The highlight of Friday’s trading session was the release of the US Employment data. In the end the numbers were solid enough to keep the Fed on track for a June hike, but not strong enough to erase uncertainties over the future Fed funds rate’s path beyond June. US equities Indices made new fresh highs, but the lack of wage inflation in the report triggered a rally in US Treasury Yields and saw the USD fall across the board. NZD and AUD were the top performers on Friday, but terrible news of another terrorist attack in the UK has seen both currencies open a little bit softer this morning. US Non-Farm Payrolls rose to 138k in May against expectations for a 182k rise, net revision also disappointed shaving 66k jobs from previous readings. The Unemployment Rate fell to 4.3% from 4.4%, largely driven by a decline in the participation rate by 2 tenths to 62.7%. Hourly earnings rose 0.2%mom, in line with consensus, but the yoy reading stayed at 2.5% against expectations of 2.6%. The lack of wage growth was seen as the major driver for the rally in UST yields and broad USD sell off.
To mark my 1350th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Servicer which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it was flat on Friday as none of my calls got hit in what turned out to be a frustrating trading session of small margins. The Platinum Service is down 20 points for June having made 1071 points in May, 1276 in April, 1335 in March, 1481 in February and 1734 in January. The previous seven months saw gains of 1351, 1971, 1582, 1142, 1782, 1682 and 2550 points respectively. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
Reading through commentaries on the report, seasonal factors were raised by many as one major reason for the softness in the numbers. Jim o’Sullivan from HFE noted last year payrolls rose just 38K in May, but the weak reading was followed by a surge over the following months. Three more job reports will be released before the September FOMC meeting, so probably enough data points to prove if the recent slowdown in wage growth was just a blip or the start of a new trend.
On Friday all three major US equity Indices made fresh new highs with the jobs report leaving equity investors with the impression that future Fed hikes are unlikely to be anything but gradual. The Dow rose 62.11 pts (0.3%) to 21206.29, the S&P 500 climbed 9.01 pts (0.4%) to 2439.07 and the NASDAQ added 58.97 (0.9%) to 6305.80. Early in the session European equity indices also closed higher with the Stoxx Euro 600 index +0.23%, CAC 40 +0.47%, DAX 1.25% and FTSE100 0.005%.
Meanwhile the jobs report triggered a selloff in the US dollar across the board with DXY dropping 0.5% to 96.715 and BBDX shaving 0.41% to 1196.41. Both Indices are now well through levels seen when President Trump won the election on November 8 last year.
The NZD and AUD closed Friday at the top of the G10 leader board, up 1.16% and 0.94% respectively. NZD closed the week at 0.7142, its highest level since March 2 and looks to have a fair bit of room to trade above 0.72. Meanwhile the AUD regained all the lost ground post last’s week China’s PMI induced sell off and closed the week at 0.7443. After the terrible news from London over the weekend both currencies have opened the week a little bit lower. The AUD is at 0.7425 and NZD is at 0.7132.
USD/JPY is back below the ¥111 mark, but at ¥ 110.37 it remains contained within its recent ¥110.24 to ¥112.13 range held since mid-May. The Euro has retained its upward trend, against the USD, climbing 70pips on Friday and closing the week at 1.1274. The ECB meeting on Thursday will be crucial for the prospect of further near term EUR appreciation. I expect the Central Bank to remove its commitment to the possibility of lower rates in the future as it gradually prepares the market to the notion of QE tapering later in the year.
The US jobs report triggered a rally in US Treasury Yields with the move led by the back end of the curve. 10y and 30y yields fell 5.2 and 5.3bps to 2.16% and 2.81% respectively. Pricing expectations for a Fed hike in June were little changed at 84%, but looking at expectation for the end of 2018, last week the market was pricing a Fed Funds rate at 1.54% and now that level is seen at 1.47%. This implies that by the end of 2018 the market is looking for 2 more 25bps Fed hikes, compared to 5 hikes denoted by the Fed median dot plot.
Looking at commodities, oil prices fell around 1.4% on Friday with WTI closing the week at $47.66 while Brent ended at $49.95.It was a better end to the week for iron ore which gained 3.3%, gold climbed 0.8% to $1276.8 and both steam and metallurgical call climbed on Friday, up 2 and 6.2% respectively.
