The FOMC statement issued last night has made it clear that there is no pre-determined timeline for Fed rate lift-off. The Fed is totally data dependent in considering when next to change policy, that data then playing into the Fed’s assessment of progress in their dual mandate of fostering maximum employment and price stability. My assessment is that September remains the next most likely time for the Fed to move. There are two meetings (June 18 and July 30) before the September 18 meeting and it will take time for the Fed to the comfortable that the US economy has not been dislodged from its underlying growth track. How much of the recent softer growth is transitory is yet to play out. Hours before the FOMC statement, first quarter US GDP was released and it disappointed growth expectations.
Growth was a paltry 0.2% (consensus 1.0%) with real final sales (domestic demand) down 0.5%. Business investment contracted and consumer spending slowed. Net exports again detracted from growth. A soft report all around. Memories of a soft first quarter last year though from the exceptionally cold weather still resonate and have played into the Fed’s consideration, but only in part, the Fed Statement saying that economic growth slowed during the winter months, in part reflecting transitory factors. The rest of the in part would include the slowdown in US Oil and Gas activity and the impact of the high $US. The bottom line is that the Fed is very much keeping their options open.
The short end of the US Treasury market has changed little, Fed funds futures having already priced for only a small/modest probability of a June or July move. The US$ softened in the aftermath of the soft GDP report and since the FOMC it has only managed to regain some of that lost composure. The AUD/USD was on the other side of that trade, rallying to above 0.8070 after US GDP but then pulling back to 0.8023 initially in early trade this morning before some follow-on modest selling after the RBNZ announcement which left rates unchanged at 3.50%. Chinese iron ore spot and futures prices did an about fact yesterday, spot down $2.75 to $57.13 (-4.59%) and Dalian futures off 1.78%.
This morning on the economic front we have German and Euro-Zone Unemployment which are due to be released at 8.55 am and 10.00 am respectively. Also at 10.00 am we have Euro-Zone CPI. Just before the Unemployment data the ECB will release its Economic Bulletin at 9.00 am. This is followed at 1.30 pm by the US Employment Cost Index, Weekly Jobless Claims and Personal Income/Spending. Finally we have the Chicago Purchasing Manager’s Survey and the OECD Economic Outlook at 2.45 pm and 3.00 pm respectively.
June S&P 500
The S&P plan worked very well yesterday as the market had a nice sell-off after I posted which saw the market drop to my 2098 buy level before having a nice rally which enabled me to cover this position at 2104 and I am now flat. The S&P has small support at 2090 followed by reasonable support at 2082, while the major level that the market must hold is 2035/2040 which if and when we break this level then we will see an acceleration lower. The economic data released year to date has been mainly awful with the exception of the Unemployment data which has generally held in well. Yesterday’s GDP data just proved how vulnerable the US is to an economic shock. Today I will again be a small buyer from 2092/2098 with the same 2087 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer in front of 2080 with a 2076 stop. If the market closes below 2082 I will then look to set up a short position. My only interest in selling the S&P is still on a rally to 2112/2117 with a 2127 stop.
EUR/USD
As expected the Euro finally broke and closed over the initial resistance at 1.1050. This level should now act as major support as it took four attempts over the past month to finally break and close over this now key pivot. Today I will move my buy level higher to 1.1050/1.1085 with a 1.1025 stop.
June US Dollar Index
The Dollar had a bad day yesterday with the market finally breaking and closing below the 95.80 major support. This level should now act as decent recent resistance and as I am still flat the Dollar I will lower my sell level to 95.60/95.90 with a 96.20 stop.
June DAX
The DAX plan did not work out well yesterday as the rising Euro is just killing the DAX with the market now down over 1000 points since the highs made last month. Thankfully I had a tight stop at 10740 after the market dropped to my 10790 buy level which limited the damage for me. Today the DAX has key support at 10400/10475 and if this level does not hold then the market is in severe trouble. Last night the market tested the bottom of this range before having a nice bounce into the New York close. The DAX closed outside the bottom of its Bollinger Band and for this reason I will again look to buy the market from 10420/10470 with a wider 10350 stop. Given how oversold the DAX is trading I do not want to be short the market at this time.
June FTSE
No change as I am still a small seller on any rally higher to 7030/7060 with a 7085 stop.
Dow Rolling Contract
The Dow just missed my 18170 sell level before trading a lot lower and I am still flat. Today I will lower my sell level slightly to 18120/18170 with a 18220 stop.
June BUND
Shortly after I posted yesterday morning the Bund got slammed and in the process broke the key support at 158.50. I am still flat the Bund and today I will lower my sell level to 158.30/158.60 with a 158.95 stop.
Gold Rolling Contract
Gold finally traded lower to my 1202 buy level last night. I am still long but only in small size and I will leave my stop the same at 1189 on this position.
Silver Rolling Contract
Shortly after I posted Silver traded lower to my 16.45 buy level. I am still long and I will leave my stop the same at 15.75.
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