Almost without irony, I have to report that Friday’s US Durable Goods Orders Report was sufficiently weak to power US stock indices to new record highs, such was the ‘zero for longer’ interpretation of the data. Not the better than expected +4% headline read-out, but the core numbers for capital goods that exclude both (exceptionally strong) Boeing aircraft orders and also relatively strong auto orders. The ‘Capital Goods orders ex-defence ex-aircraft’ series fell by 0.5% (+0.3% expected) alongside which February was revised from -1.4% to -2.2%. Ex-transport only, orders fell 0.2% (+0.3%E) with February now put at -1.3% not the -0.4% originally reported. Following the data, the Atlanta Fed revised its Q1 ‘GDPNow’ estimate back down to 0.1% from 0.2%, having revised it up from 0.1% after the relatively strong existing home sales data a week ago.
The official (Bloomberg) market consensus as of Friday sat at 1.0% (the Advance GDP estimate is due on Wednesday). The Atlanta Fed don’t claim a superior track record versus market consensus forecasts, but the average absolute error of their (final) estimate prior to the (Advance) GDP release is 0.68%, and the standard error 0.94%. What this does suggest is that risk to the market consensus sits to the downside. Directly on the back of the data, the US Treasury two-year note yield fell by 2.4bps to 0.5041%, the 5yr an even bigger 5.1bps to 1.3141% and the 10yr -4.9bps to 1.9086%. Earlier the 10yr Bund held Thursday’s backup, closing down just 1bp at 0.155%. This though was prior to the conclusion of Friday’s Euro Finance meeting in Riga, which failed to produce any progress towards a deal in front of upcoming Greek IMF debt repayments,. Rather, the highlight was more outpourings of frustration directed mostly at Greek Finance Minister Vardoulakis.
In stocks, the NASDAQ made its second consecutive record closing high, +0.71% to 5092, the S&P 500 added 0.23% to a new all-time closing high of 2117.7 and the Dow was +0.12% to 18080. Earlier the Eurostoxx 50 added 0.43% led by a 0.74% rally in the German DAX. In FX, the US dollar was softer across the board with the exception of CAD (-0.25% to 1.2174). GBP (0.87%) and NOK (+0.71%) just pipped AUD to first place, but AUD/USD still added 0.59% to 0.7824. USD/JPY lost 0.5% to Y118.99, while a EUR/USD gain of 0.45% to 1.0873 together with Yen strength depressed the DXY by 0.37% to 96.92.
In Commodities Gold got hit hard loosing $15 to close at 1179 as the market now turns its attention to the January 1141 low, a break of which will be short-term bearish.
Today on the economic front we have no data of note due this morning. Later at 2.45 pm we have the US Markit Services PMI. This is followed at 3.00 pm by German Retail Sales and Euro-Zone Economic Forecasts. Finally at 3.30 pm we have the Dallas Fed Manufacturing Activity Index.
June S&P 500
In comparison to the previous day’s trading the S&P traded in a very narrow range on Friday with market closing at yet another all-time high. The S&P plan worked out well on Friday but you had to be quick as soon after the market hit my 2014 sell level we had a small sell-off to a 2008.50 low print which enabled me to cover this position at 2010 and I am now flat. As you saw from my previous commentaries I am reluctant to go short especially with the market having clearly broke the 2090 previous resistance level. Today I will move my buy level higher to 2100/2106 with a 2095 stop. I will continue with my strategy of selling rallies but today my only interest in going short is on a spike to 2120/2125 with a tight 2128 stop. Before I start to get too bearish on this market I need to see a sell extreme that lasts more than a few days days rather than the few hours that we have witnessed over the previous two weeks.
EUR/USD
Unfortunately after I posted on Friday the Euro just missed my 1.0780 buy level before as expected having another strong rally. I still believe that the US Economy is slowing and that the expected first rate hike will be delayed. The FX market has got the US Dollar wrongly priced in my opinion and thus is due for a decent sell-off. However to get really bearish of the Dollar and bullish of the Euro we need to break and close over 1.1050. Today I will move my buy level higher to 1.0810/1.0840 with a 1.0770 stop. If I am taken long and subsequently stopped out of this trade I will be a more aggressive buyer in front of 1.0740 with a 1.0690 stop. I still do not want to be short the Euro at this time.
June US Dollar Index.
I am still flat the Dollar and today I will lower my sell level to 97.40.97.80 with a tight 98.20 stop. My only interest in buying the Dollar is on a dip to 95.90/96.30 with a 95.60 stop.
June DAX
The rally in the Euro is definitely holding back the rally in the DAX as shown by its underperformance against the US stock markets over the previous few trading sessions. However with the S&P closing at new all-time highs it makes it very difficult to short the DAX at this time. I am still flat the DAX and today I will move my buy level higher to 11740/11780 in small size with a wider 11690 stop.
June FTSE
The FTSE plan worked out well on Friday as shortly after I posted the FSTE traded higher to my 7050 sell level before having a nice sell-off which enabled me to cover this position at 7010 and I am now flat. With the UK General Election due in 10 days I will continue to look to sell rallies with a tight stop. Today I will again be a seller on any rally to 7060/7090 with a 7115 stop. I still do not want to be long the market at this time.
Dow Rolling Contract
The Dow plan also worked well on Friday as the Dow continues to underperform both the S&P and the NASDAQ with the stronger Dollar mainly to blame as it is hurting the earnings of the main Dow stocks. Shortly after I posted on Friday the Dow rallied to my 18090 sell level before having a nice sell-off which enabled me to cover this position at 18040 and I am now flat. Today I will again look to sell the Dow but at a higher 18150/18190 range with a 18230 stop. Despite the positive price action for the US stock markets in general I still do not want to be long the Dow at this time.
June BUND
No change as I am still a small seller on any rally to 159.60/159.90 with a 160.20 stop.
Gold Rolling Contract
My long 1191 Gold position did not work out so well on Friday as shortly after I posted Gold got hit hard to the downside before very quickly stopping me out this position at 1183 and I am now flat. Obviously Gold is having major difficulty in breaking the now key 1220/1230 resistance level. However when we do eventually take out this level a major rally should ensue. Today I will again be a small buyer on any dip lower to 1160/1168 with a tight 1155 stop. Despite the negative price action I still do not want to be short Gold at this time.
Silver Rolling Contract
No change as I am still long at 15.80 with the same 15.40 stop.
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