Last Friday we had a mixed US labour market report, but the decline in the Unemployment rate to 3.9% eventually lifted the US Dollar and shorter dated US Treasury yields. US-China trade talks ended with no progress and although the lack of resolution keeps the prospects of trade tariffs alive, both parties agreed to keep talking. Meanwhile Argentina’s decision to lift its official borrowing rate to 40% brought the focus back to Emerging Markets amid a rising USD and higher UST yields environment.
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For anyone following my Platinum Service it made 148 points on Friday and is now ahead by 435 points for May, having made 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Although the disappointments from US average hourly earnings (0.1%mom vs 0.2% exp.) and payrolls (164k vs 194 exp.) initially drove the USD and UST yields lower, the market eventually reversed this initial reaction, focusing instead on the fact that the Unemployment rate declined to a new cycle low of 3.9% (4% exp.). One explanation for the weak data looks to be weather related with around 52k more people unable to work due to inclement weather compared to this time last year while weather effects were likely responsible for the sharp falls in wages for Utilities (-1.0% m/m) and Information (-0.6% m/m).
In the end the USD closed Friday higher in Index terms (DXY +0.16% @92.56 and BBDX +0.21% @ 1156.4) and stronger against most G10 currencies. AUD (0.09% @ 0.7539) and JPY (0.06% @??109.12) resisted the upsurge in the USD while Sterling (-0.32%, 1.3531), NZD (0.31% 0.702) and the Euro (-0.23%, 1.196) were amongst the biggest losers.
Overall my view is that Friday’s US labour data is unlikely to change the Fed’s thinking that more rate hikes are needed this year. The US labour market is very tight, forward indicators suggest more tightening should be expected and this tightening should also see an eventual acceleration in wages growth. In my view the risk remains that the Fed will need to do more than the 2 rate hikes currently priced by the market in 2018. Incidentally, several Fed officials were out speaking on Friday with the key message being that the Fed’s inflation target was ‘’symmetric’’ and that they did not intend to overreact to a modest inflation overshoot. Fed Chair Powell speaks later today in Switzerland and hopefully we will get a better understanding on the magnitude and timing of the Fed tolerance to inflation.
In what has been an otherwise quiet trade session with London out for the first of its two May bank holidays, the focal point has been news that President Trump will tell the world at 2pm on Tuesday whether or not he is pulling the US out of the 2015 Iran nuclear deal. This is ahead of the May 12th official deadline for re-ratification of the existing deal which, recall, dropped sanctions against Iran in return for verifiable cessation of nuclear weapons development, allowing Iran to pump as much as one million more barrels of oil a day than previously.
Belief that Trump will announce the US is pulling out were fanned by weekend comments from this week’s Trump lawyer and former NY major Rudolph Giuliani, saying Trump would almost certainly pull out. But in the last few hours we have had reports of a possible EU-US agreement that would keep the US in. This follows, among other things, an appeal to Trump from UK foreign secretary Boris Johnson via the President’s favourite news outfit, Fox News, which evoked shades of what Lyndon Johnson was reported to have said about J. Edgar Hoover in the early 70s (re, it being better to have him inside the tent than out – you known the other bits).
The news of a possible deal to keep the US in the deal has seen Brent crude quickly drop to the low $75s from an earlier new cycle high of $76.34. There is much to play for here. I would reckon there is still several dollars in the oil price based on a presumption the US will pull out. So if Trump says he is staying, we could swiftly see another $2-3 off crude prices. If the decision is to leave, then Brent will likely be knocking on the door of $77 in short order. The latter, I would surmise, is not risk friendly outside of the US energy sector (as well as the fact it heightens geopolitical tensions) and can compound some of the recently building pressures on various Emerging Markets (in turn a negative for the AUD). Vice versa if the US is staying in.
US stocks have closed in positive territory with the S&P up 0.35% (Including a stronger energy sector) while US Treasury yields are pretty much flat across the curve. The US dollar is stronger (except versus Sterling , the day’s best performer) with the DXY Index up 0.22% to a new recent high of 92.77. This is the main reason AUD/USD is off 0.3% to 0.7516 and has spent a little time back below the 0.75 figure level.
