On first impressions it has been a quiet risk positive past 24 hours in markets, US equities have closed higher, 10y US Treasury yields are little changed and the US Dollar is almost exactly where it was this time yesterday. However, there are a few themes simmering in the background suggesting not all is well. While commodity currencies are outperforming with the AUD leading the way, Italian politics are a concern in Europe and a weigh on the Euro. Sterling is the biggest G10 loser amid Brexit and political uncertainty and last but not least oil prices are higher amid heightened geopolitical tensions.
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For anyone following my Platinum Service it made 43 points yesterday and is now ahead by 900 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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News over the weekend that the US will hold off on imposing trade tariff on China while negotiations remain ongoing has helped risk sentiment with industrials and telecommunications shares leading the gains in US shares. US Treasury Secretary Steven Mnuchin has been on the wires stressing the good news while also reminding everyone that if the negotiations are not successful, ‘’the president can always put tariffs back on,’’. Not to be undone President Trump has also been busy tweeting, stressing that ‘’China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products, would be one of the best things to happen to our farmers in many years!’’. That said, there has also been quite a lot of reports highlighting tensions within US top trade officials, US Trade Representative Robert Lighthizer and Director of Trade and Industrial Policy Peter Navarro lead a group that wants to take a harder line with China and are more willing to use sanctions even if they disrupt the market. Good and bad cop? May be, but worth noting that on a separate statement release Mr Lighthizer said that ‘’Getting China to open its market to more U.S. exports is significant, but the far more important issues revolve around forced technology transfers, cyber theft and the protection of our innovation,’’.
So while there is a cautiously optimistic theme coming out of the US, politics in Europe are taking centre stage and weighing on sentiment in the Euro-Zone. 10y sovereign Italian bonds jumped 15bps and the spread to 10y Bunds widened another 21bps to 185bps. Italy’s Five Star and League coalition is aiming to form a government and met President Mattarella with relatively unknown Italian lawyer Giuseppe Conti being seen as a possible PM. The major concern here is that the coalition does not have the money to fund its expansionary plan and the idea of introducing a new class of short-dated government notes (‘’mini BoTs’’) that would be created specifically to pay state arrears has spooked the market. This mini BoTs are effectively like a parallel currency and could in theory circumvent the strict rules in the EU Stability and Growth Pact.
Meanwhile the ECB’s Nowotny said Italy’s plans are creating a lot of nervousness and hence it is not surprising that the Euro traded to a new year to date low of 1.1715. The equity led improvement in risk sentiment helped the Euro recover a little bit in the end and now the pair trades at 1.1780.The soft activity and inflation readings so far this year has seen the ECB shift its proactive stance to a more reactive wait and see mode. The Euro has been on a steady decline since early April and now politics are an additional weight on the currency. The preliminary PMI data releases out tomorrow, if positive, could shift the focus back onto the economy and help the Euro in the process.
Meanwhile on the other side of the channel, the pound has come under renewed pressure with weekend press reports raising the possibility of an autumn election amid Brexit impasse within the Cabinet and the conservative party. Brexit negotiations resume this week and it is unclear if any progress has been achieved in terms of the Irish border and EU trade arrangement. The pound has been the worst G10 performer with Cable trading to an intra-day low of 1.3392, a level not seen since late December last year. Technically speaking Sterling continues to prove a move below its trend line support of 1.3140, the pair now trades at 1.3431, but a move below its trend line support would open the prospects for an easier path for sub 1.30.
So amidst the EU and Sterling political uncertainty, the Australian Dollar has been the top performer, gaining around 60 pips over the past 24 hours and the pair now trades at 0.7582. Risk sentiment has helped the Aussie with the VIX index drifting down to 13.02 from 13.42, but the performance of commodities has probably been a bigger factor. Oil prices have remained supported amid geopolitical tensions and Venezuela’s woes, but it has also been a good day for copper (+1.13%),lead has outperformed (+3.43%) while coal and iron ore have consolidated recent gains.
