In January, the consensus estimate for Q1 US GDP was around +2.6%. In April, just prior to its release, it was estimated at +1.2%. It came in at +0.1%! Yesterday’s revision was put at -2.9%, the biggest Quarterly drop since Q1 2009 and the first time we have had a fall of this magnitude, other than when the US was formally in recession, since 1947. Consensus for yesterday’s release was -1.8%. The drop has been explained by a deterioration in net exports, weaker inventories growth and a dramatic scaling back of ‘Obamacare’ related health care spending. Just last month this was seen to have added $40 billion to consumption in Q1, now it is estimated to have subtracted $6.4 billion, dragging consumption down from +3.1% to just 1.0%, on an annualised rate.
No matter that chronic Q1 GDP weakness is very old news, is largely explained by the weather which was dramatically underestimated by economists and the fact that enrollment into ‘Obamacare’ are not the same as spending on health services. Stocks, Bonds and Currencies heeded the GDP revision more than the latest real-time estimate of US economic activity courtesy of Durable Goods Orders and the Markit Services PMI reading. The view that the Fed could ‘now be lower for longer’ saw US Equities recover immediate post-GDP weakness to close up 0.5% In fact the Durable Goods Orders numbers were better that the -1.0% headline. The key indicators of underlying business investment (capital goods orders excluding defence and aircraft) rose by 0.7% against 0.5% expected with an 0.1% upward revision to April. The Markit Services PMI jumped to 61.2 from 58.1.
This morning at 10.30 am the Bank of England Governor Carney will speak about a Financial Stability Report and it will be interesting to see if he mentions anything in relation to the timing of his first rate hike. At 1.30 pm we have the US Weekly Jobless Claims, Personal Spending and the PCE Deflator. This is followed at 3 pm by the Kansas City Fed Manufacturing. At 6 pm the Fed’s Bullard will speak on Monetary Policy.
September S&P 500
As expected, the S&P closed higher yesterday despite the poor Q1 GDP official release. This is seasonally a very strong time of the year with month and quarter end tomorrow. In addition, we did not get follow through to the downside following Tuesday’s Key Day Reversal as the market, having been initially weak at the open, turned around to close 0.5% higher. One interesting statistic that I read this morning is the S&P has now gone 48 trading sessions without a 1.0% up or down move which is the longest streak since 1995 making it difficult for traders to make money given the lack of intra-day volatility.
The S&P plan worked well yesterday as we had a nice rally after the US market opened which enabled me to cover my long 1942 position from Tuesday at 1948. The S&P then traded to a high of 1953.50 which enabled me to go short in small size at 1951. I am still short and I will raise my stop to 1961 on this position which is just above the contract high made on Tuesday before we got the Key Day Reversal and should offer strong resistance. Today I will also be a small buyer on any dip again to 1938/1942 with a 1935 stop.
Euro/USD
The Euro just missed my 1.3600 buy level with a 1.3600 low before trading higher and I am still flat. Today I will raise my buy level to 1.3585/1.3615 with a 1.3565 stop which is just below the low made earlier in the week. I still do not want to be short the Euro at this time.
US Dollar Index
No change as I am still long from earlier in the month at 80.25 with the same 79.90 stop as the Dollar continues to trade in an extremely narrow range.
September DAX
The Dax plan worked well as it had a nice sell-off as it followed the US markets lower. It traded down to my 9845 buy level and after a nice rally I was able to cover this position at 9885 and I am now flat. Today I will again be a small buyer on any dip to 9810/9850 with a 9795 stop. I will also be a seller on any rally to 9945/9975 with a 10005 stop.
September FTSE
The FTSE continues to sell-off but unfortunately I have not been able to get a short position on board as the market has fallen over 100 points this week which is a huge move given how narrow a range the market has traded in all year. The FTSE is now trading at the bottom of its Bollinger Band and today I will be a small buyer on any dip to 6650/6675 with a 6635 stop. Given the fact that tomorrow is Month and Quarter end I do not want to be short the FTSE at this time.
Dow Rolling Contract
For the second consecutive day I have been very unlucky with my Dow plan as it made a low of 16781 (which was just I point away from my 16780 buy level) before the market turned around and had a significant rally. Today I will raise my buy level to 16780/16810 with a 16755 stop as I look for the market to hold in ahead of tomorrow.
September BUND
After I posted yesterday, the Bund continued to trade higher before eventually hitting my 146.85 sell level. I am still short and I will leave a 147.25 stop on this position. The Bund is very overbought on both a Daily and Weekly basis and this is the first time that I have gone short in a very long time.
Gold Rolling Contract
No change as I am still a small buyer on any retracement to 1295/1306 with a tight 1293 stop.
Silver Rolling Contract
Also no change as I am still long from earlier in the month at 19.58 with the same 20.50 stop. Again if Silver trades back to 21.20 I will raise my stop on this position to 20.90. If I am stopped out of my long position at 20.50 I will be a more aggressive buyer in front of 20.20 with a 19.80 stop.
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