We have had a fair bit of news to digest since I posted 24 hours ago, and some market price action across currencies, bonds and equities to accompany it. The net result, in FX-land, is that the Euro is (slightly) higher, as too are the Australian and New Zealand dollars, despite which the US Dollar itself, in Index terms, is also marginally higher. It’s not often you can say that, especially given that the narrow but widely followed DXY Dollar index has a more than 50% weight in the index. Squaring this particular circle is the fact that the Japanese Yen is weaker, aided by a combination of higher US Treasury yields and comments from BoJ Governor Kuroda that the BoJ has no intention of lessening its commitment to so called ‘Yield Curve Control’ and associated bond buying.
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For anyone following my Platinum Service it made 24 points yesterday and is now ahead by 972 points for April, having made 1335 points in March, 1481 in February and 1734 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.
Higher US bond yields and higher US equities owe something to remarks from US Treasury Secretary Steve Mnuchin. At an Institute for International Finance event in Washington, Mnuchin spoke optimistically of tax reform coming before the end of the year and not necessarily being tied to first completing reform of the Affordable Care Act (Obamacare). On the latter, President Trump has just said that a new health care overhaul could come as early as next week. Mnuchin also placed heavy emphasis on regulatory relief as well as tax reform as key to securing higher growth. This has helped the financial sector again lead the S&P higher, albeit aided by good earnings from Amex (Visa has also just reported after the US close and has beaten its street EPS estimate).
On tax reform which is important for the US Dollar, Mnuchin stressed that the objective of tax reform was to make business taxes competitive and ‘bring back trillions of dollar’ to invest at home. While he again expressed concerns about the efficacy of a so-called border tax, in part because of its potential implications for the dollar, the notion of incentivising US companies to repatriate profits locked up overseas still looks likely to form a major pillar of tax reform.
All this but to say ‘seeing is believing’, but Mnuchin’s remarks have played with the grain of a lift to US yields from data showing still very low levels of weekly US Jobless Claims (244k) an okay Philly Fed survey and Dallas Fed President Robert Kaplan saying he still sees the Fed’s three rate hike median for 2017 as a good baseline (though he adds the Fed still has time to wait and see on the economy). The net result here is that the dial on June Fed rate hike odds has shifted back to about evens from little more than a third earlier in the week.
The Euro rose shortly before lunch yesterday after polls showing Macron pulling ahead of Le Pen in first round polls but have been undermined in the New York trading session which saw this move reversed. The AUD meanwhile is back near 0.7535 and looks to have found some support from higher metals prices (led by aluminium).
This morning on the economic front we have German and Euro-Zone Manufacturing/Services PMI at 8.30 am and 9.00 am respectively. Also at 9.00 am we have Euro-Zone Current Account and the very important UK Retail Sales which is due at 9.30 am. This is followed at 2.45 pm by US Manufacturing/Services PMI. Finally at 3.00 pm we have Existing Home Sales.
Sunday’s first round of voting in the French Presidential elections will be one of the main talking point across global markets today. The final TV appearance of all 11 candidates – each granted 15 minutes of individual fame rather than it being a debate amongst each other – ended late last night. Snap polls indicating who was seen to have fared best, bearing in mind that some 40% of the French electorate claim to be undecided who they’d vote for (if anyone) will doubtless be populating the newswires during the day. Going into Sunday and ahead of the TV appearances, The Front National’s Marine Le Pen and the lesser known socially liberal, reform minded centrist Emmanuel Macron, are sitting fairly comfortably in the number 1 and 2 spots.
June S&P 500
The large inter-market divergence between the Dow and the S&P certainly played out yesterday with the Financial sector leading both Indices substantially higher. As I have been saying for the past number of years you just cannot be short the US stock market for any length of time as it just takes one trading session like yesterday to bring the market back from the brink. Yesterday’s comments from US Treasury Secretary Mnuchin that tax reform will happen before the end of the year is still way behind the initial time-line which was stated before the US Election. My own view is that this tax reform will be difficult to implement and that this all ties in with my view of new highs for the stock market before we finally see the real sell-off begin towards the end of this year/early 2018. Thankfully we had no sell levels in any of the US Indices yesterday as yet again any short position was slammed. So far the S&P has not closed over the important 50 Day Moving Average from 2354/2354 but it is only a matter of time before this happens. Today I will now raise my buy level to 2343/2348 with a 2338 stop. Again I will be an aggressive buyer on any dip lower to 2314/2320 with a 2309 stop. I still do not want to be short the S&P especially ahead of the April Options Expiry this evening.
Just after the New York close last evening the Euro finally hit my 1.0710 buy level. I am still long and I will now raise my stop on this position to 1.0675 as I do not want to risk too many of the nice points gained so far this week. However with the French Election on Sunday I will go home flat the Euro and I will use any rally today to exit this position if I am now already stopped out.
June Dollar Index
I am still flat the Dollar which came close to my 99.85 sell level. As I am already long the Euro I will now raise my sell level in the Dollar to 100.20/100.60 with a 100.90 stop. Despite the Dollar trading oversold I still do not want to be long the Dollar at this time.
The DAX has traded again in a narrow range for what seems like an eternity. Most European traders are still on vacation which is probably accounting for the limited price action. I am still flat the DAX and today I will raise my buy level slightly to 11925/11975 with a 11880 stop. Despite the Downside Key Day Reversal from earlier this month I still do not want to be short the DAX at this time.
The FTSE just missed my 7035 buy level after I posted yesterday morning by a couple of points before rallying strongly. The sideways to higher price action over the past couple of days means the FTSE is not oversold so risks are still to the downside. It was noticeable that despite the US markets rallying that the FTSE again lagged behind. A break below 7030 opens up a move to 6960/6985 which is the best chance from which we will get a rally and today I will be a buyer in this area with a wider 6925 stop. Despite the negative price action for the FTSE I am not comfortable in being short the market.
Dow Rolling Contract
Yet again the Dow has give us a false break before turning around and rallying strongly. Internally the market was fine with the McClellan Oscillator again closing in positive territory with a +47 print. I am still flat the Dow as thankfully we had no sell level in what turned out to be a near 250 point rally and I am still flat. If the Dow can break and close over 20660 then the recent correction may well be over. Today I will raise my buy level to 20490/20540 with a 20430 stop.
The Bund continued to sell-off after I posted yesterday morning with the market eventually trading the whole of my 162.60/162.90 buy range with a 162.52 low print. This move lower put me long at an average rate of 162.75. Having watched my position trading offside for nearly six hours I emailed my Platinum Members to exit this position near the close at 162.84 and I am now flat. The Bund has very strong support from 162.25/162.55 and today I will be a buyer in this area with a 161.95 stop. Ahead of the French Elections on Sunday I do not want to be short the Bund at this time.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1264/1270 with the same 1258 stop. Ahead of what again could be a military weekend I do not want to be short Gold at this time despite the significance of the 4.5 year trend line resistance from 1295/1300.
Silver Rolling Contract
My Silver plan worked well with the market trading lower to my 17.90 buy level before rallying to my revised 18.05 T/P level as I wanted to bank some points for yesterday on what turned out to be a very quiet trading session for my calls. Silver continues to trade heavy which is no surprise when you see sentiment at such extreme levels. Today my only interest in buying Silver is on a further dip lower to 17.40/17.75 with a 17.05 stop.