U.S. Equity Markets finished the day mostly higher, led by the 1.24% rise in the NASDAQ 100, while the Dow ended Friday with a small 0.13% loss. According to the U.S. Federal Reserve, total U.S. home equity grew by nearly 20% in the First Quarter to a record high of $27.8 trillion. Meanwhile, the amount of available equity also rose to $11 trillion, with mortgage-data firm Black Knight saying 75% of available equity belongs to borrowers with mortgage rates below 4%. This suggests that the U.S. may see a rash of households increasing their credit risk in the wake of the Federal Open Market Committee’s largest rate hike since 1994. If this were to continue, it would not only make borrowing against equity increasingly expensive but also result in a major uptick in consumers tapping cheap credit – potentially resulting in overextensions like those seen in 2007. That does not mean the country will suffer a 2008-style housing-market crash, but these factors could contribute to an economic reset. Within the S&P 500, six of the 11 sectors finished higher. European Markets closed higher. European Central Bank (“ECB”) President Christine Lagarde said it is constructing a new monetary policy tool that will trigger bond purchases if the yields of weaker economies shoot up. Italian Prime Minister Mario Draghi said increased rate hikes by the ECB are inevitable given persistently high inflation. German Finance Minister Christian Lindner said the European Union has made progress on crisis rules for banks, providing stability for the region’s financial system. In Asia, The Bank of Japan said it would leave current easy-money policies unchanged while saying it would keep an eye on foreign exchange markets and the economic impact of a weak yen. Chinese state-run media outlet Economic Daily said the country’s economy and inflation are in a “different place” than other major economies, so it does not need to tighten monetary policy. U.S. Officials were said to be working on a phone conversation this summer between President Joe Biden and China’s President Xi Jinping to defuse tensions. South Korean President Yoon Suk Yeol said the economy faced a “very grave” situation as inflation rises in tandem with slowing global economic growth. Elsewhere, Oil fell 7% on increased recession risks while Gold fell 0.61% on further Dollar strength.
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Equities
The S&P 500 closed 0.22% higher at a price of 3675.
The Dow Jones Industrial Average closed 38 points lower for a 0.13% loss at a price of 29.888.
The NASDAQ 100 closed 1.24% higher at a price of 11,265.
The Stoxx Europe 600 Index closed 0.8% higher.
This morning, the MSCI Asia Pacific Index fell 0.6%.
This morning, the Nikkei closed 0.83% lower at a price of 25,747
Currencies
The Bloomberg Dollar Spot Index closed 0.4% higher.
The Euro closed 0.6% lower at $1.0498.
The British Pound closed 0.6% lower at 1.2217.
The Japanese Yen fell 0.9% closing at $134.94.
Bonds
Germany’s 10-year yield closed five basis points lower at 1.66%.
Britain’s 10-year yield closed two basis points lower at 2.50%.
US 10 Year Treasury closed two basis points lower at 3.23%.
Commodities
West Texas Intermediate crude closed 7% lower at $108.58 a barrel.
Gold closed 0.61% lower at $1838.10 an ounce.
This morning on the Economic Front we already had the release of German Producer Prices which rose 1.6% versus +1.5% expected. With the U.S. Markets closed today, the only data of note is Euro-Zone Construction Output which will be released at 10.00 am.
Cash S&P 500
The S&P reversed earlier losses to end Friday with a small gain. Despite Friday’s rebound the S&P still closed lower for an unprecedented 10th out of the 11 weeks, not helped by Bitcoin testing the $18,000 level on Saturday which extended its losing streak to a record 12 sessions. When you have unprecedented liquidations like we have just seen across, Equities, Bonds and Crypto the prospect of more or margin calls can create further imbalances, but it also suggests that the mis-positioning on any change in the trifecta equation could result in an awe-inspiring counter rally. Both the Dollar and Bond Yields fell on Friday giving a glimmer of hope to my preferred rally set-up in the S&P, while encouragingly Junk Bonds did not make new lows last week. I went through my inflation charts over the weekend. I am seeing commodity prices that have fallen up to 50% since January in Lumber while Steel is down over 33% since February, while on Friday we finally saw Crude trade lower, falling 7% on recession fears. Energy Stocks were the worst performing sector last week, losing over 17% alone. This is a massive move meaning we may have seen a meaningful top in Energy. With Cash Markets closed today, we do have Futures Markets open until 4.30 pm. I am still long the S&P at 3701 with a now lower 3715 T/P level while leaving my 3669 ‘’Closing Stop’’ unchanged. Meanwhile I am still long from last Friday week at 3985 and given the points made last week, I will now lower my exit level on this position to 3925.
EUR/USD
The Euro sold off to my 1.0470 buy level. Overnight we rallied to my 1.0510 T/P level and I am now flat. I am encouraged by the positive reaction to the Euro despite the Equity meltdown and II will continue to be a buyer of dips as long as we do not close below 1.0350. Today, my buy level will be from 1.0430/1.0490 with a 1.0485 stop.
March Dollar Index
The Dollar rallied to my 104.80 sell level before trading lower to my revised 104.50 T/P level and I am now flat. Today, I will again be a seller from 104.50/105.10 with the same 105.75 stop.
Cash DAX
No Change. My only interest in buying the DAX is still on a dip lower 12830/12930 where I will be an aggressive buyer with a 12695 wider stop.
Cash FTSE
Overnight, the FTSE just missed my initial 6960 buy level with a 6965 low print and I am still flat. We are trading slightly higher at 7015 as I go to press. I will not chase the market higher leaving my 6900/6960 buy level unchanged with the same 6835 stop.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 29800 buy level before rallying over 300 points. This move higher enabled me to cover this position at my 29900 revised T/P level and I am now flat. This morning the Dow is trading lower at 29700. We have strong support from 29350/29650 where I will again be a buyer with a 29145 ‘’Closing Stop’’. Despite the negative price action I still do not want to be short the Dow at this time.
Cash NASDAQ 100
I am still seeing pockets of positive divergence on the NDX which is no surprise after a market has fallen over 36% this year. While the ‘’Fear & Greed’’ Index closed at 14 on Friday, for Cryptos is was a lot worse, closing at just a 6 print on Friday. It will be lower today when it updates given the fact that Crypto trades 24/7. I will now raise my second buy level to 10950/11150 with a 10725 wider stop. If I am taken long I will have a T/P level at 11400. Meanwhile I will leave my 14327 long position unchanged with the same 13400 exit level
September BUND
I have never seen such volatility in the Bund with the market trading in a 250 point range on Friday, following Thursday’s historic 450 point range. I have lost all edge in the Bund and after losing a further 85 points last Thursday in the Bund I am going to stay flat until this market calms down.
Gold Rolling Contract
No Change. I am still a buyer on any dip lower to 1808/1823 with the same 1799 ‘’Closing Stop’’.
Silver Rolling Contract
Silver traded lower to my 21.60 buy level. I am still long with a now lower 21.95 T/P level. I will add to this trade at 21.00 while leaving 20.35 stop unchanged.
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