Strong earnings reports by trucking companies have helped US equities end the day in a positive note shifting focus away from geopolitics and back to fundamentals. The US Dollar is weaker on the back of President Trump’s tweet accusing China and Russia of playing the ‘’currency devaluation game’’ while Richard Clarida gets Trump’s nod for Fed Vice chair.
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After a mixed Asia session and a negative European close, US equities have ended in positive territory with the market shifting focus away from geopolitics and back on to fundamentals as the US reporting season gets underway. Old School companies were on the spotlight with trucking firms and rail-road operators reporting decent earnings, boosting gains on major US equity indices. The Dow closed up 0.87%, S&P gained 0.81% and the NASDAQ closed 0.70% higher. After the bell Netflix reported better than expected results with its shares initially jumping over 8% in extended trading.
Meanwhile, early in the session Bank of America reported better than expected earnings (following Citi, JPM and Wells Fargo on Friday) and the shares outperformed (0.47%) the S&P banking sector (-0.12%). But just like the other US banks, anaemic loan growth was the one question mark on the results.
The US Dollar is broadly softer and both DXY (0.43%) and BBXDY (-0.28%) have retained their downtrend established since early in April. A tweet from President Trump accusing China and Russia of ‘’playing the currency devaluation game’’ did not help the greenback, but the move lower in US Treasury yields might have been a factor too. President Trump did not offer any evidence to substantiate his accusations against China and Russia, still his comments were somewhat surprising given that only a few days ago a US Treasury report concluded that no country was currently manipulating its exchange rate. Looking at the charts, CNY has been on a steady appreciation over the past year and I could argue that Rubble’s weakness has more to do with Putin’s political decisions. Cynic would suggest that Trump’s complains for other currencies to be stronger mask his true desire for a weaker US Dollar.
Looking at G10 currencies in more detail, after a few days under the cosh, SEK (+0.67%) had a small rebound while Sterling was the other outperformer on no new news. The Pound appears to be benefiting from technicals suggesting the currency has room to move higher, not only against the USD, but also against other currencies such as EUR and even AUD. That said, the withdrawal bill is the political focus in the UK this week, the House of Lords is expected to vote in favour of continuing in the common customs union, an outcome which may set the tone for the UK Parliament’s final vote later this year on Britain’s withdrawal from the European Union.
10y UST yields are unchanged at 2.82%, after reaching an intra-day high of 2.8617%. Front end yields have held up, leaving the curve flatter. US Retail Sales met expectations (headline 0.6% m/m, core 0.3% m/m). The Atlanta Fed GDPNow estimate of Q1 GDP was essentially unchanged at around 1.9% (annualised). Fed speak could not add much to the market’s thinking, although both Dudley and Kashkari said the Fed should not overreact to a modest inflation overshoot.
In other Fed news, President Trump announced his intention to nominate Richard Clarida, a respected economist and PIMCO adviser, as vice chairman of the Federal Reserve. News articles describe the Columbia Professor as ‘’centrist and pragmatic’’ and Bloomberg notes that in a December interview Clarida noted that the US neutral rate is probably closer to 2% rather than 3%. But Clarida also said at the time that ‘’We could get four hikes if the growth in the economy is stronger because of the tax cuts’’, adding that ‘’But importantly, also, you would actually need some indication that inflation is moving up too quickly for the Fed’s taste.’’
Trump also announced his intention to nominate Kansas State Bank Commissioner Michelle Bowman as Fed Governor representing the interests of community banks. Both selections, which were first reported by the Wall Street Journal, are subject to confirmation by the US Senate.
June S&P 500
The S&P closed last Friday in Chicago at a price of 2654 before re-opening on Sunday night at 2674. Subsequently during yesterday’s Chicago trading session the low of the S&P was 2666 which means we now have a large ‘’open Gap’’ and as you know all of these Gaps get filled at some stage. The S&P tried to break the key 2690 resistance area before having a small sell-off into the close and I am still flat. I still believe that we will have one more move into the key 2700/2720 resistance area before attempting a more meaningful sell-off. Certainly the fall in the VIX would point to such a move. Today I will move my buy level higher to 2650/2662 with a tight 2643 stop. I will also raise my sell level to 2702/2715 with a 2723 stop.
EUR/USD
The Euro closed last night above the key 1.2360 resistance level as the market continues to build a cushion above 1.2250. I am still bullish the Euro looking for a final move higher for this move to at least 1.2800 before we see a more lasting sell-off after the huge rally from the January 2017 low at 1.0350. Today I will now move my buy level higher to 1.2290/1.2330 with a 1.2255 stop. I still do not want to be short the Euro at this time.
June Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 89.70/90.10 with a 90.45 stop.
June DAX
Unfortunately the DAX just fell short of my 12330 buy level before rallying into the New York close and I am still flat. There is no doubt but the renewed strength in the Euro hindered any further move higher in the DAX yesterday. Today I will lower my buy level slightly to 12230/12290 with a 12175 stop. I still do not want to be short the DAX at this time.
June FTSE
After the FTSE traded lower to my 7140 buy level I emailed my Platinum Members to exit any long position at 7152 as I did not like the fact that Cable (GBP/USD) was trading over 1.43 and I am now flat. The FTSE has strong support from 7050/7090 and this support level must hold or else we could be in for a more lasting sell-off. Given the importance of this support level I will now be a buyer in this area with a 7020 tight stop.
Dow Rolling Contract
For the second consecutive trading session the Dow tested the key 24675 resistance level before having a late 100 point fade into the close. I am still flat as the market continues to build resistance above its 200 Day Moving Average. The Dow’s trading over the past three weeks has been very erratic by rising one day only to fall the next. Today I will raise my buy level slightly to 24220/24370 with a 24150 stop. If the Dow does break the 24675 resistance area the next strong resistance level is from 24900/25050 and I will be a small seller in this area with a 25180 wider stop.
June NASDAQ
The NASDAQ did close over the key 6700 resistance level but only just and I would like to see the market close over this area one more day before raising my buy level. Therefore I will leave my buy level unchanged from 6540/6595 with the same 6505 stop.
June BUND
The BUND just missed my 158.60 buy level before again rallying to close with a 159 Handle and I am still flat. Today I will lower my buy level slightly to 158.05/158.45 with a 157.70 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold continues to hold below the key 1366/1376 resistance level and I am still flat. I am not comfortable in chasing this market higher and today I will leave my buy level unchanged from 1319/1326 with the same 1311 stop.
Silver Rolling Contract
Finally Silver traded higher to my 16.80 T/P level on my latest 16.65 long position and I am now flat. I will again look to buy Silver on any dip lower to 16.35/16.65 with a 16.95 T/P level if executed.
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