This morning on the Economic front we already had the release of German Industrial Production which came in stronger at 1% versus 0.8% expected. At 11.00 am we have the US NFIB Small Business Optimism and this is followed at 3.00 pm by the JOLTS Job Openings.
Just as I post the Daily Commentary Fed Chair Powell is speaking at an event in Zurich.
June S&P 500
My S&P plan worked well on Friday with the market trading lower to my 2614 buy level before rallying to my 2621 T/P level on what turned out to be another strong day for the US Indices. The rally continued to my 2654 sell level. As I did not want to be short the market over the weekend I emailed my Platinum Members to cover this position at 2652 and I am still flat. Yesterday the S&P traded to a high of 2680 for a huge 90 Handle rally since the lows of Thursday proving yet again how difficult it is to be short the US market as the buy the dip wins everytime. With Fed Chair Powell speaking this morning followed by President Trump this afternoon, this will add to the volatility for today’s trading session. There is no doubt the key support level is still the 200 Day Moving Average as every test of this level has seen aggressive buying. It will take a break and close below here for 2/3 days before we can say that this level is broken. Today the S&P has good support from 2650/2660 and I will be a buyer in this area with a 2643 stop. The S&P has strong resistance at 2700 and today I will be a small seller on any rally higher to 2697/2707 with a 2714 stop.
EUR/USD
20 minutes before last Friday’s NFP data I emailed my Platinum Members to exit their 1.1960 long Euro position at 1.1975 and to re-buy the market on any dip lower to 1.1920 with a 1.1940 T/P level and both of these prices were subsequently hit and I am now flat. Even though the Euro is oversold I will now lower my sell level for the market to 1.2045/1.2085 with a 1.2120 stop. The Euro has good support from 1.1840/1.1880 and today I will be a buyer on any dip to this area with a 1.1805 stop.
June Dollar Index
Yesterday the Dollar finally traded higher to my 92.80 sell level before selling off to my revised 92.57 T/P level and I am now flat. Today I will again look to sell the Dollar on any rally higher to 92.90/93.30 with a 93.60 tight stop.
June DAX
There is no stopping the DAX as the market built on Friday’s gains and now sits comfortably above both its 100 and 200 Day Moving Averages. The DAX will now have strong support from 12700/12760 and today I will be a buyer in this area with a 12635 stop. I still do not want to be short the market at this time.
June FTSE
Late on Friday the FTSE traded higher to my 7540 sell level. With the market closed yesterday for the May Bank Holiday I did not want to hold a short position over the weekend and I covered this position at my revised 7535 T/P level and I am now flat. I mentioned on Thursday that Cable (GBP/USD) must hold its 200 Day Moving Average at 1.3535 after an 800 point fall over the previous two weeks. This morning Cable is trading near 1.36 and this small rally sees the FTSE finally trade lower after the huge gains made over the past two weeks. Today I will now look to sell the FTSE on any rally higher to 7575/7615 with a 7645 stop.
Dow Rolling Contract
The Dow has now rallied nearly 1000 points since the 23530 low made on Thursday afternoon as yet again one short position after another gets slammed. I was very unlucky on Friday as the Dow just missed my 23730 buy level with a 23788 low print before starting this aggressive rally and which continued yesterday before a late sell-off into the close. The last two Tuesdays have resulted in a large sell-off in the Dow and both of those sessions cost me money. The Dow has strong support from 23950/24150 and today I will be a small buyer in this area with a 23865 tight stop. The Dow has resistance at yesterday’s 24479 high and above here at 24700. Today I will be a small seller on any rally higher to 24550/24700 with a 24765 stop.
June NASDAQ
I am still flat the NASDAQ which has broken some key resistance levels over the past two trading sessions. Today I will raise my buy level to 6725/6775 with a 6680 stop. I still do not want to be short the NASDAQ at this time.
June BUND
No change as I am still a seller on any rally higher to 159.75/160.15 with a 160.45 stop. I still do not want to be long the Bund at this time.
Gold Rolling Contract
I am still flat as Gold continues to hold last week’s low of 1301. Today I will move my buy level higher to 1295/1303 with a 1288 stop.
Silver Rolling Contract
I am still flat Silver and today I will now move my buy level higher to 16.05/16.40 with a 15.75 higher stop.
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