Friday’s news cycle was dominated by President Trump’s decision to go ahead with tariffs on $50bn of Chinese goods ($34bn straight away, $16bn subject to representations by affected US firms) and China’s immediate tit-for-tat retaliatory response. US equities held up well in the circumstances (and so VIX stayed down) with the S&P off only 0.1% (and virtually flat on the week) and other Indices only a little more. Treasury yields were lower but by less than 2bps across the curve. The US dollar, which has to date consistently weakened whenever trade tensions have tightened, was 0.1% lower in narrow DXY terms but up very slightly in broader (BBDXY) terms.
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For anyone following my Platinum Service it lost 22 points on Friday and is now ahead by 152 points for June, having made 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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In contrast, it was commodity prices, commodity currencies and Asian Emerging Market (EM) currencies which bore the brunt of the tariff news. Base metals and oil were down across the broad and NZD, AUD and CAD off by on average 0.5%. The Korean Won lost 1.5% while the currencies of China, India and Thailand were all down more than 0.5%. The moves on the week in these latter markets were even bigger (e.g. ADXY, the index of Asia EM currencies, was 0.4% lower on the day Friday but 0.9% down on the week. The Australian Dollar’s 2% weekly fall made it the worst performing G10 currency, losses eclipsing the Euro despite the latter’s crunch lower in the wake of the last Thursday’s ECB meeting.
The dye for the poor performance of EM markets and commodity currencies last week looks to have been cast on Tuesday when China reported soft creditor and Money Supply numbers for May, followed on Thursday by the quite significant downside surprises in the Retail Sales, Industrial Production and Fixed Asset Investment readings.
The good US economic news kept on coming, the preliminary University of Michigan consumer sentiment reading rising to 99.3 from 98.9 (and versus March’s 101.4 cycle high). Industrial and Manufacturing Production numbers were both weaker than expected (latter -0.7%), but in large part due to a fire that had impacted a major parts supplier to the truck assembly sector.
Also notable on the US data front was the monthly US TICS (capital flows) data (for April). This showed net long term capital inflows of $93.9bn but mostly because US residents sold international securities and brought the money home (to the tune of $71.bn). Foreign investors were actually net sellers of US Treasuries in April, with official institutions selling a net $48.3bn and the private sector buying a net $44.6bn. A lot of this US capital repatriation may well have been out of Emerging Markets.
In bond markets, Treasury yields were fairly uniformly lower on the day but not by much (1-2bps). On the week, the Treasury curve is flatter again (2s/10s by 7.5bps) with the Fed driving short end yields higher and the post-ECB fall in Bunds yields helping subdue longer dates yields. The 10yr UST-Bund spread ends unchanged on the week, still at 250bps. 10yr Italian BTP yields came in another 13bps or so Friday (15bps on the week) to see the spread 10bps tighter.
In FX, EUR managed to claw back a little of Thursday’s 1.9% post-ECB crunch to be the best performing G10 currency. Sterling also ended slightly higher, shrugging off the news that Tory rebels led by Dominque Grieve had rejected the wording of the ‘’Meaningful Say’’ Brexit Bill amendment having earlier been satisfied by PM May’s verbal undertakings. The Lords Amendment comes back to the floor of the House of Commons this week and is a swing factor for Sterling. If will only take 14 ‘’Tory rebels’’ to support the amendment and side with the opposition for it to pass, which is actually a good news story for Sterling in terms of an eventual ‘’soft’’ Brexit, mandating parliamentary approval of whatever deal the government eventually agrees with the EU.
In commodities, it was a sea of red on the day and week. Nickel was Friday’s biggest loser while copper takes the wooden spoon on the week, down almost 5% following Friday’s 2.4% fall. Oil was down as much as 4% last week (Brent) in front of the OPEC meeting this week (Starting Friday), though expectations of an agreement to significantly increase production are in some doubt with, according to Bloomberg, Iran, Iraq and Venezuela threatening to block an agreement which, technically, requires unanimous approval.
This morning on the Economic Front we have no data of note due from either the UK or the Euro-Zone, while the only US data release is the NAHB Housing Market Index at 3.00 pm.
Trade tensions and potential further market fall-outs (in EM and with the Australia) will obviously feature this week, while central bank speak looms large with the ECB’s Central Bank Conference in Sintra, Portugal kicking off this afternoon. ECB President Draghi gives opening remarks at 5.30 pm. Fed chair Powell, BoJ Governor Kuroda and RBA Governor Phil Lowe are all in attendance.
