Just before the New York close, President Trump has formally announced that the US will exit the Global Paris Climate Accord. There has been little to no market reaction, not that a big reaction would have been expected even if this announcement was not forewarned. US equities have closed on their highs and again with softer oil prices. Yesterday was a trading session of a little re-accumulating support for the USD, the Bloomberg spot dollar index up 0.22%, the AUD taking more heat than other major currencies, back down below 0.74 this morning, trading toward the end of the NY session on its lows at around 0.7375. A combination of a further decline in oil prices (WTI at $48.08), another $1.05 off the iron ore price yesterday and USD-supportive rate rise comments from the Fed’s John Williams yesterday in Seoul and Jerome Powell last night have all contributed, also as the market ponders the possibility of a negative AU GDP print next week. Base metals were mixed, copper up, nickel down.
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 if interested can you please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it lost 22 points yesterday on the first trading day of June, having made 1071 points in May, 1276 in April, 1335 in March, 1481 in February and 1735 in January. The previous seven months saw gains of 1351, 1971, 1582, 1142, 1782, 1682 and 2550 points respectively. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
Oil prices had earlier garnered some support from an eighth-straight weekly drop in US inventories, down 6.4mb for the week to May 26, more than double analysts’ estimates. But support above $49 did not hold. US output was up another 22kbpd to 9.34mbpd. There was also a Bloomberg interview with the Russian Economics Minister Maxim Oreshkin suggesting that while OPEC/non-OPEC cuts are getting some traction, $40 oil is their underlying economic assumption, a level he said Russia can live with forever.
Yesterday’s super-charged Australian April retail sales growth of 1.0% (and OK Capex) saw the AUD initially spike to around 0.7450, a rise also short-lived. Well within the hour it was all unwound (and more) after Williams’ comments, setting the tone for USD support/AUD weakness. I also note that Chinese Dalian iron ore futures were not travelling well for most of the APAC session, though they did however close up 0.47%. NAB also released an updated estimate for next Wednesday’s GDP, now forecasting a slight contraction of 0.1%, some of that weather-affected, some though reflecting soft consumption and wages. GDP is being released next Wednesday June 7.
Fed President John Williams – whose views are regarded as close to Yellen’s and moderate – said that three rises is a reasonable view for this year but that there is potential upside for the economy and if the economy strengthens , four rises would be appropriate. Strong comments, of course contingent on “if the economy strengthens”. Thinking aloud about the possibility of four rate rises this year was certainly something for the market to chew on. Last night, Fed Governor Powell said that he could see the Fed raising rates “a couple of more times” this year if the economy performs as policy makers expect. A rise at the June 14 FOMC now looks all but baked in; it’s a matter of what happens next and that’s where this afternoon’s Payrolls Report comes in.
Data released on the US economy yesterday has been neutral-to-supportive for the USD. The ISM Manufacturing Index for May right on consensus at 54.9 after 54.8 in April, with 54.8 also the consensus pick. The employment component was up slightly from 52.0 to 53.5 while New Orders was also even stronger at 59.5, up from 57.5. Jobless Claims ticked a little higher to 248k, up from 235k, while the ADP Employment Report for May reported a 253k rise in private sector payrolls for the month, whether you have faith in the predictive power of that indicator or not. Construction spending in April was softer than expected, down 1.4%, though there was a compensating upward revision to March. In the wake of the ISM Manufacturing and the Construction report, the Atlanta Fed’s GDPNow estimate for Q2 was, on net edged higher to 4.0% from 3.8% earlier this week.
Into next week’s UK election in what looks to be an increasingly close fought race, Sterling has been steadier, and even making up some ground on the USD at 1.2880 this morning, with EUR/GBP closing down below 0.8700.
This morning on the Economic Front we have no data of note from the UK or the Euro-Zone as all attention switches to the release of the US Non-Farm Payrolls Report at 1.30 pm. The main interest will be what it says about the tightness of the labour market from an employment/ unemployment perspective and how that is playing out in terms of wages growth. (The full US trade balance report for April is also being released.) The market is priced for a 180k rise (L: 211k) and an Unemployment rate of 4.4% (unchanged). The range of forecasts is 130- 280K, most estimates are between 165-200k. The range of forecasts on the unemployment rate is 4.3%-4.5%.) As for wages growth, Average Hourly Earnings is expected to grow by 0.2%/2.6% after 0.3%/2.5%; monthly growth of 0.3% or more would give those like Stanley Fischer who are looking for annual growth in wages of around or 3% or higher as a firmer cost underpinning of the Fed’s 2% inflation objective.
