Toward the close of the US Trading session on Friday, Fed Chair Janet Yellen presented a keynote speech on ‘Normalising Monetary Policy Prospects and Perspectives’. Ms Yellen seems pretty determined to commence lift-off in the Fed Funds Rate before the year is out, while offering no pointers to when exactly this might occur. She expects above trend growth in coming Quarters, notwithstanding the recent ‘disappointing tone to Retail Sales’ data.
She reiterated that exactly when the Fed starts is less significant that what happens thereafter. She does not need to see hard evidence that inflation is moving up towards the 2.0% target, or even that wages are picking up from current growth levels, before ‘lift-off’. The strength of incoming labour market data will be key.
Beyond this Ms Yellen went to great length to detail why rate hikes that would not be rushed and ultimately may not reach levels previously considered to be ‘normal’. My take is that while rates may rise sooner and faster that current market pricing (0.4% at year-end and 1.75% in three years’ time) they are more likely to undershoot than overshoot the Fed’s latest median ’dot point’ trajectory. This currently has the Fed Funds Rate at 0.5-0.75% by end 2015, 1.75-2.0% by end 2016 and 3.0-3.25% by end 2017.
US Interest Rates did not move much in the remaining hour if cash market trading after Ms Yellen spoke, on average adding 1bp to earlier bull-flattening shift lower in the Yield Curve, with the 10 Year Treasuries closing down 3bps to 1.96%. U.S. and European Equity Indices ended the week slightly higher with the S&P 500 and Eurostoxx both closing 0.25% higher. That trend has continued overnight with the news that the Chinese Central Bank which said that with growth under-scoring they have the option to respond which has led to a 4% rise in Chinese stocks and this has filtered through to European Bourses this morning.
This morning on the economic front we have UK Net Consumer Credit at 9.30 am. This is followed at 10.00 am by Euro-Zone Economic Confidence. At 1.00 pm we have German CPI and this will be closely watched by the markets. As Europe finally moved their clocks forward by one hour over the weekend US economic releases will be back to normal times, with Personal Income/Spending first up at 1.30 pm. Finally at 3.00 pm we have Pending Home Sales.
June S&P 500
As expected the S&P traded in a very narrow trading range on Friday as the markets waited for the Yellen speech in San Francisco. With nothing new coming out of this the S&P rose slightly on the day but still closed down 2.2% for the week. However overnight the S&P has traded in a wide range due mainly to the news that China is going to try and stimulate their stagnating economy by more rate cuts which has seen the S&P trade higher to my 2060 sell level before the market sold off slightly which enabled me to cover this position at 2056 this morning. I have just decided to cover the rest of my Macro 2068 position which I took last week at 2058 and I am now flat. The key resistance level for the S&P is still from 2070/2080 and today I will be a small seller on any further rally to 2070/2076 with a wider 2082 stop. I will also raise my buy level to 2045/2050 with a 2039 stop.
EUR/USD
Again I was very unlucky with my Euro call on Friday as the market just missed my 1.0800 buy level by 5 points before the market rallied over 100 points and as a result I am still flat the Euro. I find it very hard to go short the Euro as I really believe that the Fed will raise rates at a slower pace than is currently priced in by the market especially after I listened to Chicago Fed President Evan’s speech in London last week where he said that he can see no rate hike at all until at least 2016. Today I will raise my buy level slightly to 1.0780/1.0820 with a 1.0745 stop.
June US Dollar Index
No change as I am still a small seller on any further rally to 98.20/98.60 with the same 98.80 stop. My only interest in buying the Dollar Index is on a dip to 96.80/97.20 with a 96.40 stop.
June DAX
This morning the DAX has finally broken the key 11940 resistance level that I mentioned last Friday. As a result of this break which occurred shortly after the DAX opened this morning I have bought the market at 11985. I will leave a tight 11920 stop on this position as I look for the DAX to trade higher to 12100 initially followed by a test of the now key 12180/12240 next resistance level. As a result of this break I do not want to be short the DAX at this time.
June FTSE
The FTSE plan finally worked out well as after the market traded lower on Friday to my 6790 buy level the market has rallied this morning on back of the rising Chinese stock market which has enabled me to cover this position at 6835 and I am now flat. Today I will again be a small buyer on any dip lower to 6780/6810 with a 6755 stop. Despite the weak price action I do not want to be short the market at this time.
Dow Rolling Contract
With the Dow rising this morning on the stronger overseas markets I will raise my sell level slightly to 17840/17890 with a 17930 stop. Remember we still have an unprecedented three confirmed Hindenburg Omen’s on the clock and in my opinion it is only a matter of time before the Dow has a sell extreme that lasts for more than a week.
June BUND
No change as I am still a small seller on any rally higher to 158.85/159.15 with the same 159.40 stop.
Gold Rolling Contract
On the back of the stronger Global Equity markets Gold is opening weaker this morning as the market is still having major trouble in trying to break the now very key 1220/1230 resistance level. This move lower overnight as led to me going long Gold at 1191 and I will lower my stop slightly on this position to 1179.
Silver Rolling Contract
Unfortunately I did not cover my long 16.90 Silver position last Thursday when I had the chance. Today I will leave my stop the same at 16.40 and if I am stopped out of this trade I will be a more aggressive buyer in front of 16.10 with a 15.70 stop.
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