This morning on the Economic front we have UK Public Sector Net Borrowing at 9.30 am. We have no data of note due from the Euro-Zone while the only US release is the Richmond Fed Manufacturing Index at 3.00 pm.
June S&P 500
I am still flat the S&P as the market fell shy of both my buy and sell ranges yesterday. The fact that the S&P closed above 2720 is a short-term positive even though we are overbought. Today I will now raise my buy level to 2715/2723 with a 2709 stop. The S&P has strong resistance at 2750 and today I will raise my sell level slightly to 2748/2755 with a 2761 stop.
EUR/USD
The Euro traded to a low at 1.1715 after I posted yesterday morning which should have given anyone who had not bought the Euro a better entry level than my 1.1740 purchase before the Euro rallied to my 1.1765 T/P level with an eventual high at 1.1797. With the Daily Sentiment Index at just 9% bulls it is difficult to see a major sell-off from here in the Euro despite the worsening political situation in Italy. Today I will again look to buy the market on any dip lower to 1.1710/1.1750 with a 1.1670 stop.
June Dollar Index
The Dollar rallied to an intra-day high of 94.05 before having a small sell-off and I am still flat. The DSI remains elevated and for this reason I will continue to be a seller on any rally higher to 94.00/94.40 with a 94.75 stop.
June DAX
I am still flat the DAX which is struggling to move higher due to a combination of being overbought and the worsening political situation in Italy. Today I will leave my sell level unchanged from 13210/13270 with the same 13320 tight stop. The DAX has strong support at 13010 and today I will be a small buyer on any dip lower to 12960/13020 with a 12910 stop.
June FTSE
The FTSE traded higher to my initial sell range at 7840 yesterday afternoon. I did not sell the market myself as I emailed my Platinum Members to raise their sell range and this was not filled. The market is currently trading at 7840 and if you did sell I would cover your position here. The FTSE is severely overbought but does not have trend resistance until the 7895/7935 area where I will now look to sell the market with a 7965 tight stop. The FTSE has now rallied over 17% in the last two months.
Dow Rolling Contract
My Dow plan worked well with the market trading higher to my initial sell level at 25080 with a 25083 high print before falling 100 points. As I had close by sell ranges in the other Indices I covered my short Dow position too early at 25062 and I am still flat. The Dow was helped yesterday by gains in both Boeing and Caterpillar as the market again outperformed the NASDAQ. It is so difficult to be short as no matter what selling emerges it is quickly met by strong buying. As I have said countless times that as long as we hold above the 50 Day Moving Average the Dow will continue to be a buy on dips. Today I will now move my buy level higher to 24680/24830 with a 24590 stop. The Dow has initial resistance 25250 and today I will be a small seller on any further rally to 25220/25350 with a 25420 tight stop.
June NASDAQ
No change as I am still a buyer on any dip lower to 6800/6840 with the same 6760 tight stop. The NASDAQ traded sideways for most of yesterday and today I will continue to be a seller on any rally higher to 6980/7030 with a 7080 wider stop.
June BUND
The worsening political situation in Italy saw the Bund rally strongly yesterday with the market now recovering the 140 points that it lost early last week. Just like the equity markets, it is very difficult to be short the Bund despite the insanely low yield. I am not going to chase this market higher and today my buy level will remain unchanged at 158.20/158.60 with the same 157.85 stop.
Gold Rolling Contract
Gold just missed my 1277 buy level with a 1282 low print before rallying. The DSI remains at just 10% bullish for Gold while the Managed Money accounts have paired back their net-long Gold positions to just 31,327 Contracts, the smallest since mid-July 2017 (28,820 Contracts). Last year Gold managed to rally nearly 13% over the next two months to September. A similar outcome is not guaranteed, but the potential is now elevated for a Gold rally. As a result I will now raise my buy level to 1277/1285 with a 1269 stop. I no longer want to be short Gold at this time.
Silver Rolling Contract
No change as I am still long Silver at 16.50 with the same 15.85 stop. I will now raise my T/P level on this position to 16.70 and if this happens I will be back with a new update for my Platinum Members.
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