On Friday afternoon OPEC confirmed plans to increase oil output next month, triggering a big jump in oil prices, fuelling energy shares on either side of the Atlantic while also boosting commodity linked currencies with the Australian Dollar the outperformer. It was a quiet session for bonds and the USD was broadly weaker with the Euro helped by solid PMI prints. On Sunday the PboC cut the reserve ratio requirement to boost China’s economic growth, amid signs of activity slowdown and heightened trade tensions with the US. Yesterday President Trump has ramped up protectionism via tweets and reports US will curb Chinese investment ahead.
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For anyone following my Platinum Service it made 25 points yesterday and is now ahead by 618 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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OPEC reached an agreement to increase oil production by 1m b/d after a last minute compromise with Iran. But in what perhaps reflects the lack of shared views between members, the deal did not specify which countries would increase output and by how much. On Saturday the deal was ratified by non-OPEC nations and again no details were given on how the increase in production would be split between OPEC and OPEC allies.
As the increase in oil output is meant to be shared by all members/allies and many of them at this stage are unable to increase their current level of production, in practical terms the agreement is expected to result in an increase of 600k to 700k barrels a day. As such market reaction to Friday’s news boosted oil prices with both Brent and WTI enjoying their biggest one-day gain since 2016. Brent closed the day above the $75mark, up 3.42% while WTI gained 4.64%, ending the day at $68.58.
All that said the FT reported over the weekend that Saudi Arabian officials were widely disappointed with Friday’s oil price reaction and Mr Falih, Saudi Arabia’s Energy Minister was quoted as saying that ‘’strict’’ adherence to individual production quotas would not take priority over adequately supplying the market. Reaction to Mr Falih’s comments may see oil prices give back some of their Friday gains at the start of the new week.
In spite of what was a very muted day for other commodities, the rise in oil prices lifted commodity linked currencies and helped the AUD become the top G10 performer on Friday. The AUD closed the week at 0.7441, up 0.83% on the day, but essentially unchanged on the week. NZD gains were also fuelled by the gains in oil prices with the kiwi coming second in the G10 leader board, up 0.57% and closing the week at 0.6908, closer to the bottom of its 0.6826-0.7060 monthly range.
Meanwhile the CAD was unable to fully enjoy the oil induced party initially selling off amid soft domestic data releases (softer CPI and retail sales) but the oil rally eventually helped the CAD end the day up 0.1% to end the week at 1.3269. Prior to the data releases pricing expectation for a Bank of Canada hike in July sat just above 70%, now they are at 54% and with NAFTA negotiations not getting any better the case for the BoC to stand pat in July is growing in popularity.
Early in the session, the Euro was boosted by better than expected services and by inline manufacturing PMI readings. The data releases help the Euro reach an intra-day high of 1.1673 and although Trump’s tweet threatening a 20% trade tariffs on EU cars unless EU tariffs on US are not removed soon, weighed on the Euro before the close, the union currency still managed to end the week close to the intraday highs at 1.1654.
Overall Friday was not a good day for the USD with the greenback also underperforming on the week. European currencies (ex GBP and SEK) and the yen where the big winners on the week and despite having a solid Friday, most commodity linked currencies underperformed the USD. Notably AUD was unchanged on the week
While energy shares managed on Friday to uplift many equity Indices on either side of the Atlantic (S&P 500 0.2%, DJ 0.49% and Eurostoxx 50 1.125%), the picture on the week is less rosy with all major indices registering negative returns. China’s Shanghai was the big loser down -4.73%. Overall the trade tension/uncertainty was overriding theme for equities underperformance over the past week.
Action in the bond market was relatively subdued on Friday. 10y UST yield closed essentially unchanged at 2.895%. Oil headlines pushed the benchmark yield to an intra-day high of 2.9261% but then the Trump EU trade tweet was seemingly the catalyst for the 3bps rally that ensued before the end of the day. German Bunds were little changed on Friday but on the week they led the decline in core global bond yields.
Yesterday, the PBoC announced that it would cut the reserve ratio requirement for large commercial banks by 0.5% and cut reserve requirements for smaller banks. This action will free up over $100bn in capital. Larger banks will be required to use the funds towards debt-to-equity swaps while smaller banks can use the funds to extend credit. This easing in monetary policy follows signs of softer growth momentum in China and some market concern about the impact of US import tariffs.
