In what has been a relatively quiet session, in terms of news and data releases, equity markets have had a steady to positive day, core bond yields are a little bit higher with US Treasury yields leading the way and the USD is steady, retaining the gains from the previous day. In Sintra, Portugal, the talk of the town has been the unanimous concern by major Central Bank Chiefs around current trade tensions between the US and the rest of the world and there was also a consensus view that the current environment of low inflation is likely persist for some time. Notwithstanding the steadiness in markets, commodity linked currencies had another down day. Meanwhile, Sterling is little changed despite the fact that PM May narrowly managed to fend off Tory rebels defeating the government on the ‘’meaningful say’’ amendment to the EU withdrawal bill.
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For anyone following my Platinum Service it made 92 points yesterday and is now ahead by 455 points for June, having made 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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So the two take aways from the Creme de la creme of Central Banks Chiefs panel gathering which included Fed Chair Powell, ECB President Draghi, BoJ Governor Kuroda, and RBA Governor Lowe was the broad consensus view of concerns over the potential impact to the economic outlook from ongoing trade tensions between the US and the rest of the world. Fed Powell noted that ‘’changes in trade policy could cause us to have to question the outlook’’. Governor Lowe called the trade issues ‘’incredibly worrying’’, while Draghi said ‘’There have been lessons one can learn from the past. They are all negative’’. Kuroda said ‘’this is a matter of great concern’’.
Meanwhile on inflation Governor Lowe led the discussion noting that ‘’The system looks less inflation prone than it once was’’, adding that ‘’We just need to accept inflation will be lower for a while’’. Fed Powell also noted that in the case of the US, structural issues such as higher levels of education and better anchored inflation expectations suggest that low unemployment was less likely to trigger substantial wage growth than in the past. Still, ECB president emphasised that in Europe, ‘’We see unit labour costs are on an upward path’’, Fed Powell also added that ‘’With unemployment low and expected to decline further, inflation close to our objective and the risks to the outlook roughly balanced, the case for continued gradual increases in the Federal Funds rate is strong’’.
The latter comments from Fed Powell along with a positive US equity opening contributed to a small uptick in US Treasury yields while the impact from the Fed Chair’s remarks on the USD was less notable. Ahead of the US open, US Treasuries where essentially marking time but as the US session unfolded US Treasury yields rose steadily with the move led by the back end of the curve. 10y UST yields now trade at 2.93% ( up 3bps) and the 2y rate trades at 2.566% (+1.4bps). On Tuesday the 2y10y UST curve traded down to a low of 34.5bps and now the curve trades at 37.5bps.
Looking at equities in more detail, while the Dow and S&P500 are still struggling amid ongoing US-Sino trade tensions, technology shares and the NASDAQ continue edge higher (+0.72%) with the tech index recording yet another all-time high. No concrete new news on the trade front has been treated as good news with European equities recording their first positive day for the week, although the CAC40 still closed in negative territory. German Automakers have reportedly told the US they would accept the abolition of EU-US car import tariffs in order to avoid the threat of Trump’s 25% tariff on car imports, the offer however comes with a catch as it would require the US to stop its current 25% tariff on light trucks.
So amid a steady risk environment and higher US Treasury yields the USD has retained its gains from the previous day and the DXY Index has consolidated just above the 95 mark. The steadiness in the USD has come about by a mixed performance in G10 currencies, European currencies are flat and or a smidgen higher, EUR is essentially unchanged at 1.1575 while NOK +0.27% and SEK +0.20% are the big winners. Meanwhile commodity linked currencies have underperformed with NZD leading the declines. The Kiwi is down 0.33% and currently trading at 0.6864.
AUD is currently trading at 0.7348, a few bps lower relative to yesterday’s opening levels. Although no news on the trade front is probably good news for the AUD, the precarious EM markets position remains a thorn for the currency and now we also need to add soft commodities performance to the AUD’s concerns. Oil prices remain volatile ahead of tomorrow’s OPEC meeting amid mixed reports yesterday. Iran’s oil minister Bijan Zanganeh said he did not believe an agreement to relax production cuts first agreed nearly two years ago amid a global supply glut could be reached at the oil cartel’s meeting. But Opec secretary-general Mohammed Barkindo and other ministers said they still expect a consensus to be reached. Brent closed the day down 0.95% meanwhile metal prices and bulk commodities had another soft day ( Copper -0.2%, iron ore -0.44%). For now the AUD continues to find support above the 0.7330 support level, but in my view the Australian Dollar still looks vulnerable to the downside.
Last word on the GBP, the pair now trades at 1.3150, little changed on the day despite changed despite the fact that PM May narrowly managed to fend off Tory rebels defeating the government on the ‘’meaningful say’’ amendment to the EU withdrawal bill. The result means the Brexiteers will be happy that the government’s hands will not be tied in EU negotiations and thereby there should be no challenge to May from that side (GBP positive). Still leaves many questions though – and key Customs Union vote is the next political risk event for the currency.
