Well not quite knocking on heaven’s door, but one of the big news from Friday’s trading session was the move higher in 10y US Treasury yields which are now essentially knocking on the 3% mark. The 10y tenor closed at 2.96%, its highest levels since early January 2014 and the 2s10a curve closed above 50bps for the first time in two weeks. US equities closed lower on Friday, posting a second day of negative returns with losses again led by tech shares. The US Dollar found support from the move higher in UST yields with commodity-linked currencies the big underperformers. Commodities had a mixed session.
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US equities decline on Friday was led by the IT and consumer staples sectors with the S&P 500 down 0.85% and the NASDAQ -1.27% (DJ was -0.82%). Apple shares have remained under pressure (-4.1%) following Thursday’s weak demand warning from TSMC, one of the iPhone maker’s biggest suppliers. Concern of a slowdown in smartphones sales weighted on the IT sector and the tech heavy NASDAQ Index. Despite posting two consecutive days of decline, US equities still managed to record gains for the week. Japanese and European equities outperform and of note after a 1.47% decline on Friday, the Shanghai index was the only main index to record losses for the week, down almost 3%. Technology shares were also the big losers in China.
US yields traded sideways after I posted and in the first half of the European session on Friday. Meanwhile, oil prices were on a steady rise on the back of comments from an OPEC and friends gathering expressing a desire to keep tightening the oil market. The comments sparked a response from President Trump noting ‘’Oil prices are artificially very High! No good and will not be accepted!’’. The tweet triggered a sell-off in oil prices, but prices recovered with OPEC members and Russia pushing back on Trump’s claim and generally giving the impression that they had no intention of easing up on the supply cuts. Saudi Arabia’s Oil Minister said ‘’I have not seen any impact on demand with current prices’’ and mentioned that OPEC+ would continue its cooperation in 2019, raising the prospect the supply cuts could be kept in place beyond their scheduled end data at the end of this year.
The oil price recovery was accompanied by a selloff in UST yields. 10y UST yields rose over 5bps from 2.915%, closing the day at 2.96%. The move higher in UST yields was led by the back end of the curve, helping the 2s10s curve close the week just above the 50bps mark for the first time in 10 days. UST yields have led the move higher in core global yields this week, the 2y UST tenor ended 10bps higher at 2.459% while the 10y and 30yields closed 13.3 and 12bps higher.
The bear steepening in the UST curve in the last two days of the week has been one of the key factors helping the USD outperform whilst for other currencies soft data releases have also played a role, such as Sterling (inflation, retail sales), NZD (inflation) CAD (dovish BoC, inflation and core retail sales on Friday ) and AUD (employment). Commodity linked currencies were the underperformers on Friday (NZD -.089%, AUD -0.75% and CAD -0.70) , probably affected by the risk aversion sentiment in equities and volatility in oil prices. On the week, SEK was the only currency that managed to outperform the USD, partly retracing the soft inflation induced losses from the previous week. The greenback gains on the week has left the USD Indices (DXY and BBXDY) close to the top of the ranges held since mid-January and the question now is whether the upper end of these ranges will be tested in the new week.
After flirting with a break above the 0.7825 resistance level on Thursday, the AUD ended the week at 0.7672, close to the lower end of its 0.7643-0.7813 range held since mid-March. Failure to move above the 0.7825 resistance level has left the pair more vulnerable to the downside.
One of the big macro questions in recent weeks has been whether the global economic slowdown in Q1 was just a weather induced blip, compounded by China’s Lunar new year, or whether the slowdown is actually more deeply rooted with US led trade tensions a contributing factor. The data will ultimately solve this riddle today’s preliminary PMI’s, particularly from Germany and Europe are going to be important in this regard.
Solid PMI prints this week and or higher oil prices could pave the way for 10y UST yields to trade above 3.00%. What drives the 10y tenor above 3% will nonetheless matter. A rebound in the global growth outlook, would be good news for sentiment, but a jump in yields led by oil provoked inflationary pressure could unsettle risk assets. The last two times 10y UST yields got close to the 3% mark in 2013 (2.9937% 5 Sep and 3.02% 31 Dec), the move preceded a selloff in US equities and the pull back in risk appetite weighted on the AUD and NZD.
The EUR fell below 1.23 on Friday, a two week low with media reporting that ECB members were considering waiting until July to change their forward guidance on QE. Speaking in Washington, ECB President Draghi acknowledged that ‘’the growth cycle may have peaked’’ but said ‘’growth momentum is expected to continue’’ and reiterated his confidence inflation would eventually move to target. ECB Weidmann also acknowledged the Q1 economic softness, but somewhat contradicting Draghi, he said that “There’s no reason to see a turning point in growth – Germany’s economy is still booming”. The Euro has opened lower this morning and it currently trades at 1.2272.
