A split Bank of England (BoE) decision to keep Interest Rates unchanged and another fall in oil prices were the two big events over the past 24 hours. In terms of market moves, equities were slightly lower (S&P500 – 0.2%), the US dollar was stronger (+0.6%) while Bond Yields were mostly higher across the board. The US dollar (DXY) rose 0.6% and is up 1.0% since the FOMC meeting on Wednesday. US Treasury yields also rose with 10-years up 3.8 bps to 2.16%, and 2- year yields up 2.0 bps to 1.35%. Despite the US dollar reaction to the FOMC statement, the market still prices just under a 50% chance of another rate hike by December and less than 1½ hikes are priced in through to the end of next year – this despite the Fed dot points pointing to four more rate hikes by the end of 2018. It is likely the market will require a pickup in inflation and wages growth to validate the Fed’s rate track.
To mark my 1350th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 75 points yesterday and is now ahead by 513 points for June having made 1071 points in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
The two currencies most resilient to US dollar strength in yesterday’s trading session were the Pound (+0.1%) and the Aussie (-0.1%). Down the bottom of the leader board were the Kiwi (-0.7%) and the Yen (-1.2%) while the Euro (-0.6%) reflected broad US dollar strength.
Sterling was a story of two halves with it initially dipping lower on a weak Retail Sales print (core -1.6% m/m against expectations of -1.0%), and then spiking 0.7% on the more hawkish Bank of England to finish at 1.2756, while this morning it has firmed again to trade at 1.2780 as I write this commentary. The Committee was more divided than expected with only 5 voting to hold versus 3 voting to raise (Forbes, McCafferty and Saunders). The BoE is currently balancing returning inflation back to target and supporting jobs and activity during Brexit. The dissenters argued this trade-off is lessening given growth in employment to date, while inflation has overshot the target more than previously thought.
UK Bond Yields lifted across the curve in response, taking it as a sign that the BoE is slowly inching its way towards lifting rates. 10-year Gilt yields rose 10.4 bps to 1.03% and 2-years are up a similar 8.4 bps to 0.17%. The OIS market gives around a 50% chance of a rate rise by the beginning of 2018.
The Australian Dollar was supported by an initial rally following yesterday’s strong employment figures (+0.6% and hitting 0.7632) which provided some buffer to US dollar strength, ending down just 0.1% overnight to 0.7590. The employment figures shot the lights out up 42.0k m/m against expectations of a 10k outcome and the Unemployment Rate fell a full 0.2% points to 5.5% — its lowest since February 2013. The only soft bit to the release was persistently high underemployment at 8.8%, which still is indicative of greater labour market slack than suggested by the headline unemployment rate.
Meanwhile the New Zealand Dollar was dragged lower by a weaker than expected Q1 GDP report (0.5% q/q against 0.7% expected).
The other big move was oil. WTI oil fell 1.1% to $44.26 a barrel and since 25 May it has fallen 14.5%. Recent moves reflect Wednesday’s build of US gasoline stockpiles to its highest levels since mid-March, while the International Energy Agency forecasts oil oversupply to persist with rising US shale oil production and production increases in other countries. Oil is also important for inflation expectations and the US 10-year inflation breakeven is now down to 1.69%, well below the 2.1% peak it reached during the Trump re-flation trade. This also has implications for nominal yields, with the fall in breakevens accounting for most of the decline in US Treasury yields over the past couple of months.
This morning on the Economic Front we have Euro-Zone CPI at 10.00 am. This is followed at 1.30 pm by US Housing Starts and Building Permits. Finally at 3.00 pm we have the University of Michigan Consumer Sentiment.
Later at 5.45 pm the Fed’s Kaplan will speak in Dallas.
