US stock markets continue to lead currency and interest rate markets by the nose. A third consecutive trading session of gains, on further reduced Sino-US trade tensions and now a recovery in the technology sector (the NYSE’s FANG+ index is up 1.5%) have been the drivers. The S&P500 is up 0.7% and some 3% up on Monday’s close to put it just shy of 1% up on where we left off for Easter.
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Bond yields are higher (10 year Treasuries are up 5bps to 2.83%) and the US Dollar up 0.34% in DXY terms. USD/JPY is the biggest G10 mover, up 0.6% to 107.40 which is its best level since late February, as befits the pair that has proved most susceptible to the negative impact on risk sentiment from earlier heightened trade angst.
The surprise perhaps in currency markets is that the AUD is down by 0.4% to 0.7687 as I write (and as low as 0.7674) despite the fact the Aussie has been the currency that has been among the worst affected by rising fears about a Sino-US trade war. Commodity prices are also slightly higher for the most part, typically AUD-supportive. It is fair to say the softness is mostly just a US dollar thing? e.g. the NZD is down by a similar amount – though it does also support the thesis that the AUD is still a ‘’sell on rallies’’ currency.
Soothing words from President Trump’s (current) chief economic adviser Larry Kudlow have been a market factor. He has been back on the media circuit talking tariffs saying ‘’it is nothing around the corner, there is going to be big discussion about it’’. White House trade advisor Pete Navarro has also been out saying that top government officials between the two countries will be in talks before any new tariffs are imposed.
The Canadian dollar continues to go from strength to strength, being the only major currency to strengthen against a rising USD dollar in the last 24 hours, with AUD/CAD and NZD/CAD both down by more than 0.5%. More positive signs of an imminent NAFTA trade agreement are doing the trick here, with Canada’s PM Trudeau out saying that NAFTA talks are ‘’moving forward in a significant way’’. This followed reports the US had softened its stance on a key NAFTA demand regarding North American content in car manufacturing. It is possible that an ‘’in principle’’ new NAFTA deal could be announced as early as next week at a summit scheduled to take place in Peru.
Anyone wanting to instead take a glass-half-empty view on how US trade policy evolves in coming month could do worse than look at the latest US trade figures. The deficit widened for the sixth consecutive month in February to $57.6bn. Royalty payments of about a $1bn for TV rights to the Winter Olympics were a factor, but do nothing to disguise the fact that the monthly trade deficits have widened out to $55-60bn per month from $40-45bn a year or so ago, mostly driven by the trend in imports which have outpaced rising exports (when the gap between the two is so big, exports have to grow a lot faster than imports to shrink the deficit). The widening trade gap versus Q4 2018 could knock as much as 1% off Q1 GDP and see growth drop below 2.5% (the Atlanta Fed’s latest GDPNow estimate has been revised to 2.3% from 2.8% post the trade figures).
The other significant ‘’miss’’ on data releases was the UK services PMI which fell to its lowest level since July 2016 (i.e. straight after the ‘’Brexit’’ vote). However, the fall to 51.7 from 54.5 was blamed squarely on the weather (the ‘’Beast from the East’’) and is likely to bounce back in April. Certainly it shouldn’t in itself derail a rise in Bank Rate from the Bank of England on May 10th.
Final Euro-Zone PMIs came in about 1/10% or so below preliminary estimates. They are down from late 2017 highs but still very elevated.
Finally the One Fed speaker was Atlanta Fed president Raphael Bostic a current FOMC voter ‘’who said he sees PCE inflation hitting the Fed’s 2% target in the next quarter or two and I am actually very comfortable going above 2% by some amount 2.2%, 2.3%…I don’t think that is a crisis of overheating’’. The comments serve to underscore the symmetric nature of the Fed’s 2% inflation target.
This morning on the Economic Front we have German Industrial Production at 7.00 am and this is followed by US Non-Farm Payrolls at 1.30 pm. US payrolls seen +185k but whisper number likely higher after ADP and the strong employment sub-index in non-manufacturing ISM. Of course the key component is US average hourly earnings which are seen rising back to 2.7% from 2.6% with the Unemployment falling to 4.0% from 4.1%. Finally we have Consumer Credit at 8.00 pm.
