The US Treasury bond yield back-up continued on Friday, but this time not led by Europe, where the 10yr Bund yield was up just 0.7bp to 0.373% in a holiday thinned European May Day . US 2-year Notes added 2.8bps to 0.595, and the 10yr +8.2bps to 2.1135 % (its highest since early March).
Widening yield spreads helped the US dollar higher across the board, with DXY +0.74% to 95.3 and the broader BBDXY +0.6%. Sterling was Friday’s biggest loser amongst the majors (-1.32% to 1.5148) after a very week manufacturing PMI print (51.9 from a revised 54.4 in March and 54.6 expected). There are, evidently, also increasing pre-election nerves in front of this Thursday’s General Election and where the polls continues to show Labour and Conservatives neck and neck, with neither partly likely to come close to be able to form an outright majority government. Elsewhere in FX, EUR/USD was -0.22% to 1.1199 and USD/JPY closed back on an ¥120 handle for the first time since 13 April (+0.64% to ¥120.15). US equities made gains despite higher bond yields, the S&P500 ending +1.09% at 2108.3 (-0.4% on the week). The Dow was +1.03% to 18024 and NASDAQ +1.3% to 5005.
In commodities, iron ore slipped back again from its recent $60 high, -$0.95 to $56.18, though other metal were generally a touch firmer. Gold lost $5.91 to $1178 while oil was also lower (Brent +$0.32 to $66.46).
Friday’s US data highlight was the April Manufacturing ISM. The headline at 51.5 disappointed, being unchanged from March versus 52.0 expected, but the detail was more encouraging. New orders, that tend to lead the main index, rose to 53.5 from 51.8 (the highest since December 2014) while the export order reading rose to 51.5 from 47.5. The production sub-index was also higher, 56.0 from 53.8, with offsets coming from employment and inventories, both lagging indicators. So all up a much better report than the raw headline suggested.
US Construction spending fell by 0.6% in March (+0.5%E, 0.0%P), prompting the Atlanta Fed to revise down its Q2 ‘GDPNow’ The final University Of Michigan Consumer Sentiment index was unrevised vs. the preliminary reading at 95.9 (96.0E).Post the data, San Francisco Fed President John Williams said that while economic activity over the start of the year was disappointing, he had not yet changed his forecast for the year and that he could imagine that (good) constellation of data coming in before June or the meeting right after that. He also noted that inflation seemed to be firming.
We also had Cleveland Fed President Loretta Mester saying all scheduled meetings, including June, are ‘on the table’. She highlighted the importance of the next two payrolls reports.
With London closed for the May DAY Bank Holiday markets will be very illiquid. This morning on the economic front we have German PMI which is due to be released at 8.55 am. This is followed at 3.00 pm by US Factory Orders. Finally at 4.25 pm the Fed’s Evans will speak on the Economy and Monetary Policy at a Conference in Indiana.
As a lot Members know I have been in Coffs Harbour Australia playing Touch Rugby for the Ireland Over 50’s for the past ten days and I am delighted to say we won a Bronze Medal having beaten Japan yesterday morning. Unfortunately we lost to Italy in Extra Time in the Semi Final on Saturday night. As I am leaving Sydney for Dublin via Dubai this evening before the US Markets close, tomorrow’s Opinion will not be published until approximately 1 pm and I thank everybody for understanding in advance. Normal service will resume in Wednesday.
June S&P 500
Friday was another frustrating trading session for the S&P as the market does not know which way it wants to go as yet again anybody who was short on Thursday and did not take their profit were hammered on Friday on what was another very low volume trading session. There is no doubt that every time the market looks like it is about to roll-over buyers suddenly appear to rescue the market. It is very difficult to justify the current valuations especially when you consider how weak the first Quarter GDP was at just 0.2%. The market now has two major supports at 2070/2075 and then from 2035/2040 and we need a closing break of both these areas for the market to sell-off for more than a few days rather than the few hours that is prevailing at this time. Today I have to respect the fact that the S&P had a strong close on Friday and I will again look to buy the market on any dip to 2089/2094 with a tight 2085 stop. My only interest in selling the market today is on a rally to 2110/2115 with a 2121 stop.
EUR/USD
The Euro plan worked very well on Friday yet again the Bollinger Band and William Index showed how important these indicators are. After I Posted ON Friday the Euro was trading at my 1.1270 sell level before having a nice rally into the close which enabled me to cover this position at 1.1210 and I am now flat. The major support for the Euro is still at last week’s break-out 1.1050 level and today I will be a small buyer on any dip to 1.1090 1.1140 with a wider 1.1040 stop. I will again look to go short on any rally to 1.1250/1.1300 with a 1.1325 stop.
June Dollar Index
The Dollar Plan also worked well on Friday as shortly after I posted the Dollar traded lower to my 94.70 buy level before having a nice rally into the New York close which enable me to cover this position at 95.40 and I am now flat. Today I will again look to buy the Dollar on any dip to 94.60/94.90 with a 94.25 stop. I still do not want to be short the Dollar at this time.
June DAX
With the DAX closed on Friday for the May Day Holiday it will be interesting to see if the market can rally especially with the Euro trading back below 1.1200. Today I will be a small buyer on any dip to 11410/11460 with an 11375 stop. I do not want to short the market at this time.
June FTSE
No change as I am still a small seller from 6980 /7020 with a 7045 stop as volatility looks to pick up ahead of Thursday’s General Election.
Dow Rolling Contract
Finally long after I posted on Friday the Dow rallied to my 17960 sell level. As I am only short in small size I will raise my stop on this position to 18040 to try and give this trade some room. If I am stopped out of this trade I will be a more aggressive seller in front of 18110 with a 18160 stop.
June BUND
I am still flat the Bund after the recent sell-off. Today I will lower my sell level to 157.30/157.75 with a 158.10 stop.
Gold Rolling Contract
Shortly after I posted on Friday Gold sold off to my 1174 buy level. I am still long and I will raise my stop slightly to 1166 on this position.
Silver Rolling Contract
No Change as I am still long at 16.45 with the same 15.75 stop.
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