This morning on the Economic Front we have UK Public Sector Net Borrowing at 9.30 am and this is followed at 12.00 pm by the Bank of England Rate announcement. Given recent soft data releases and ongoing Brexit uncertainty no surprises are expected from the Old Lady. This is followed at 1.30 pm by the US Weekly Jobless Claims and the Philly Fed Business Outlook. Next we have the FHFA House Price Index. Finally at 3.00 pm we have US Leading Index and Euro-Zone Consumer Confidence.
September S&P 500
While the Dow again closed lower the S&P continued to build value above 2765 which is bullish. I am still looking for one more move higher to the key resistance area from 2820/2845 before we have a more meaningful sell-off. I am still flat the S&P and today I will now raise my buy level to 2757/2767 with a 2749 stop. I still do not want to be short the market at this time especially with both the NASDAQ and Russel 2000 closing at new all-time highs.
EUR/USD
Unfortunately just before I posted yesterday morning the Euro traded lower to my 1.1540 buy level before rallying 60 points. However the Euro did not stay at this price level as we quickly reversed higher thus we had no chance to get long. This morning the Euro is under pressure following the move higher in US Treasury Yields on the back of the comments from Fed Chair Powell at the ECB Conference. In the last few minutes the Euro finally traded lower to my 1.1540 buy level before having a small rally and I used this rally to exit this position at my revised 1.1556 T/P level as emailed to my Platinum Members and I am now flat.Today I will now look to buy the market on any further move lower to 1.1480/1.1520 with a tight 1.1450 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 1.1380/1.1430 with a 1.1340 stop. Given how close we are to the 500 Day and 100 and 200 Day Moving Averages I still do not want to be short the Euro at this time.
September Dollar Index
I am still flat the Dollar which is testing the 95.00 resistance level this morning. Today I will now raise my sell level slightly to 95.35/95.80 with a 96.15 stop. The Daily Sentiment Index which had risen to 94% bulls before backing off has risen again to close last night with a reading of 89%. This indicates we may have one more move higher before we finally see a more sustained sell-off in the Dollar.
September DAX
I am still flat the DAX which continues to struggle after the 600 point sell-off following last Thursday post Meeting high. Today I will leave my buy level unchanged from 12550/12625 with the same 12495 tight stop.
September FTSE
My FTSE plan worked well with the market trading lower to my 7560 buy level yesterday afternoon before rallying to a rebound high of 7620 overnight. I used this rally to exit my long position at my revised 7580 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7525/7560 with a 7485 stop. Given the huge discount to the Cash FTSE I still do not want to be short the market at this time.
Dow Rolling Contract
My Dow plan eventually worked well as after the market traded lower to my 24650 buy level I used the initial rebound rally to 24725 to exit this position at my revised 24700 T/P level and I am now flat. Overnight the Dow traded higher to 24790 before selling off again shortly after the European Markets opened. Yesterday was the seventh consecutive lower Dow close which is the largest daily losing streak since March 27of last year, when the Index closed lower for eight straight days. With the NASDAQ closing at new all-time highs it is difficult to be short the Dow and in my opinion it is only a matter of time before we get a large rebound in the Dow. As mentioned yesterday the Dow needs to break and close over 24950 for a short-term buy signal giving a target of 25250/25350, 25500, 25700 and possibly 25800/25900. However a break and close below 24600 for two days could well see the accelerate further to the downside. Today I will again look to buy the market on any dip lower to 24440/24590 with a 24370 tight stop.
September NASDAQ
There is no stopping the FANG stocks which continue to race ahead with the NASDAQ closing at another new all-time high. Yesterday after the market hit my 7325 initial sell level I emailed my Platinum Members to exit any short position at 7319 and I am now flat. The next key resistance for the NASDAQ is from 7400/7450 and today I will be a seller in this area with a 7485 stop. Given how overbought the NASDAQ is trading I still do not want to be long the market at this time.
September BUND
No change as I am still a buyer on any dip lower to 160.40/160.80 with the same 160.10 stop. I will also leave my sell level unchanged from 162.10/162.50 with a 162.85 stop.
Gold Rolling Contract
There is no stopping the sell-off in Gold with the market now reaching a critical juncture despite the extreme negative sentiment towards Gold. The 1255/1265 area must hold or else we could see a quick move lower last December’s 1236 low print. Gold has now fallen over $100 since the May highs. This morning I have bought Gold here at 1262 with a tight 1254 stop. I will now look to exit this position on any move higher to 1268 especially as I am still long Silver.
Silver Rolling Contract
No change as I am still long Silver at 16.30 with the same 15.85 stop. I will now look to add to this position on any further move lower to 16.00. My T/P level remains unchanged at my revised 16.40 and if any of the above levels area hit I will be back with anew update for my Platinum Members.
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