September S&P 500
As I mentioned on Wednesday Quarterly Expiration weeks tend to be bullish and this week has certainly played out that way. I remember during the Global Financial Crisis for a September Expiration that the market rallied an incredible 160 Handles or Full points from the Thursday lunch time until the September Contract expired at 2.35 pm on the Friday and is one of the main reasons why I will never be short on an Expiration week. Yesterday my S&P plan worked perfectly with the market trading lower to my 2419 buy level before rallying aggressively to currently trade at 2438 as I write this commentary. These Quarterly Expiration days can be difficult to trade and was one of the main reasons why I left such a high sell range for the September Contract all week. Today I will again look to sell the market on any rally higher to 2457/2463 with a 2468 stop. My only interest in buying the S&P is still on a dip lower to 2423/2429 with a 2418 stop.
Shortly after lunch the Euro traded lower to my 1.1140 buy level and in keeping with my policy of banking points when available I emailed my Platinum Members to exit this trade at 1.1156 and I am now flat. Finally we are seeing some profit taking in the Euro that has been indicated by the overly bullish Daily Sentiment Index reading over the past two weeks. The Euro has strong support from 1.1080/1.1120 and today I will be a buyer in this area with a 1.1050 stop. Resistance is at 1.1220 and today I will now lower my sell level slightly to 1.1220/1.1260 with a 1.1290 stop.
September Dollar Index
Unfortunately the Dollar just missed my 96.50 buy level after I posted yesterday and I am still flat. Today I will now raise my buy level to 188.8.131.52 with a 95.95 stop which is just below last Wednesday’s low print. Given the low DSI reading towards the Dollar I still do not want to be short the market at this time.
The DAX was the first Index to hit my buy level yesterday when the market hit my initial 12670 buy level. As I had lower buy levels in the other markets plus in keeping with my strategy of banking points when available I emailed my Platinum Members to exit this position for a small profit at 12690 and I am still flat. Subsequently the DAX made a low of 12617 before rallying to trade at 12730 as I write this commentary this morning. With the June Expiration today I still do not want to be short the DAX at this time. My only interest in buying the DAX is on a dip lower to 12600/12650 with a 12550 stop. This buy range probably will not get triggered but I do not want to chase the market higher.
As I was long both the S&P and DAX I waited to buy the FTSE where I was filled at 7326. Again in wanting to bank points when available for the least amount of risk I emailed my Platinum Members to exit this position at my revised 7345 T/P level and I am now flat. For those members who are still long I would exit this position here at 7390 and stand aside. Today I will again look to buy the market on any dip lower to 7310/7340 with a 7280 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
Incredibly despite the Dow closing near all-time highs the McClellan Oscillator closed in negative territory with a -10 print. There is no doubt we are close to the final inning in this long played out stock market rally but until we get a sell extreme that lasts for more than a few days we just have to be patient. The latest rate hike by the Fed on Wednesday will only contract Money Supply further in my opinion and to me it is only a matter of time before the US goes into recession. As I mentioned in my S&P commentary above, the last trading day of a Quarterly Expiration are difficult to predict. Although the June Contract will expire at 2.35 pm the Options Contracts do not expire until 9.00 pm and often the 15 minutes into the Futures close at 9.15 pm can be extremely volatile. Overnight the Dow traded higher to my initial 21390 sell level and as I do not want to be short at this price level anymore i emailed my Platinum Members to exit this position for a breakeven and I am now flat. Today I will now raise my sell level to 21450/21520 in small size with a 21570 stop. Despite the positive price action I still do not want to be long the Dow at this time.
The Bund sold off yesterday after I posted on what turned out to be a very negative trading session. I am still flat and today I will now lower my sell level to 165.00/165.35 with a 165.65 stop which is just above last Wednesday’s high.
Gold Rolling Contract
The sell-off in Gold continued yesterday with the market closing below its 500 Week Moving Average at 1259. The 200 Day Moving Average For Gold is at 1237 and today I will now lower my buy level to 1236/1243 with a 1230 stop.
Silver Rolling Contract
No change as I am still long at 16.92 with the same 16.35 stop. As I mentioned yesterday I will only add into this position on any further mover lower to 16.45. My T/P remains at 17.15 on this position and will be lowered if my second buy level is filled.