by a 9.9% jump in healthcare spending related to enrollments for Obamacare. For the time being this goes some way towards vindicating Fed Chair, Yellen’s view of the Labour market that there remains a lot of slack and therefore we have no threat to inflation from higher wage costs.
Today most European markets are closed for ‘May Day’ with the exception of the UK which has its holiday next Monday instead. This morning on the economic front we have UK Mortgage Approvals and Manufacturing PMI at 9.30 am. This is followed at 1.30 pm by the US Weekly Jobless Claims and Personal Income. At 3 pm we have ISM Manufacturing and Construction Spending whilst later this afternoon Fed Chair Yellen speaks to Community Bankers In Washington on the economy.
June S&P 500
The S&P cash market closed at a new all time high at 1885 but is still below the intra day high made at 1899 after the Non Farm Payrolls Report on April 4. As I have mentioned over the last few months I still expect this market to trade as high as 1920/1950 before finally putting in more than a short term top as no matter what bearish news is thrown at this market the S&P still manages to rally. It is clear from the Fed policy that they cannot afford to let Interest Rates rise especially given how much debt that they have to service over the next 5 years and historically lower interest rates lead to higher stock markets despite the fact that valuations are stretched.
I am still flat the S&P and I am impressed that the market was able to close over the key 1872 resistance level. Today I will raise my buy level to 1869/1875 with a 1865 stop which is just below yesterday’s low. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 1853 with a 1847 stop. I do not want to be short the S&P at this time.
Euro/USD
The Euro plan worked well as shortly after I posted it traded down to my 1.3790 buy level before having a nice rally ahead of the FOMC announcement which enabled me to cover this position at 1.3850 and I am now flat. As I mentioned over the last few weeks I still expect the Euro to break the key 1.4000 resistance level and this is why I have not been short the Euro over the last few weeks. Today I will look to buy the Euro on any dip to 1.3840/1.3870 with a 1.3820 stop.
US Dollar Index
The Dollar Index is under pressure this morning as it approaches the key 79.20/79.50 support zone. Today I will lower my buy level slightly to 79.00/79.30 with the same 78.80 stop which is just below last November’s low.
June DAX
None of my parameters were hit in the Dax yesterday and I am still flat. The market is closed today for May Day and we will have to wait until tomorrow when it reopens to see if we can break the key 9630/9660 resistance level.
June FTSE
No change as I am still a seller on any rally to 6775/6800 with the same 6820 stop on any short position.
Dow Rolling Contract
The Dow closed at a new all time high yesterday as the market looks to test the key 16600/16640 resistance level, a break of which will be very bullish. I am still flat the Dow and today I will raise my buy level to 16520/16550 with a 16480 stop. I still do not want to be short the market at this time.
June BUND
The Bund followed the US Treasury market higher after the FOMC announcement last night and I am still flat. The Bund is also closed today for May Day and I will take another look at this market tomorrow when it reopens.
Gold Rolling Contract
It was a good decision to stay flat the Gold market as it still trying to make up its mind which way it wants to break. I have a feeling it wants to break lower but I do not want to be a seller as long term I am bullish of this market. If Gold breaks the recent 1276 support the next support comes in at 1260 and today my only interest in buying is on a dip to 1258/1265 with a 1248 stop.
Silver Rolling Contract
Silver is weaker this morning. I am still long from 19.40 and I will leave my stop the same at 18.90 which is just below last week’s low. If I am stopped out of this position I will be a more aggressive buyer in front of 18.50 with a 17.90 stop.
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