President Trump is considering nominating Marvin Goodfriend, a former Fed economist, for a spot on the Fed’s board of governors. Mr Goodfriend was the intellectual architect of Fed QE and he is a highly credible academic/Fed economist. He has been critical of Fed MBS purchases but not Treasuries. He is also in favour of more Fed oversight from Congress to enhance its credibility and he supports the need of Fed officials to compare their policy decisions against a mathematical rule such as the Taylor rule. In short, he is unlikely to be a big deviation from the current core thinking within the Fed.
This morning on the Economic Front we have UK and US Markit Services PMI at 9.30 am and 2.45 pm respectively. Germany is closed for a bank holiday and we have no data due from the Euro-Zone as a result. Finally we have US ISM Non-Manufacturing Composite and Factory Orders at 3.00 pm
June S&P 500
It took three months but finally with the Dow breaking its previous March 1, closing high at 21,169 we have a new breakout in the US stock market despite all concerns in relation to the low volume rally, the narrowness of the amount of stocks rallying and a confirmed Hindenburg Omen on Wednesday. To add to this scenario, the S&P which finished on Friday at a new record high, incredibly 6% of securities on the NYSE and NASDAQ hit new 52-week lows. That is the second highest percentage in conjunction with a new record high in more than 50 years. The highest occurred in December 1999, shortly before the Dow’s January 2000 top. There is no doubt that we are in the very late stages of this massive rally that started in 2008 but as I keep saying until we get a sell extreme that lasts for more than a few days and breaks some key levels it is pointless in trying to short this market. I have an updated measured target on the S&P from 2460/2472 where I will attempt to go short with a wider 2480 stop. Today I will raise my buy level to 2425/2431 with a 2419 stop.
EUR/USD
The Euro has now closed over 1.12 in New York for the past two weeks despite the extreme bullish sentiment towards the single currency. As a result I will now raise my buy level to 1.1190/1.1230 with a 1.1155 stop. The Euro has strong resistance at last September’s 1.1326 high print and the August high at 1.1360 and given how overbought the Euro is trading I would expect the market to have difficulty in breaking this 1.1320/1.1360 resistance area initially. As a result I will now raise my sell level to this band with a 1.1390 tight stop.
June Dollar Index
Despite the Dollar making a new closing low for this move on Friday, the Daily Sentiment Index reading increased to 14% bulls which is very surprising. I am still flat the Dollar and today I will now lower my buy level to 96.00/96.40 with 95.70 stop as emailed to my Platinum Members on Friday.
June DAX
Individual Investor Expectations rose to 59% bulls for the DAX in May which is the largest percentage reading in the seven years of history of this particular data, while the institutional equivalent pushed to 63.5% bulls, its highest level since July 2011, when 72% of survey participants were bullish. I would note that following this reading in July 2011, the DAX subsequently fell 34%. There is no doubt just like the S&P above, we are in the latter stages of this European rally. The German Market is closed today and I will have no buy/sell range for today’s commentary.
June FTSE
The FTSE just missed my 7520 buy level with a 7526 low print on Friday and I am still flat. I am not going to chase this market higher ahead of Thursday’s General Election and today I will lower my buy level slightly to 7470/7500 with a 7440 stop. I still do not want to be short the market at this stage.
Dow Rolling Contract
I am still flat the Dow and today I will now go ahead and raise my buy level to 21060/21120 with a 21010 tight stop. I will also leave my sell level unchanged from 21310/21370 with a 21420 stop.
June BUND
I am still flat the BUND which rallied strongly on Friday on the back of the weaker than expected US NFP data. With Germany closed today the Bund is not trading, so next buy/sell range will be in tomorrow’s Daily Commentary.
Gold Rolling Contract
Gold finally broke and closed over its 4.5 year 1275 mega trend line. I am still flat Gold and today I will now raise my buy level to 1260/1267 with a 1254 stop as I look for Gold to trade back above 1300 over the coming days.
Silver Rolling Contract
Having watched Silver just miss my 17.04 buy level on Friday I emailed my Platinum Members to buy Silver again at 17.58. I am still long and I will now raise my stop on this position to 17.20.
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