The April US Employment Report proved to be a ‘Goldilocks’ affair for markets, not strong enough to detract from the view a first Fed tightening probably will not happen at least before September, and not weak enough to undermine optimism toward a better economy in Q2 than Q1 and positive risk sentiment.
Headline Non-Farm Payrolls came in just about as expected at 223K, but there was a big downward revision (-39K) to March and Hourly Earnings only rose by 0.1%. The Unemployment Rate fell to 5.4%, despite a tighter labour participation rate, and could on other occasions carried the day and led this to be seen as a stronger than expected report. However anaemic earnings growth, lack of upside surprise on headline NFP together with downward revisions – at the end of a week where the US Bond market has been busily establishing short Futures positions in front of the release – carried the day.
The 5-year segment of the US Treasury curve rallied the most post-payrolls at -7bps to 1.49% while the 10-Year lose 3bps to end the week at 2.15%. Earlier on Friday morning the hyper-volatile 10 Year German Bund lost 4bps in yield to 0.55% having touched 0.77% on Thursday. Friday’s closing level is still above levels prevailing both on the day of the ECB’s QE announcement (Jan 22) and its early March commencement. Global markets will continue to pay close attention to this rate this week, especially today when Greece is due to repay the IMF EUR750mn.
Last Friday was an understandably wild trading session for all things UK, where 10 Year Gilts lost 4.5bps to 1.875% so recovering about a third of the -12bps witnessed as soon as UK exit polls indicated the likelihood of a Conservative General Election victory. The markets now assume that with the Conservatives remaining in power we will see a greater Fiscal contraction/reduced Bond supply, and a ‘lower for longer’ view of Bank of England policy. Sterling was the standout winner in FX on Friday as Cable closed 1.3% higher at 1.5460 having touched 1.5520 as soon as the exit polls were released.
Today is a very quiet day for economic releases globally with no data of note due from either the Euro-Zone or the US. This morning at 12.00 pm the Bank of England will have its latest rate announcement and Asset Purchase Target.
June S&P 500
As most members know the only two days of the month that I go into an economic data release flat, is ahead of an FOMC Meeting and Non-Farm Payroll day. Thankfully I was flat and not short on Friday as soon as the NFP was released the S&P spiked higher to my 2100 sell level before very quickly stopping me out of this position for a small loss at 2105 and I am now flat. Friday was a very impressive trading session for the S&P as the market built on Thursday’s 2057 low to close right on the next key pivot point at 2108. Even though long-term I am very bearish this market until we get a sell extreme that lasts for more than a few days rather than a few hours it is very hard to be short the S&P. This 2108 level which the S&P closed on Friday is key, and if the S&P starts to move higher form here momentum could easily take this market to new highs and beyond. Today I will be a small buyer from 2098/2104 with a 2094 stop. If I am taken long and subsequently stopped out of this position I will use my ‘5 Handle Rule’ to go long again with a stop below whatever new low is printed. I do not want to be short the S&P today as I want to see how the market reacts to this key 2108 pivot.
EUR/USD
My long 1.1190 Euro position worked out well on Friday as shortly after the NFP was released on Friday the Euro spiked to a 1.1290 high which enabled me to cover this position at 1.1270 and I am now flat. The key support levels to watch for the Euro are at 1.1140 and then the breakout point at 1.1050. Today I will be a small buyer from 1.1130/1.1160 with a tight 1.1105 stop which is just below the overnight low. If I am taken long and subsequently stopped out of any long position I will be a more aggressive buyer in front of 1.1060 with a tight 1.1025 stop.
June US Dollar Index
Overnight the Dollar spiked higher to my 95.30 sell level. I am still short and today I will lower my stop to 95.50 as I do not want to risk too many points on this trade.
June DAX
The volatility in the DAX over the past two weeks has been staggering. I was very unlucky on Friday as shortly after I posted the DAX just missed my 11410 buy level with a 11440 low before going on to rally 300 points and is now nearly 600 points higher than last Thursday’s low. Unfortunately when this rallied occurred, the DAX traded higher to my 11570 sell level before stopping me out of this trade at 11620 and I am now flat. Friday was another great example of how important it is to have stops in the market. I have to respect the price action on Friday as momentum has turned to the upside and today I will be a small buyer on any dip lower to 11570/11620 with a tight 11540 stop. I will also look to go short the DAX on any rally higher to 11790/11830 with a 11860 stop.
June FTSE
No change as I am still a small seller from 7030/7060 with a tight 7080 stop. Given the huge up-move witnessed following the Conservative Election victory I will again look to buy the market on any dip to 6940/6980 with a 6925 stop.
Dow Rolling Contract
Following the release of the NFP on Friday the Dow spiked higher to my 18090 sell level before very quickly stopping me out of this position at 18130 and I am now flat. The next major resistance for the Dow is from 11240/11290 and today I will be a small seller in this area with an 11330 stop. Given the volatility I am trading in smaller size with a wider stop. I still believe that this market is an accident waiting to happen especially with two confirmed Hindenburg Omen’s still on the clock. Despite the positive price action I do not want to be long the market at this time.
June BUND
The Bund plan worked well on Friday as by the time that I posted on Friday the Bund was trading at my 154.70 sell level before subsequently having a decent sell-off which enabled me to cover this position at 154.10 and I am now flat. The massive sell-off in the Bund over the past two weeks has certainly changed sentiment towards the market and the Bund is now a definite sell on rallies. Today I will again be a small seller from 154.80/1.5510 with a 155.30 stop. I do not want to be long the Bund at this time.
Gold Rolling Contract
My long 1182 Gold position worked well on Friday as shortly after the NFP were released Gold spiked higher which enabled me to cover this position at 1192 and I am now flat. To me it is only a matter of time before Gold starts to have a substantial rally and today I will again be a small buyer on any further dip to 1170/1178 with a 1163 stop.
Silver Rolling Contract
No change as I am still long at 16.40 with the same 15.90 stop.
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