A ‘’risk-positive’’ start to the week is already in evidence via higher opening level of the US Futures Markets for both the Dow and S&P while the DAX is again trading at new all-time highs this morning. This follows the weekend news that the US has effectively declared a truce in its ongoing trade spat with China. A joint Sino-US statement issued from the White House on Saturday stated that China will help support growth and employment in the U.S. by increasing purchases of the U.S.’s goods and services. It says both sides agreed on meaningful increases in U.S. agriculture and energy exports, with the U.S. to send a team to China to work out details. The statement adds that China agreed to advance relevant amendments to its laws and regulations on intellectual property protections, including Patent Law, with the U.S. and China agreeing to encourage two-way investment to create a level playing field for competition.
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For anyone following my Platinum Service it made 65 points on Friday and is now ahead by 857 points for May, having made 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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Lovely if fuzzy stuff and already overnight we have had Robert Lighthizer, the U.S Trade Representative, out saying that the U.S. may still impose tariffs on China. For now though, this apparent outbreak of bonhomie goes a long ways to allaying concerns about an imminent tariff war.
The other market-relevant news since Friday is that in Italy supporters of both the League and 5-star movement have come out overwhelmingly in support of the programme advanced by both parties as the basis for a coalition government (albeit only 210,000 League supporters actually resisted a vote, and some 44,000 5-star supporters. Assuming that president Mattarella now gives the leaders the nod to form a government, we are set for some serious conflict between the collation’s economic and political ambitions on fiscal policy and migration/immigration in particular with both the Euro-Zone’s founding Stability and growth pact and the free movement of people enshrined in EU law.
The backstops here are there the President holds a veto on constitutional matters, that collective action clause will effectively prevent Italy from repudiating debt (if it wants to stay in the Euro/EU) and the ECB will of course not entertain earlier plans to in some way forgive Italian debt held on the ECB’s balance sheet. There will not be an existential Euro crisis here as there would have been had Marine Le Pen secured the French Presidency last year, but this does not mean the Euro, and Italian government debt, is not set for further period of underperformance.
Markets went our quietly on Friday amid a dearth of fresh news. The most significant price action was arguably the retreat in US Treasury yields from their mid-week highs, 5s and 10s off 4.8 and 5.5bps on the day respectively. Moves coincided with a slight retreat in risk sentiment that saw US equities lose between a quarter and three-eighths of a percent, but not enough to cause the VIX to shift from its 13.4 Thursday close (or to prevent the broader/small-cap centric Russell 2000 index rising to a record cycle high. This index says the U.S. economy is doing fine, thanks).
On the week, equity losses averaged 0.5% for the Dow and S&P and -0.7% for the NASDAQ and where the earlier week rise in US Treasury yields to new cycle highs (10s to just above 3.11%) was arguably the main driver, alongside rhetoric suggesting the current round of Sino-US trade talks were not going too well, notwithstanding the Thursday comments (later denied) that China had agreed to reduce its trade surplus with the US by $200bn. The VIX ended the week almost a point higher and 10yr Treasuries 8.6bps higher:
In FX, weakness in CAD, EUR, GBP and SEK drove USD Indices higher, DXY by 0.2% and BBDXY by 0.3%. The NZD bucked the firmer dollar trend to be 0.4% higher and the best G10 performer by far (followed by CHF) while AUD/USD finished Friday exactly where it ended on Thursday at 0.7511. CAD slippage follows the passing of U.S. House speaker Paul Ryan’s self-imposed deadline for a NAFTA deal last Thursday and a downside surprise on April Canadian Retail Sales where the ex-autos print of -0.2% fell well below the 0.5% expected. CPI at 0.3% was as expected, though the year-on-year rise fell to 2.2% from 2.3% and the 2.3% expected.
On the week, USD Indices are 1.2% higher on average, CHF the only currency up on the week with Italian political developments seeing some renewed weakness in EUR/CHF. EUR and EUR-linked currencies fared worse thanks to Italy followed by JPY thanks to higher UST yields and the recent resurrection of the strong USD/JPY correlation with UST-JGB yield spreads.
CFTC/IMM FX positioning data for the week ending May 15th shows a further reduction in the overall net speculative short USD position (-43k from -63k versus G10 currencies, or from -140k to -96k including MXN). The earlier large net long NZD position is now all but gone (+2k from +13k) while the net EU long remains large at 115k it may though have come down a fair post-Tuesday’s cut-off date. The speculative market looks to be starting to build a reasonable sized AUD short.
In commodities, oil remained at the centre of attention, Brent making a new high of $80.44 on Thursday night but giving back about 75 cents on Friday. Industrial metals were also uniformly lower, led by copper (-0.8%) and aluminium (-1%). On the week though, most commodities are higher, led by the 3% rise in Brent crude.