September S&P 500
The S&P has traded in a wild range since the close on Thursday with the market trading lower to my 2776 buy level after the European Markets opened on Friday before rallying to my revised 2779 T/P level and I am now flat. Subsequently the S&P traded to a low of 2765 before the market rallied into the close. However after opening firm last night the Futures Market has again sold off as Trade tensions increase with China. Despite these increasing tensions I am not expecting a huge sell-off in the market especially as the VIX continues to close either side of a 12 Handle over the past week. It will take the VIX to break and close over 13 for a more sustained S&P sell-off. The S&P has strong support from 2752/2762 and today I will be a buyer on any dip to this area with a 2745 stop. I will now lower my sell level to 2792/2800 with a 2808 stop.
EUR/USD
Unfortunately the Euro just missed my 1.1535 buy level with a 1.1542 low print before having a nice rally on Friday, following Thursday’s huge 300 point sell-off which was the largest move lower for the Euro since Trump was elected President 18 months ago. While the Dollar made a new high on Friday so far the Euro has held its recent 1.1510 low made on May 29 which is positive divergence as long as we stay above this now key support level. Below here the Euro has support at its 500 Day, 200 and 100 Week Moving Averages which all come in between 1.1410/1.1450. Today I will leave my buy level unchanged from 1.1495/1.1535 with a 1.1465 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 1.1410/1.1450 with a 1.1360 stop. Remember we have the ECB Conference this afternoon with Dragi speaking at 5.30 pm. As long as we hold this key support level I do not want to be short the Euro at this time.
September Dollar Index
No change as I am still short at an average rate of 94.30 with the market just missing my 94.15 T/P level on Friday. Today I will now raise my exit level to 94.40 as I want to try and get flat ahead of the ECB Conference which starts later today. I will leave my stop unchanged at 94.85 and if either of these levels are hit I will be back with a new update for my Platinum Members.
September DAX
Late on Friday the DAX traded lower to my 12995 buy level before rallying strongly into the New York close. As I wanted to be flat ahead of the weekend I covered this position too early at 13005 and I am now flat. This morning the DAX is opening weaker but given the huge 400 point rally in the DAX I would expect any downside from here to be limited. Today I will again look to buy the market on any dip lower to 12780/12860 with a 12715 stop. I still do not want to be short the market at this time.
September FTSE
My FTSE plan did not work well as after the market traded lower to my average buy level at 7632 I was stopped out of this position near the low of the day at 7575 and I am still flat. Given the weakness in Sterling the FTSE sell-off on Friday was a surprise to me. Despite the sell-off on Friday the trend is still up and today I will again look to buy the market on any dip lower to 7485/7525 with a 7455 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
After the Dow traded lower to my average buy level at 25005 I was lucky that the market stopped short of my 24880 stop level with a 24888 low print before rallying to a rebound high of 25138 shortly before the New York close. Unfortunately I covered my long position too early at my revised 25040 T/P level and I am still flat. Just like the S&P above I am not expecting a huge sell-off in the Dow as yet and today I will again look to buy the market on any further dip lower to 24720/24860 with a 24650 stop.
September NASDAQ
Finally the NASDAQ traded lower to my 7260 T/P level on my 7280 short position from Thursday and I am still flat. Subsequently the NASDAQ rebounded above 7300 before following both the Dow and S&P lower overnight. Today I will again look to sell the market on any rally higher to 7290/7340 with a 7375 tight stop. Given how overbought the NASDAQ is trading I do not want to be long the market at this time.
September BUND
The BUND held the 159.45 support last week to form a rare but bullish triple bottom as the market rallied over 200 points following the ECB’s decision to delay any rate hikes until at least the summer of 2019. I am still flat and today I will now raise my buy level to 160.20/160.60 with a 159.80 stop.
Gold Rolling Contract
Thankfully most members do not trade Gold which is just as well as my plan for Gold on Friday did not work well. As I was already long Silver I waited to buy Gold which I did at 1287 before quickly getting stopped out of this position at 1281 and I am now flat. So far Gold is holding its 500 Day and 11 Month Moving Averages from 1272/1276 but a break and close below 1268 could well see another aggressive sell-off in the market. Given the significance of this support level I will be a small buyer from 1266/1274 with a tight 1260 stop.
Silver Rolling Contract
Silver got hit for over 3.5% on Friday to record one of its largest falls in many months. This move lower has me long at an average rate of 16.95 with a 16.45 stop. If I am stopped out of this position I will be a more aggressive buyer on any further move lower to 15.90/16.30 with a 15.55 stop. As a result of Friday’s large move lower I will now lower my exit level on this position to 16.70. If either of these levels are hit I will be back with a new update for my Platinum Members.
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