Plenty of news, both economic and geopolitical, since we broke for Easter, the net market impact of which has frankly been quite modest. The risk-negative tone that pervaded markets last week and which centred on escalating geopolitical tension surrounding North Korea, has partially reversed after a long weekend and following the absence of any direct response from either the U.S. or China to North Korea’s (failed) missile test on Sunday. The bigger market moving event since last Thursday has actually been the soft U.S. CPI data reported last Friday, showing the first monthly fall in core inflation in seven years (-0.1%) and bringing the annual rate down to 2.0% from 2.2%. This poses something of a challenge to expectations of the Fed moving again on rates as early as June. The data came into a US rates market that was closed on Friday, so most of the impact was evident in yesterday’s Asia-Pacific session, which saw 10-year Treasuries fall to as low as 2.20% compared to 2.24% at Thursday’s close. The move clean below 2.30% last week was, recall, largely a response to President Trump’s comments to the Wall Street Journal about the US Dollar being too strong and his preference for low interest rates.
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For anyone following my Platinum Service it made 61 points on Friday and is now ahead by 738 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.
On the dollar, US Treasury secretary Steve Mnuchin has just been talking to the Financial Times, and rebuffed suggestions that Washington may be seeking to depreciate the currency via verbal interventions following remarks from Mr Trump last week. “As the world’s currency, the primary reserve currency, I think that over long periods of time the strength of the dollar is a good thing,” said Mr Mnuchin. “It’s a function of the confidence and the strength of the US economy. The president was making a factual comment about the strength of the dollar in the short term. . . there’s a big difference between talk and action”.
On Trump comments on currency strength he agreed with the president’s repeated comments in recent months that the dollar’s strength in the short term was hurting US exports and the economy. Mnuchin’s comments appear to have assisted a modest recovery in the U.S. dollar in the past few hours, together with a reversal of much of yesterday’s fall in US Treasury yields (10s are now back close to 2.25%). This in turn has helped push the AUD/USD rate back down below 0.7600 (0.7590) having traded as high as 0.7610 in New York. The bigger impact has been seen on the Yen, with USD/JPY up to ¥109 from below ¥108.50.
Also to note on currencies since last Thursday has been the US Treasury’s failure to label anyone a currency manipulator in its last report on major trading partners FX policies, published on Friday. President Trump on Sunday tweeted “Why would I call China a currency manipulator when they are working with us on the North Korea Problem. We will see”.
The Treasury report continued to identify China, South Korea, Taiwan, Germany and Switzerland as meeting at least one of the three criteria viewed as potentially synonymous with currency manipulation (a bilateral trade surplus with the U.S. of at least $20bn, an overall current account surplus of at least 3% of GDP and one-sided FX intervention worth at least 2% of GDP over 12 months). The bottom line is that the threat of U.S. protectionist action has abated for the next three months or so, pending tangible progress between the U.S. and China in particular on measures that will have some impact in reducing their bilateral trade balance.
Yesterday brought a slug of mostly better than expected China activity data. Q1 GDP printed 6.9% Y/Y up from 6.7% in Q4 and 6.8% expected. March activity readings meanwhile showed Retail Sales growth maintaining February’s 10.9% annual growth rate against expectations for a fall to 9.7%, Industrial Production growth accelerating to 7.6% from 6.0% (6.3% expected) and fixed asset investment growth YTD Y/Y rising by 9.2% from 8.9% and better than the 8.8% expected.
This morning on the economic front we have no data due from either the Euro-Zone or the UK. At 1.30 pm we have US Existing Home Sales and Building Permits. Finally at 2.15 pm we have US Industrial Production and Capacity Utilization.
Meanwhile at 2.00 pm the Fed’s George will speak an an Economic Conference at 2.00 pm ahead of the Beige Book release tomorrow.
June S&P 500
My S&P plan worked well on Friday with the S&P hitting my 2333 buy level before having a nice rally to 2344 shortly after the US Markets opened. As I was already stopped out of my FTSE long position I wanted to make up for this loss and I covered my long S&P position at 2336. Subsequently I emailed my Platinum Members to re-buy the S&P at 2330 and as I wanted to be flat ahead of the long weekend I covered this position at 2332 and I am now flat. Early yesterday morning the S&P made a new low at 2323 before buyers returned with the S&P getting the week off to a solid start, closing at 2345 with all major US Stock Indexes closing higher. The S&P continues to be a ”buy on dip” until we get a meaningful decline that lasts for more than a few days. The S&P has still not broken the 2317.75 low price from March which is bullish and as long as we can hold the 2300/2320 strong support level it is in my opinion only a matter of time before the market makes new highs ahead of the real sell-off for the stock market which I believe will not start until the end of 2017/beginning of 2018. Today I will again look to buy the S&P on any dip lower to 2330/2336 with a 2325 stop. If the S&P can break and close over 2350 it will be bullish opening up a move to the next target level at 2362 ahead of the important 2370 resistance level. I still do not want to be short the S&P at this time.
