US equities came under pressure in the last few hours of trading last night weighted down by a sharp fall in oil prices following reports of an increase in gasoline inventories. Meanwhile US Treasury yields are higher along the curve and the US Dollar is stronger across the board probably reflecting a bit of ease in geopolitical tension as the Pentagon confirms it didn’t send an armada directly to North Korea. US equities struggled for direction at the start of the session amid mixed earnings reports. IBM share fell after sales missed estimates and Morgan Stanley shares climbed more than 2% after the firm reported better profit and revenue figures. Later in the session, however, news that gasoline inventories rose by 1.54 m barrels last week against expectations of a modest decline triggered a selloff in the energy sector dragging the S&P and Dow Jones into negative territory.
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For anyone following my Platinum Service it made 53 points yesterday and is now ahead by 948 points for April, having made 1335 points 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.
Barring a few exceptions such as the Malaysian Ringgit and Peruvian Sol, the US Dollar has been the outperformer with commodity linked currencies the biggest losers amongst G10, down between 0.75% and 0.85% while the Brazilian real and Mexican peso were the big EM underperformers, both down 1.37%.
Over the past 24hrs, the AUD has continued to lose ground against the USD, down 0.86% and it is back trading below 75 cent mark. Recent softness in commodity prices has been a factor weighing on the currency and although iron ore recovered a bit of ground overnight, up 2.4% to $64.6, the slide in oil prices and softness in coal and aluminium have had a bigger dampening effect on the currency. Incidentally, I would note that whilst there is a strong long term relationship between iron ore and the AUD, my analysis shows that big moves in iron ore prices are required in order to elicit a material move in the AUD. To that effect I would note that in the last twelve months, the correlation between AUD/USD and the iron ore price (using daily levels), is less than 0.2.
Looking at other currencies, Sterling has given back some yesterday’s gains. It is down around 0.5% against the USD closing at 1.2777 in New York. However this morning Cable has recovered some of yesterday’s loses and currently trades at 1.2820. On Tuesday PM May called a snap election and yesterday she won overwhelming parliamentary support to go ahead with the 8 June election. In her speech to parliament PM May noted that ““…every vote for the Conservatives will make it harder for those who want to stop me from getting the job done”. I would suggest that Sterling’s underperformance is probably a combination of profit taking from those lucky enough to have benefited from Tuesday’s move and the realisation that as much as a new election could strengthen PM May’s hand, as she would have a more united front when negotiating with the EU, this doesn’t mean she will get a better outcome as Europe still holds the stronger cards.
The Euro was the best performer in G10 currencies, down 0.20% against the USD . Yesterday the final CPI figures for March confirmed the pull back in the headline inflation to 1.5% and core to 0.7%, easing the pressure on the ECB to change its policy guidance any time soon.
Lastly USDJPY has recovered a bit ground following the move higher in UST yields and is currently trading at ¥108.86, 20 pips higher in the past 24hrs. 10y UST are currently at 2.21%, up around 4bps relative to where I marked prices 24 hours ago.
This morning on the economic front we already had the release of German PPI which came in flat at 0.00% versus +0.2% expected. At 10.00 am we have Euro-Zone Construction Output. This is followed at 11.00 am by UK CBI Trends for Total Orders and Selling Prices. Next we at 1.30 pm we have the US Philly Fed Index and the Weekly Jobless Claims. Finally at 3.00 pm we have Euro-Zone Consumer Confidence and the US Leading Index.
June S&P 500
Yesterday we saw a large inter-market divergence between the Dow and the S&P, as the Dow declined to a new low at 20,401 which was below its march low at 20,412 which was not confirmed by the S&P. The S&P’s low remains at 2322 for the Cash Market and 2317.75 for the June Futures Contract from March 27. Total market volume rose to its highest level in two weeks and will likely see another surge as tomorrow is the April Options Expiry. Yesterday after the Dow sold off following the release of the Fed’s Beige Book I emailed my Platinum Members to cancel any buy order in the S&P as with less than two hours of trading in the Chicago session I did not want to have a long position on board overnight. For any member who did buy the S&P it should have worked out with the S&P hitting a low below 2331 before rallying to an overnight high at 2339. If the S&P can hold over its March low then we could well see the start of the rally that I have been looking for to new highs before the real sell-off starts later this year or early 2018. Today I will look to buy the market on any dip lower to 2321/2327 with a 2316 stop. I still do not want to be short the S&P at this time.
My Euro plan worked well with the Euro initially trading lower to my 1.0710 buy level before rallying back to 1.0730 and I used this rally to cover this long position at my revised 1.0725 T/P level. Subsequently I emailed my Platinum Members to re-buy the Euro on any dip to 1.0705 and after this price got hit I again covered this position for a small gain at 1.0720 and I am now flat. In my opinion the Euro continues to be a buy on dips as long as we can hold the 1.0650 support level and today I will again look to buy the market on any dip lower to 1.0690/1.0720 with a 1.0645 stop.
June Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 99.85/100.20 with a 100.50 stop. Despite the Dollar trading oversold I still do not want to be long the market at this time.
The DAX traded in a narrow range following last week’s Downside Key Day Reversal. I am still flat the DAX and my only interest in buying the market is still on a dip lower to 11850/11910 with a wider 11795 stop. I am expecting that any test of my buy zone should lead to a decent rally first before subsequently the market trades lower. Despite the strong Euro I still do not want to be short the DAX at this time.
The FTSE is severely oversold with the market hitting a low print at 7034 which just missed my 7020 buy level. I am still flat and today I will continue to look to sell the FTSE on any rally higher to 7110/7140 with the same 7175 stop. Given how oversold the FTSE is trading I will now raise my buy level slightly to 7005/7035 with a 6970 stop.
Dow Rolling Contract
After the Dow traded lower to my 20440 initial buy level I emailed my Platinum Members to exit this position at 20463 ahead of the Beige Book and I am now flat. For those members who averaged into my Dow buy level this would have worked with the Dow trading to a low at 20375 before rallying back above 20430 as I finish this commentary. IBM accounted for over 60 points of the Dow’s loses yesterday coming on the back of the much weaker than expected earnings from Goldman Sachs which knocked the Dow on Tuesday. The fact that the Dow broke and closed below its March low is bearish but as mentioned in my S&P commentary above we do not have confirmation of a breakdown until the S&P breaks its equivalent March low. As mentioned yesterday the Dow has very strong support from 20250/20320 and today I will be an aggressive buyer on any dip to this area with a 20195 stop. Unless the S&P breaks its March low I still do not want to be short the Dow at this time.
Unfortunately I should have stayed short the Bund from the 163.90 price level on Tuesday as the market got slammed yesterday. The Bund has strong support from 162.60/162.90 and I will be a buyer here with a 162.40 tight stop. Given how overbought the Bund is trading I will now lower my sell level to 163.65/163.95 with a 164.20 stop.
Gold Rolling Contract
Frustratingly in another trading session of small margins Gold missed my 1273 buy level with a 1273.70 low print before rallying $10 and I am still flat. It is hard to be long Gold given the sentiment extreme at 90% as mentioned on Tuesday which is the highest reading in 4 ½ years while at the same time we have strong resistance at the 1295/1300 which is a 4.5 year trend line. Today I will lower my buy level slightly to 1264/1270 with a 1258 stop. I will leave my sell level unchanged at 1296/1302 with a 1307 stop.
Silver Rolling Contract
No change as I am still a buyer on any dip lower to 17.65/17.95 with the same 17.30 stop.