US Q2 GDP print was the big data event on Friday and the numbers came in just below expectations at 4.1% (4.2% exp.) with Q1 figures revised upwards. Consumers and exports led the gains during the Quarter, but with soybeans leading the rise in exports (+9.3%) and tax cuts behind the consumer, the sense of pay back in Q3 took some of the gloss off the impressive numbers. President Trump was quick to hail the numbers as a great outcome from his policies and along with his economic advisers they have suggested the US economy is well on the path for years of sustained higher growth. The GDP figures were met with a bull flattening on the UST curve as the 10y rate dropped 3bps to 2.95%, before closing the session at 2.954%. After threatening to climb above 95 ahead of the data release, the DXY (USD index) shadowed the move lower in 10y UST yields and ended the day at 94.68. The move lower in the USD helped the AUD climb to an intra-day high of 74.11, before settling just below the figure, up 0.31%, and the best performing G10 currency for the day. European equities closed higher and tech shares led the decline in the US, with Twitter slumping an eye watering 21%.
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For anyone following my Platinum Service it lost 115 points on Friday but is still ahead by 960 points for July, having made 994 points in June, 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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Tight ranges have been the theme for most currency pairs in the past week, although it is interesting to note that speculative positioning is starting to look stretched in many pairs, including the AUD where the market has increased its bearish bet, now the shortest since September 2015. The new week is busy with important data release and events, so on paper the potential is there for at least some of these ranges to be challenged.
Currencies
Although the AUD was the best performing G10 currency on Friday, it still closed lower on the week and it recorded its third consecutive lower weekly close. Not a good look from a technical perspective. The Japanese Yen was the other outperformer on Friday and also one of the three currencies to outperform the USD on the week. Speculation over a potential BoJ policy tweak supported the yen in the past week, notably however speculators increased their short bet in JPY. CAD has been supported by positive NAFTA sound bites and a dovish ECB weighted on the Euro in spite of a good Juncker-Trump meeting.
Equities
European equities closed higher on Friday and tech shares weighted on US equities with Twitter following Facebook’s awful performance, falling 21% on Friday. The NASDAQ was the big loser on the week, down 1.06% while European equities were the big winners reflecting optimism following a truce in trade tensions between Europe and the US.
Bonds
Early in the week 10y UST yields broke the upper band of their tight 2.80% to 2.89% range held since late June and managed to close the week at 2.96%, after trading to an intra-day high of 2.9857%. In general UST yields closed slightly lower on Friday, but all major tenors rose on the week. 10y Core global yields lagged the move in 10y UST yields, but still closed the week higher. Ahead of the FOMC meeting on Wednesday, pricing expectations for a September hike have held above 90%.
Commodities
It was a quiet Friday for commodities with the 1.3% decline in WTI oil and 0.6% decline in copper the highlights. On the week aluminium was the big winner up 2.07% leading the gains within metals, copper was up 1.67% and again WTI the big loser down 2.51%.
Economics
– US 2Q GDP grew at a 4.1% vs 4.2% expected. Q1 growth was revised up to 2.2% from 2.0%, so the average for the first half was a robust 3.2%. Consumers led the way by adding 2.69% to the headline number while net export added 1.1%. Soybean exports ahead of China tariffs in July were a big contributor for the export increase (exports surged 9.3%), suggesting some payback is likely in Q3 while the fading impact from tax cuts also suggest less support is likely from the consumer in Q3. The headline number was depressed by a surprising outright fall in inventories, down $28bn, subtracting a hefty 1% from growth.
– Core PCE was +2.0% vs +2.2% expected and prior core PCE of 2.3%
– US University of Michigan consumer sentiment July’s final reading prints a tad higher 97.9 vs 97.1 expected. The 1y and 5-10 year inflation expectations were unchanged at 2.9% and 2.4% respectively.
– Baker Hughes US oil rig count 861 vs 858 prior
– Speaking about the strong US GDP numbers, President Trump says ‘’Once again, we are the economic envy of the entire world’’, and adds ‘’As the trade deals come in, one by one, we are going to go a lot higher than these numbers’’. And speaking on Sunday Treasury Secretary said the US economy is ‘’well on the path’’ for four or five years of sustained annual growth of 3%.
This morning on the Economic Front we have UK Mortgage Approvals at 9.30 am and this is followed at 10.00 am by Euro-Zone Consumer Confidence. At 11.00 am we have German CPI. Finally at 3.30 pm we have the Dallas Fed Manufacturing Activity Index.
September S&P 500
My S&P plan did not work well on Friday with the S&P falling over 30 Handles post the US GDP release. This move lower saw the S&P traded the whole of my buy range for an average long position at 2825 before stopping me out of this trade at 2815 and I am now flat. Last week was not a good week for some key stocks with Facebook and Twitter falling over 20%. Meanwhile Intel and Google lost 9% and 3% respectively. However for me to turn bearish I need to see a break and close below the key 2760/2780 support level. On top of this we have the FOMC Meeting on Wednesday and this is another reason why not to be short the S&P for the next couple of days. Today I will again look to buy the S&P on any dip lower to 2795/2803 with a 2789 stop.
EUR/USD
Shortly after the US Markets opened on Friday the Euro traded higher to my 1.1655 T/P level on my latest 1.1640 long position and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.1570/1.1610 with a 1.1535 stop. I still do not want to be short the Euro at this time.
September Dollar Index
No change as I am still a buyer on any dip lower to 93.70/94.10 with the same 93.35 stop. I still do not want to be short the Dollar at this time.
September DAX
The DAX continues to outperform the US Indices and I a still flat. Today I will leave my buy level unchanged from 12600/12670 with the same 12530 stop. The price action continues to tell me not to be short the market at this time.
September FTSE
I am still flat the FTSE which just missed my buy level on Friday before rallying. Today I will now lower my buy level slightly to 7510/7555 with a 7475 tight stop. With Sterling weak I still do not want to be short the market at this time.
Dow Rolling Contract
I did not have much luck on Friday with the Dow just missing my second sell level at 25600 by 4 points before selling off aggressively to hit my T/P level at 25410 on my short 25430 position and I am now flat. The Dow has strong resistance from 25630/25780 and today I will be a seller in this area with a 25850 tight stop. Meanwhile the Dow has good support from 25170/25300 and today I will be a buyer on any dip to this area with a 25110 stop.
September NASDAQ
After the NASDAQ traded lower to my 7330 buy level I was quickly stopped out of this position at 7280 and I am still flat. The NASDAQ has good support just below current prices at 7190/7230 and today I will again be a buyer on any dip to this area with a tight 7158 stop. Despite the large sell-off last week I still do not want to be short the market ahead of the FOMC on Wednesday.
September BUND
No change as my only interest in selling the Bund is still on a rally higher to 162.70/163.10 with the same 162.45 stop.
Gold Rolling Contract
Sentiment towards Gold remains near historic low levels as shown by the DSI which again closed near single digits with a 13% print on Friday. Today I will continue to be a buyer on any dip lower to 1205/1313 with the same 1198 stop.
Silver Rolling Contract
I am still long Silver at 15.48 with a now reduced 15.60 T/P level. I will continue to look to add to this position at 15.10 with the same 14.90 stop. If my second buy level is filled I will then lower my T/P level to 15.45. If any of the above levels are filled I will be back with a new update for my Platinum Members.
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