This morning on the Economic Front we have no data of note due from either the UK or the Euro-Zone. The only US data is the Chicago Fed National Activity Index which will be released at 1.30 pm.
However we have the Fed’s Bostic, Harper and Kashlari speaking later today at 3.15 pm, 7.00 pm and 10.30 pm respectively.
June S&P 500
My S&P plan worked well on Friday with the market trading lower to my 2713 buy level before rallying strongly. However as I had lower buy levels in the other Indices which I figured would have seen some of these levels hit I covered this long position at my revised 2616 T/P level and I am now flat. As it turned out Friday was another trading session of small margins as thankfully we had no short positions on board over the weekend with the S&P trading to a high at 2736 on the re-open of the markets at 11.00 pm last night. Today I will leave my sell level unchanged from 2743/2753 with the same 2759 tight stop. I do expect the S&P to have trouble breaking the key 2750 resistance area and we should see a sell-off on any initial test of this key area. I will now look to buy the S&P on any dip lower to 2710/2718 with a 2704 stop.
EUR/USD
The Euro traded lower to my 1.1760 buy level on Friday before rallying 20 points and I used this small rally to exit my long position at my revised 1.1775 T/P level as I did not want to have a position on board over the weekend. This morning the Euro is opening lower with the market approaching the key 1.1700/1.1730 support level, coupled with the Daily Sentiment Reading in single digits for the Euro I bought the market here this morning at 1.1740 with a tight 1.1695 stop. My T/P level for now remains at 1.1765 and if either of these levels are hit I will be back with a new update for my Platinum Members.
June Dollar Index
After the Dollar traded higher to my latest 93.65 sell level I emailed my Platinum Members to exit this short position at my revised 93.45 T/P level and I am now flat. The DSI again printed at 91% bullish for the Dollar which is the first back-to-back readings above 90% since December 15-20, 2016, when the DSI was at 90% or above during the four day stretch. This led to the January 3, 2017 high at 103.82 before the Dollar fell 17% over the following year. There is no doubt that based on this reading we are close to a meaningful high in the Dollar and low in the Euro. For these reasons I will again look to sell the Dollar on any further rally to 94.10/94.50 with a 94.85 stop.
June DAX
I am still flat the DAX which continues to make new all-time highs. Given how severely overbought the market is for the DAX I will now lower my sell level slightly to 13210/13270 with a 13320 tight stop. I no longer want to be long the DAX at this time.
June FTSE
Unfortunately the FTSE just missed my 7730 buy level on Friday with a 7734 low print before rallying to an overnight high at 7823.50 which just missed my 7825 sell level in what turned out to be another frustrating trading session and I am still flat. On Friday the FTSE again closed at new all-time highs as one short position after another gets crushed. Given the renewed weakness in Sterling I will now raise my buy level to 7720/7755 with a 7690 stop. I will also raise my sell level slightly to 7840/7880 with a 7910 tight stop.
Dow Rolling Contract
Frustratingly the Dow just missed my 24640 buy level on Friday before incredibly rallying to an overnight high at 24970. Thankfully we had no sell levels in this market on Friday and I am still flat. The Dow has strong resistance from 25080/25220 and today I will be a small seller in this area with a 25290 tight stop. I will also raise my buy level slightly to 24600/24750 with a 24495 stop.
June NASDAQ
The NASDAQ continues to underperform the Dow and I still flat. Today I will now lower my sell level to 6980/7030 with a 7080 stop. Meanwhile I will leave my buy level unchanged from 6800/6840 with the same 6760 tight stop.
June BUND
The BUND rallied strongly on Friday helped by the largest rally in the US Bond market in two months. Market Vane’s Bullish Consensus on US Treasury Bonds fell to 42% last Thursday, which is the lowest amount of Bond bulls in nearly 9 years, since June 9, 2009 (40%) It looks to me that the Bond sell-off as it or close to an end and would tie in with an upcoming top in the stock markets. Today I will now raise my buy level in the Bund to 158.20/158.60 with a 157.85 stop.
Gold Rolling Contract
I am still flat Gold and today I will leave my buy level unchanged from 1270/1277 with the same 1263 stop. The DSI is very low for Gold and I will not chase this market lower and will therefore leave my sell level unchanged from 1305/1312 with the same 1318 stop.
Silver Rolling Contract
The last time the DSI declined to 10% Silver bulls was December 7, 2017, the day Silver reached a low of $15.48. Prices then rallied 15% over the following four weeks. Silver prices are not as low as last December but sentiment is, which suggests that a rally should develop soon. I am still long at 16.50 and will continue to add to this position on any move lower to 16.10 with the same 15.85 stop. My T/P level will remain unchanged for now at 16.65 and I will be back with a new update for my Platinum Members if any of the above levels are hit.
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