My Euro plan also worked well with the Euro trading lower to my 1.0615 buy level on Thursday afternoon. As I wanted to be flat ahead of the weekend I cover ed this position at my revised 1.0630 T/P level and I am now flat. For those members who held on to any long Euro position over the weekend they were well rewarded with the Euro trading to a high 1.0670 yesterday afternoon. Today I will again look to buy the Euro on any dip lower to 1.0590/1.0625 with a 1.0560 stop. In light of Trump’s interview with the Wall Street Journal last Wednesday, I do not want to be short the Euro at this time.
June Dollar Index
Unfortunately the Dollar just missed my 100.65 sell level with a 100.58 high print on Thursday and I am still flat. Today I will leave my sell level unchanged at 100.65/100.95 with the same 101.30 stop. The Dollar needs to break and close above resistance at 101.20/101.50 for the picture to look better for the Dollar.
In another trading session of small margins the DAX just missed my 12080 buy level late on Thursday before rallying over 100 points and I am still flat. Despite last week’s Downside Key Day Reversal, it is very difficult to be short the market and I will continue to look to buy the dip which has worked so well since the key 10800 resistance level was broken in mid-December. Today given the recent sell-off in the DAX in the past 20 minutes I will now lower my buy level to 11990/12050 with a 11945 stop.
Unfortunately just as I posted on Thursday I was stopped out of my long 7295 position at 7245 and I am still flat. In hindsight, given the weakness of the price action in the FTSE on Wednesday I should not have held onto this position and I duly paid the price for this. Despite the weakness of the market, the FTSE continues to hold above the key 7180 Head & Shoulders Neckline and this has to be respected. Today I will lower my buy level slightly to 7155/7185 with a 7130 tight stop. Remember a break and close below 7180 is bearish with a price target of 7040.
Dow Rolling Contract
My Dow plan worked well on Thursday with the Dow trading lower to my 20490 buy level before rallying and as I wanted to be flat ahead of the weekend I covered this position at my revised 20525 T/P level and I am now flat. For those members who stayed long the Dow made a low at 20432 before rallying to a 20660 high print yesterday afternoon and were well rewarded as a result. So far the Dow has managed to hold its March low at 20412 which is bullish and today I will again look to buy the market on any dip lower to 20480/20540 with a 20425 stop.
With the Bund closed on Friday and yesterday I wanted to be flat the market ahead of the long weekend. On Thursday afternoon I emailed my Platinum Members to exit their 163.56 short position at 163.45 and I am still flat. Thankfully for anyone still short the Bund is unchanged which is a surprise when you see how strong the US 10 year Treasuries are trading. Today I will again look to sell the Bund from 163.75/164.05 with a 164.30 stop. Given the insane low yield for the Bund I do not want to be long the market at this time.
Gold Rolling Contract
Gold is severely overbought after its large rally since the 1260/1265 resistance level was finally broken. I do not trust Gold at these prices. However given the ongoing geopolitical concerns, I still do not want to sell Gold despite how overbought the market is trading. The Daily Sentiment Index surged to 90% on Thursday which is the highest level since September 7, 2012. At that time Gold was in the midst of a 17.6% rally from May 16, 2012 to October 5, 2012, which shows that despite the extreme DSI that Gold continued to rally for one more month. Given all of the above I will raise my buy level slightly to 1266/1273 with a 1259 stop.
Silver Rolling Contract
Silver continues to under perform Gold despite making a new high last Friday, above 18.58 from February 24. However the advance has been attended by a record level of bullish bets by one measure, namely the speculators. The current bullish bet in Silver Futures and Options is the biggest on record, surpassing the previous net-long position at the July 2016 high when the price of Silver peaked at 21.04 before selling off to a low at 15.60 in December. We have made many points in Silver over the past four months and I do not want to risk these gains. Given the fractured nature of Silver I am going to continue to stand aside as I want to see how this plays out over the coming days. Long term I am still bullish Silver and is the main reason why I will not sell the market.