This morning on the Economic Front we have German and Euro-Zone Manufacturing/Services PMI at 8.30 am and 9.00 am respectively. This is followed by the Chicago Fed National Activity Index at 1.30 pm. Finally we have US Manufacturing PMI and Existing Home Sales at 2.45 pm and 3.00 pm respectively.
June S&P 500
My S&P plan worked well with the market trading lower to my 2683 buy level before rallying to a rebound high above 2696 and this move higher enabled me to cover this position at my 2689 T/P level and I am now flat. Friday turned out to be a very weak and wild trading session for the US Indices with the market subsequently trading below 2660 before rallying into the close. However even though we did close below the key 2680 support level, for me to turn bearish I need to see a break and close below 2656 which was tested late Friday. Today I will be a buyer on any further dip lower to 2653/2663 with a 2647 stop. Even though we closed below 2680 following the VIX Sell signal as mentioned last Thursday I want to see how the market trades today before lowering my sell level too much. For now my sell level will be from 2698/2708 with a 2715 stop.
EUR/USD
The Euro was weak all day Friday with the market trading the whole of my 1.2270/1.2310 buy range for an average long position at 1.2290. As I did not want to hold a long position over the weekend I emailed my Platinum Members to exit any long position at 1.2295 and I am now flat. The move to 3% in 10 Year Treasuries is certainly helping the Dollar at this time and if we can break the 1.2220/1.2260 support level then we could see a move lower to at least 1.21. Today my only interest in buying the Euro is on a dip lower to 1.2190/1.2230 with a 1.2155 tight stop. As we are close to strong support I do not want to be short the Euro at this time.
June Dollar Index
The Dollar traded higher to my 90.05 sell level. As I was already long the Euro I covered my short Dollar position for a small loss at 90.15 and I am now flat. The break and close over 90.00 on Friday is bullish and for this reason I will now look to buy the market on any dip lower to 89.50/89.90 with a 89.20 stop.
June DAX
No change as I am still a seller on any rally higher to 12690/12750 with the same 12795 tight stop. I do not want to chase the DAX market higher and I will leave my buy level unchanged from 12310/12380 with a 12265 stop.
June FTSE
In contrast to the US Indices the FTSE continued its recent rally with the market re-opening overnight in my sell range at 7330. With the price action decidedly bullish despite the market being overbought I emailed my Platinum Members this morning to exit any short position at 7318 and I am now flat. The 200 Day Moving Average for the FTSE is at 7355 and a break and close over this level will be a strong buy signal. Today I will again look to sell the market on any rally higher to 7345/7380 with a tight 7405 stop. Meanwhile I will raise my buy level to 7200/7235 with a 7165 stop
Dow Rolling Contract
The Dow had a wild trading session on Friday. No matter where you bought the Dow in my buy range on Friday as the market missed my stop you should have made some gains especially with the Dow re-opening last night with a rebound high at 24586. This morning the Dow is on the defensive again on the back of the sell-off in US Treasuries. The Dow has strong support from 24200/24340 and today I will be a buyer on any dip to this area with a 24120 stop. I want to give the market one more day before committing to putting on a short position even though we closed weak on Friday. For the record I bought the Dow on Friday at a price of 24500 before exiting this position for a breakeven and I am still flat.
June NASDAQ
My NASDAQ plan eventually worked well on Friday with the market trading the whole of my 6650/6710 buy range for an average long position at 6680. Subsequently the NASDAQ re-opened last night at my revised 6710 T/P level with a 6717 high print before selling off this morning and I am still flat. The NASDAQ has strong support from 6580/6630 and today I will buyer on any dip to this area with a 6535 tight stop.
June BUND
The BUND had a bad day on Friday with the market now trading over 200 points lower from last week’s high print. It is a long time since we have seen this kind of price action. I came into Friday long the market at 158.40 and this morning the Bund has traded lower to my second buy level at 157.80 for a now average long position at 158.10. I will now lower my stop slightly on this position to 157.45 and I will use any rally higher to 158.05 to exit my long position and stand aside.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1331 buy level before rallying to my revised 1336 T/P level and I am now flat. Gold continues to have great difficulty in breaking the key 1366/1376 resistance level while support comes in at the 100 Day Moving Average at 1317. Today I will again look to buy Gold on any dip lower to 1312/1320 with a tight 1306 stop.
Silver Rolling Contract
We had a great trading week in Silver last week as the market broke out to the upside after weeks of sideways price action. On Friday Silver traded lower to my 17.10 buy level before rallying to my revised 17.20 T/P level and I am still flat as I did want a position on board over the weekend. This morning Silver is opening weaker and I will now look to buy the market on any further dip lower to 16.70.17.00 with a 16.35 stop. If I am taken long I will have a T/P level at 17.20.
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