A dramatic week ended without too much additional fanfare on Friday. The global yield back up extended but only slightly, the dollar finished fairly flat overall and stocks mixed (US mostly higher, Europe weaker). Neither the US core PCE deflator (1.4% from 1.5%) nor Eurozone HICP (1.3% from 1.4%) sprung surprises sufficient to prompt market volatility. Of more interest as it turned out, the Chicago PMI jumped by over 6 points to suggest upside risk to Monday’s manufacturing ISM, while a very strong Canadian Q2 Business Survey looks to have sealed the deal in terms of the Bank of Canada being the first cab off the rank to translate the recent shift in central bank rhetoric into action. Meanwhile the narrow DXY US DIllar index ended Q2 recording its biggest quarterly loss since Q3 2010. This week’s top drawer US economic data has a lot to live up to if there is to be any love left for the US dollar at the start of Q3.
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For anyone following my Platinum Service it made 86 points on Friday which helped June to close with a gain of 1023 points having made 1071 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 1700 points.
In US stocks, the S&P finished Friday 0.15% higher at 2,423.41 but was 0.6% lower on the week. The Dow gained 0.29% (-0.2% w/w) while the NASDAQ lost 0.06% and is 2.0% down on the week. The VIX dropped back another 0.26 to 11.18 so is just 1.16 points higher on the week. The Eurostoxx 50 fell 0.85% to be 2.9% lower on the week, so European stocks seemingly more freaked out by the back-up in their Bond Yields than their US counterparts by higher US yields.
In FX, the dollar put in a mixed performance with DXY unchanged at 95.628 and the broader BBDXY +0.13% on a slight recovery against the EUR (-0.13% to 1.1426) and rise in USD/JPY (+0.19% to 112.39. The NZD was joint best performer with NOK, +0.47% to 0.7333 and to its highest level since last November. SEK (+0.42%) and CAD were not far behind (USD/CAD -0.31% to 1.2964 and bringing its weekly rise to 2.3%. GBP/USD added another +0.14% so extending Thursday’s push above $1.30, to $1.3025 and making it the second best G10 FX performer over the week (+2.4% versus +3.4% for the SEK). AUD/USD finished little changed at 0.7689.
In Interest Rates the global sovereign yields back up continued, more so in Treasuries than European bonds. 2yr USTs +1.3bps to 1.384% (+4.2bps on the week) and 10s +3.8bps to 2.305% (+16.2bps w/w). 10yr Bunds added a more modest 1.4bps to 0.466% but on the week the rise has outpaced all points on the Treasury curve (+21.1bps) only to be outdone by UK gilts, +22.6bps on the week.
In commodities, oil continued its recovery from the previous week’s sharp losses, WTI +$1.1 to $46.04 and so $3.03 up on the week while Brent added 50 cents to $47.92 to be $2.38 up on the week. Friday’s Baker Hughes rig count showed the first drop in 24 weeks in U.S. rigs operating, albeit by just 2 to 756. Gold in contrast lost $3.5 to $1,242.30 and is $13.90 lower on the week. Iron ore added another 20 cents to $64.95 bringing its weekly gains to $$8.20 or 14.4%.
This morning on the Economic Front we have German, Euro-Zone, UK, and US Manufacturing PMI at 8.55 am, 9.00 am, 9.30 am and 2.45 pm respectively. At 10.00 am we have Euro-Zone Unemployment. Finally we have US ISM Manufacturing/Prices Paid and Construction Spending at 3.00 pm.
Meanwhile this morning at a Bank of England Conference in London the Fed’s Bullard is speaking.
