Friday’s markets were not just about more weak data – important as that was with US Housing Starts, Housing Permits and Consumer Sentiment all much weaker than expected and driving the US dollar and US bond yields lower. Amazon’s $13.7bn bid for Whole Foods sent shivers down the spine of the US consumer staples sector, off 2% at one point with $39bn was knocked off the market cap of the sector, led by WalMart. Amazon is promising to bring more automation and lower food prices to a company dubbed ‘Whole Paycheck’. More structural disinflation may lie ahead. Despite the hit to consumer staples, the broader stocks markets managed to (just) close in the black – the NASDAQ again the exception, down 0.22% to be 0.9% lower on the week and more than 3% off its earlier June highs. The S&P500 closed just 0.03% higher and 0.1% up on the week and the Dow +0.11% to be 0.1% w/w. The VIX lost 0.52 to 10.38 and is 0.32 down on the week.
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For anyone following my Platinum Service it made 20 points on Friday and is now ahead by 533 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.
In FX, the dollar was weaker across the board, the narrow DXY index -0.28% but only 0.11% lower on the week while BBDXY lost 0.33% to be 0.3% lower on the week. In individual currencies NZD gained the most, +0.64% to 0.7254 followed by NOK (-0.59%) and AUD, the latter +0.55% to 0.7621. This makes it the week’s second top performer after the CAD, the latter keying off the shift in Bank of Canada narrative earlier in the week.
In Interest rates markets, 2-year Treasuries finished 3.6bps lower at 1.317% and 2bps down on the week. 10s were -1.3bps to 2.152% (4.9bps w/w) so pretty much bisecting the pre and post US CPI highs and lows near 2.20% and 2.10% respectively.
Commodities were stronger across the board. Gold added $1.8 to $1254, oil added 30-40 cents, WTI to $44.74 (-$1.09 on the week) and Brent to $47.37 (-$0.78 on the week). Friday’s Baker Hughes U.S. oil rig count rose by another 6 rigs to 747, now the 22nd straight weekly rise. Iron ore added 50 cents to $55.75 for a weekly rise of $1.34.
As well as the weak data, led by the 5.1% drop in Housing Starts and 2.6 point fall in the University of Michigan’s preliminary Consumer Sentiment reading, Fed speak was also interesting. Dallas Fed President Robert Kaplan said the Fed needed to see more progress towards achieving its 2% inflation target before taking a next step. He acknowledged that the Phillips curve looks to be flatter than has been the case historically though said recent weakness may reflect some transitory factors. Neel Kashkari – who dissented against higher rates last week, said it was not yet possible to know if the drop in inflation was transitory. He argues “the outcome that the current FOMC is so focused on avoiding, high inflation of the 1970s, may actually be leading us to repeat some of the same mistakes the FOMC made in the 1970s: a faithbased belief in the Phillips curve and an under appreciation of the role of expectations”.
Finally, current polling indications suggest French President Macron’s En Marche party and its allies are on course to win as many as 365 seats in the 577 seat National Assembly, having already secured a majority.
This morning on the Economic Front we have Euro-Zone Construction Output at 10.00 am. This is the only data of note due to be released on either side of the Atlantic.
Meanwhile the Fed’s Dudley is due to speak in New York at 2.00 pm.
September S&P 500
Despite the much weaker US economic data on Friday the S&P continues to be a buy on dips with the price action on Friday again proving this point. After the S&P traded the whole of my 2423/2429 buy range with a 2420.25 low print the market finally regrouped a few hours before the close to rally hard and that rally has continued overnight with the S&P currently trading at 2438. After the S&P hit my 2426 average buy level I covered this position for a small gain at 2428 and I am now flat. The S&P is caught between the weaker NASDAQ and the stronger Dow which again closed at new all-time highs. However the McClellan Oscillator remains weak as the MO generated another Hindenburg Omen on Thursday and just missed recording one on Friday as the MO Closed barely in positive territory. We now know the S&P has strong support at Thursday’s 2416.25 low print and Friday’s 2420.25 low so the 2415/2421 will be strong support at this time. Today I will again look to buy the market from 2425/2431 with a 2420 stop. My only interest in selling the S&P is still on a rally higher to 2457/2463 with a 2468 stop.
I am still flat the Euro and today I will now raise my sell level slightly to 1.1265/1.1305 with a 1.1340 stop. Remember the 1.1300 level is the high from last November following Trump’s surprise election victory. The Euro is well supported from 1.1100/1.1140 and I will again look to buy the Euro on any dip to this area with a 1.1070 stop.
September Dollar Index
The low Daily Sentiment Index Reading suggests that the Dollar is due to start a rally which should when it begins recoup at least a third of loss since the January high at 1.0380. I am still flat the Dollar as I continue to look to buy the market on any dip lower to 96.35/96.75 with a 95.90 stop.
The DAX has now traded sideways for the past 6 weeks with small daily ranges during this time. This is unusual for the DAX as the market approaches the 12915 September all-time high. Today I will now raise my buy level to 12700/12760 with a 12650 stop. I still do not want to be short the market at this time.
Unfortunately the FTSE just missed my 7340 buy level after I posted on Friday before spending the rest of the day trading higher and I am still flat. With the September Contract trading at such a discount to the Cash FTSE it is difficult to be short the market. Today I will now raise my buy level to 7390/7420 with a 7360 stop.
Dow Rolling Contract
The Dow closed at a new all-time high on Friday at 21384. This rally has continued this morning with the market currently trading at 21450 as I write this commentary. My sell range was wide on Friday and is now at the initial price of this range. I have not gone short yet but I am tempted and today I will now raise my sell range slightly to 21480/21550 with a wider 21610 stop. Remember this is a bullish market and I am only going short in small size at this time.
No change as I am still a seller on any rally higher to 164.95/165.25 with the same 165.65 stop. I still do not want to be long the Bund at this time.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1236/1243 with the same 1230 stop. Remember as mentioned on Friday the 200 Day Moving Average comes in at 1237 and should lead to a decent rally on any initial test.
Silver Rolling Contract
I am still long the market at 16.92 with the same 16.35 stop. I will continue to look to add to this position on any move lower to 16.45. My T/P level remains unchanged at 17.15 and will be lowered if my second buy level is filled.