The Fed chair Powell speaks on US economy at 6.30pm followed by the Fed’s Williams at 9pm.
June S&P 500
I had to re-write my commentary after President Trump announced that he wants to treble the $50bn tariffs with China to $150 bn resulting in a huge sell-off in the US Indices. This move lower saw the S&P traded the whole of my 2623/2633 buy range for an average buy level at 2628 before thankfully rallying to my 2639 T/P level and I am now flat. I know Wednesday was an expensive day but this move lower in the Dow and S&P followed by a strong reversal to my T/P levels has certainly made up for those losses. If the S&P can break and close over the key 2660/2670 resistance level (which was tested yesterday) then I will look to set up long positions for a test of the 2705/2720 resistance level ahead of the real test at 2745/2755 where I will look to exit any long positions as this is the mean reversion area from where we broke down after the FOMC Meeting last month. The S&P has strong support at 2610 and today I will again look to buy the market on any dip lower to 2612/2625 with a 2604 stop. My only interest in selling the S&P is on a rally higher to 2698/2715 with a 2723 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller from 2735/2745 with a 2756 stop.
EUR/USD
No change as I am still a buyer on any dip lower to 1.2145/1.2185 with a 1.2110 stop. My only interest in selling the Euro is still on a rally higher to 1.2340/1.2390 with a 1.2420 stop.
June Dollar Index
The Dollar just missed my 89.55 buy level with a 89.72 low print before rallying as expected. Today I will now raise my buy level to 89.40/89.80 with a 89.05 stop.
June DAX
Thankfully we have had no sell levels in the DAX over the past few weeks as all dips have been bought aggressively. The DAX closed yesterday over 500 points higher than where I was stopped out of my long position on Wednesday which was frustrating to say the least. The break and close over 12200 is bullish. However with the US markets again finding it difficult to hang onto any gains my only interest in buying the DAX is on a dip lower to 12020/12100 with a 11950 wider stop.
June FTSE
The FTSE is now trading 400 points higher than the key 6750 support level mentioned here over the past two weeks as yet again all short positions are being squeezed. I am still flat and today I will now raise my buy level to 6990/7040 with a 6955 stop.
Dow Rolling Contract
Yesterday the Dow traded to a high of 24622 which is over 1220 points higher than the low recorded on Wednesday morning. This is an incredible turnaround and shows how difficult it is to be short any US Index for more than a couple of days. However thanks to President Trump latest barb with China the Dow traded lower to my 24070 buy level before rallying to my 24150 T/P level and I am now flat. The Dow has huge resistance from 24850/25100 and today I will be a small seller in this area with a 25180 stop. A break and close over 25100 is bullish opening up the possibility of a move higher to 25700/26100 and then 26600. Given the extent of the rally over the past 48 hours I do not want to be long the Dow at this time especially ahead of NFP later today.
June NASDAQ
The NASDAQ which just missed my second sell level at 6660 with a 6654 high print before finally selling off to my 6560 T/P level on my initial 6600 short position and I am now flat. Thankfully the NASDAQ underperformed both the Dow and S&P yesterday. The NASDAQ has strong resistance from 6710/6760 and today I will be a seller in this area with a 6795 tight stop. A break and close over 6775 is bullish for a move higher to 6975 and then 7125/7175. My only interest in buying the NASDAQ is on a dip lower to 6360/6420 with a 6310 stop.
June BUND
The BUND has traded sideways to higher in a narrow range for the past 10 trading sessions. I am still flat and given the fact we have NFP today I will now lower my buy level slightly to 157.90/158.30 with a 157.60 stop.
Gold Rolling Contract
I am still flat Gold and today will also lower my buy level to 1303/1312 with a 1295 stop.
Silver Rolling Contract
Silver just missed my second buy level at 16.15 with a 16.17 low print meaning I am still long at 16.45. I will continue to look to add to this position at 16.15 and if this second buy level is filled I will then lower my T/P level to 16.40. Otherwise I will leave my T/P level at 16.55.
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