Finally at 2.30 pm the ECB’s Visco is speaking at the Trento Economic Festival.
June S&P 500
Yesterday was another trading session of small margins with a number of my calls including the S&P missing my buy range. The S&P surged to a new all-time closing high at 2429 as the buy the dip continues with no fear. On Wednesday we got a second Hindenburg Omen which now gives a registered HO and this signal is now valid until September. This means that any stage over the next three months we can have a stock market crash. This of course seems insane when we are trading at all-time highs in most of the US Indices. Late yesterday evening the S&P traded higher to my average sell level at 2426. As is my norm to go flat into a major announcement I emailed my Platinum Members to exit this position for a small loss at 2428.75 and I am now flat. I will now stay flat until we get the NFP release and if the S&P rallies subsequently I will again look to sell the market from 2439/2447 with a wider 2453 stop. The 2435/2450 is strong resistance and I would expect the S&P to initially have difficulty in breaking this level. To add to the confusion volumes have been extremely light for this latest break to new highs. I will also raise my buy level to 2415/2421 with a 2410 stop.
EUR/USD
The Euro is trading at a critical juncture. If the Euro closed over 1.12 it will the second week it has done so and this enhances my view that the Euro will eventually break towards 1.20 over the coming months. Next week we have the UK Election and the really important ECB Meeting both on Thursday and of course this is followed by the FOMC Meeting the following Wednesday. It is incredible with all the talk of more rate hikes that the 10 Year Treasury is not rising and has been falling for most of the past six weeks to yield just 2.20%. This falling yield is helping the Euro to rally as the yield difference between Europe and the US narrows. Today I will leave my sell level unchanged from 1.1290/1.1330 with the same 1.1365 tight stop. Ahead of the NFP data I will now lower my buy level in the Euro slightly to 1.1120/1.1160 with a 1.1090 stop.
June Dollar Index
No change as my only interest in buying the Dollar is still on a dip lower to 96..25/96.60 with the same 95.95 stop. The Dollar is severely oversold and it will interesting to see what the Daily Sentiment Index reading is when released this evening.
June DAX
Unfortunately the DAX again just missed my buy level before rallying strongly. Thankfully we had no sell level yesterday and are still flat. The DAX closed last night within touching distance of its all-time high at 12843. Today I will now raise my buy level to 12590/12650 with a 12545 tight stop. I still do not want to be short the market at this time.
June FTSE
The FTSE also closed at new all-time highs yesterday and does not seem to be at all worried about next week’s Election outcome. Having started trading UK Interest Rates in BNP in Dublin 30 years ago and traded through many a UK Election I have never seen such low volatility or complacency ahead of an election. The FTSE has strong resistance just above last night’s close at 7580/7600 where we have an 8 month trend line. Despite this strong resistance I still do not want to be short the market and I will now raise my buy level to 7485/7520 with a 7455 stop.
Dow Rolling Contract
The Dow closed last night at a new all-time high but still below the March 1, all-time high at 21,169. It looks as I go to print that we will surpass this key level later today in what is an overbought market. The Dow’s next main resistance level is at 21295/21350 and today I will be a small seller in this area with a 21395 tight stop. Unfortunately the Dow just missed my 20970 buy level with a 20987 low print before spending the rest of the US trading session moving higher. I will now raise my buy level to 21000/21060 with a 20940 stop.
June BUND
The Bund also missed my buy initial 161.80 buy level with a 161.95 low print before spending the rest of the session trading sideways/higher and I am still flat. Today I will leave my buy level unchanged at 161.50/161.80 with the same 161.25 tight stop.
Gold Rolling Contract
Gold continues to test the 4.5 year mega trend line at 1280 but so far has failed to break it and I am still flat. Today I will now lower my buy level for Gold to 1244/1251 with a 1238 stop.
Silver Rolling Contract
Silver continues to underperform Gold with the market trading lower to my second buy level at 17.00 which put me long at an average rate of 17.16. As I was surprised by the extent of the sell-off at mid-session I emailed my Platinum Members to exit this position for a small gain at 17.22 and I am now flat. Today I will again look to buy Silver on any dip lower to 16.75/17.04 with a 16.45 stop.
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