September S&P 500
The S&P rallied as expected on Friday ahead of tomorrow’s 4th July US Bank Holiday but not without a nasty sell-off into the close on Friday night when the S&P which just missed my 2432 sell level with a late 2430 print only to get hit for 10 Handles in the last 20 minutes of trading. The US trading desks will be lightly attended today especially with the US Stock markets closing for a half day with the Cash Markets closing at 6.00 pm and the Futures Market 15 minutes later. I still cannot get my head around the fact that last week Fed Chair said there will be no other financial crisis in her life time. This is an incredible statement with the US stock market at valuation levels that are nearly as high as 1929 and even higher than even the early 2000 historical extremes, especially when you adjust for much lower economic and earnings growth. Global Debt has grown $60 trillion since the last bubble peak. Every measure of debt and bubble behaviour says there is the highest chance of a financial crisis and crash, which makes her statement even more laughable in my opinion. To compound the complacency in the market, the VIX has had more closes below 10 than I can ever remember. With the US Holiday, the next couple of trading sessions will be quiet and today I will continue to look to sell the S&P on any rally higher to 2435/2442 with a 2448 stop. I will also raise my buy level to 2409/2416 with a 2404 stop. Remember a break and close below 2402 will be bearish and will open up the possibility of a move lower to 2380 which is where we have the 100 Day Moving Average and a 5 month trend line.
I am still flat the Euro which traded in a narrow range on Friday after the previous two trading sessions of large gains. The Euro is severely overbought as shown by the Daily Sentiment Index which closed at 93% bulls on Friday. This is the highest percentage of bulls since February 1, 2013. The Euro ended a seven month rise on that day 4 years ago and started a 7% decline over the following three months. I am not saying that history is going to repeat itself but we are certainly due a decent correction after this huge move from the 1.0340 low in early January. Today I will now lower my sell level to 1.1440/1.1485 with a 1.1530 stop. Given all of the above, I do not want to be long the Euro at this time.
September Dollar Index
My Dollar plan worked well with the Dollar trading lower to my 95.35 buy level before rallying to my revised 95.54 T/P level. Given the extreme bearishness towards the US Dollar I have now bought the Dollar again this morning here at 95.50 with a 95.10 tight stop.
My DAX plan worked well with the market getting hit hard into the 4.30 pm cash close. This sell-off saw the DAX trade lower to my 12315 buy level before rallying back to 12400 ahead of the 9.00 pm Futures close. Unfortunately after what happened to me with the DAX on Thursday I covered this long position way too early at my revised 12332 T/P level and I am now flat. Hopefully for anyone who did buy the DAX that they got a better exit level. Today I will again look to buy the market on any dip lower to 12280/12330 with a 12240 stop.
My FTSE plan also worked well with the market trading higher to my 7315 sell level before getting hit hard. This sell-off enabled me to cover my short position at my 7290 T/P level and I am now flat. This morning the FTSE is trading lower at 7280 helped by the stronger pound. Today I will again look to sell the market on any rally higher to 7320/7350 with a 7380 tight stop.
Dow Rolling Contract
Remember the Cash Dow closes at 6.00 pm this evening and is closed all day tomorrow. As a result I would expect a very quiet trading session. For me to turn bearish the Dow needs to break and close below its March 1, previous all-time high at 21169. I am still flat the Dow and today I will continue to be a seller on any rally higher to 21495/21565 with a 21610 tight stop. My only interest in buying the Dow is still on a dip lower to 21140/21210 with the same 21075 stop.
It took a while but my Bund plan finally worked well with the market trading lower to my 161.58 buy level on the open this morning before rallying back above 162.00. In keeping with my strategy of banking points when available I covered this long position at my revised 161.83 T/P level and I am now flat. The Bund is extremely oversold and today I will again look to buy the market on any dip lower to 161.25/161.70 with a 160.95 stop.
Gold Rolling Contract
Gold continues to trade heavy after last week’s $20 sell-off. However as Gold can hold above 1225 then the market should be fine but a break and close below the 1210/1225 support will be bearish. Despite the price action being negative I will continue to look to buy Gold on any dip lower to 1218/1226 with a 1210 stop.
Silver Rolling Contract
No change as I am still a buyer on any dip lower to 16.10/16.45 with the same 15.80 stop.