This morning, the FT reports that the Trump administration has decided ‘’to restrict Chinese investment in US companies and start-ups in sectors from aerospace to robotics as it prepares to deploy its latest weapon in the escalating trade war with Beijing’’. It is set to come in a series of restrictions on inbound Chinese investment that Trump has ordered the US Treasury to draft and release this week.
Just after the US Markets re-opened last night, we had another Trump tweet “The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!”
This morning on the Economic Front we have German IFO Business Climate at 9.00 am. This is followed at 1.30 pm by the Chicago Fed National Activity Index. Finally we have Existing Home Sales and the Dallas Fed Manufacturing Activity Index at 3.00 pm and 3.30 pm respectively.
September S&P 500
The S&P traded in a narrow range on Friday before having a late sell-off and that has continued this morning with Asian stock market mostly closing 1% lower on Trade Tariffs. This move lower saw the S&P trade the whole of my buy range for an average long position at 2746. Most of you probably did not take this trade as you did want a position over the weekend but for those that did I emailed my Platinum Members at 7.00 am to exit any long position for a breakeven and I am now flat. With the Dow now trading well below its 50 Day Moving Average the S&P is still comfortably above its 2719 50 Day MA and this level should attract a lot of buying if tested. Today I will be a seller on any rally higher to 2765/2775 with a 2782 stop. The S&P has initial support at 2735 which is a two week low and today I will be a small buyer on any dip lower to 2729/2737 with a 2724 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2712/2719 with a 2707 tight stop.
EUR/USD
I am still flat the Euro and today I will now raise my buy level slightly to 1.1560/1.1600 with a 1.1525 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 1.1420/1.1470 with a 1.1375 stop. I still do not want to be short the Euro at this time.
September Dollar Index
I am still flat the Dollar and today I will again lower my sell level slightly to 94.70/95.10 with a 95.40 stop.
September DAX
The DAX has already given back 50% of its March/May rally and could be forming a huge Head & Shoulders top formation. For this happen we need to break and close below the neckline which comes in at 11600. Last week was bad one for DAX bulls especially as we closed below the 100 Day Moving Average at 12580. I am still flat and today I will lower my buy level to 12320/12380 with a 12260 tight stop. Bulls need to get the DAX back above 12600 or else we could be in serious danger of an accelerated move lower.
September FTSE
The FTSE was the strongest of the main Indices on Frida with the market rallying 100 points after I posted on Friday. This move higher enabled me to cover my long 7510 position at my 7535 T/P level and I am now flat. This morning the market is already down 75 points and I will again look to buy the FTSE on any dip lower to 7465/7505 with a 7435 stop.
Dow Rolling Contract
Unfortunately the Dow just missed my 24690 sell level with a 24668 high print before having a late sell-off into the close on Friday and this sell-off has continued overnight and again as I post this morning with the market now testing 24400. I am still flat and today I will continue to be an aggressive buyer on any further dip lower to 24180/24330 with a 24110 stop. This is where the 200 Day Moving Average comes in and should see a nice rebound on a first test. I will also lower my sell level to 24600/24770 with a 24850 stop.
September NASDAQ
I am still flat the NASDAQ which is finally showing some weakness of its latest new all-time high last Wednesday and Thursday. The market has good support at 7050 and today I will be a buyer from 7010/7060 with a 6970 stop.
September BUND
The Bund rallied late on Friday and as I did not want to have the potential of a short position on board over the weekend I emailed my Platinum Members to cancel any sell levels and I am still flat. Thankfully the Bund did not hit Friday’s sell level but has this morning. I presume that my Premium Members would wait for today’s Daily Commentary before committing to a trade this morning. As I have said over the last couple of weeks the low yield on the Bund is insane but is a worry as 10 years into an alleged economic recovery we still have most German Yields in negative territory. This is implying of another major economic collapse in the Euro-Zone. Today I will be a buyer of the Bund on any dip lower to 161.65/162.05 with a 161.35 stop.
Gold Rolling Contract
The price action in Gold is still weak as the market is finding it extremely difficult to have any meaningful rally. So far we are holding the 1260 support level but it does not look convincing. As I am back long Silver again I will now lower my Gold buy level to 1245/1253 with a 1238 stop.
Silver Rolling Contract
This morning Silver has traded lower to my 16.30 buy level. I am still long and I will now lower my T/P level on this position to 16.45 with a higher 15.85 stop.
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