Political uncertainty in Germany and escalating tensions on global trade, centred around President Trump’s policies and possible retaliatory action appear to have been sufficient to hog the headlines and dog sentiment for a good part of yesterday’s trading session, coming with no horrors at all from the data. The scene was set in part from early yesterday as Asian equity markets fell and futures for European and US markets declined. The EuroStoxx 600 declined by 0.8%. The S&P 500 was down 0.6% earlier yesterday morning but by the end of the session had scrambled back to positive territory. The LMEX index was down 1.51%, the AUD was testing toward 0.73, but has since recovered to 0.7360 while the Euro which tested 1.1590 is back trading at 1.1640.
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On German politics, Merkel has been meeting the Bavarian coalition leader of the CSU party Seehofer, a result being either no change to the status quo, allowing Merkel to govern, or a break-up that could see Merkel run a minority government or call fresh elections. In news earlier this morning, Herr Seehofer says that the coalition CDU/CSU has reached agreement over migration, EUR positive, also providing some support to the Australian Dollar.
There have been no major developments on the global trade front. It still all looks very uncertain, with President Trump expected to impose the promised extra tariffs on the specified $34b of China imports at the end of the week and China set to match that with retaliatory action, followed by another $200bn from the US side more than half promised. Meanwhile, the EU is preparing its moves against Trump’s threats to put tariffs on the auto sector.
A late turnaround in the S&P500 might reflect some more positive comments by Trump to reporters, saying he is close to making a ‘’fair’’ trade deal with the EU. He also said that he is not planning anything on WTO membership for now but may do if the organisation is not fair to the US, a response to a weekend report that the US was looking to ignore WTO trade rules, effectively withdrawing.
The economic news from yesterday has done nothing materially to frighten the horses. China’s Caixin manufacturing data was only marginally softer than expected, final manufacturing PMI data for the Euro area was revised down trivially (from 55.0 from 54.9), Japan’s Tankan large manufacturer’s Iindex was only marginally weaker than expected (21 cf 22 expected), all very small misses.
By contrast the US manufacturing PMI was much stronger than expected, but largely driven by one component, slower supplier deliveries, a sign of further capacity constraints and therefore inflationary pressure in the economy. In any case, it is still a strong figure; the New Orders Index was a very handy 63.5, so business is hardly slowing. This news might be behind US Treasury yields not falling in an environment that had tinges of risk-off. The 2-year rate is up 2bps to 2.55% while the 10-year rate is up one basis point to 2.87% after being as low as 2.82%. Comments in the survey showed that respondents are ‘’overwhelmingly concerned about how tariff related activity is and will continue to affect their business’’. The Atlanta Fed upped its estimate of GDPNow for Q2 to 4.1% from 3.8%.
All eyes now on the RBA for what they say on the state of the core economy but particular attention to potential swing factors, notably funding costs (one to watch in the days and weeks ahead now that the end of the financial year has passed), trade tensions (more looming), and the domestic housing market that appears to be still cooling and market speculation of out of cycle rate rises. The RBA would certainly be content that the AUD is doing some heavy lifting in terms of supporting Australian export sectors.
This morning on the Economic Front we have UK Markit/CIPS Construction PMI at 9.30 am and this is followed at 10.00 am by Euro-Zone Retail Sales. Finally we have US Durable Goods Orders at 3.00 pm. Please remember that the US Equity and Bond Markets are on a half day and will close at 6.15 pm London time for the 4th of July Holiday tomorrow.
September S&P 500
Just when you think that the S&P is going to join the Dow and at least test its 200 Day Moving Average the US traders again rescue the S&P from the brink with a late surge which saw the S&P close over is 50 Day MA (2720). Unfortunately the S&P just missed my 2693 buy level with a 2698 low print before the market rallied 30 Handles and I am still flat. Thankfully we had no sell levels in yesterday’s commentary. As mentioned in yesterday’s commentary, this is historically a positive trading week and there is no point in being short. However for the S&P to regain its composure it needs to break and close over 2750. Today I will now raise my buy level to 2713/2721 with a 2707 stop. Remember the S&P Futures Market closes at 6.15 pm London time this evening.
EUR/USD
Frustratingly the Euro just missed my 1.1590 buy level with a 1.1591 low print before rallying to 1.1640 this morning. I am still flat and today I will now raise my buy level to 1.1570/1.1605 with a 1.1535 stop.
September Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 94.90/95.30 with a 95.65 stop.
September DAX
The DAX is oversold and under pressure as Merkel clings on to holding her government together. I still believe that she will get a deal on the migrant situation that is suitable for the CSU and that as long as the DAX can hold the 11600 major Head & Shoulders support area then the DAX is still a buy on dips. Today I will now raise my buy level to 12110/12190 with a 12055 stop.
September FTSE
The FTSE just missed my 7450 buy level and I am still flat. Today I will now raise my buy level to 7450/7490 with a 7420 stop.
Dow Rolling Contract
Yesterday the Dow again held the now key support level at 24000 with the market this morning trading between its 50 Day MA (24616) and 200 Day MA (24307). If the Dow can break short-term resistance at 24500 then we should test the 50 Day MA ahead of more important resistance from 24800/25000. Despite the negative price action over the past three weeks I still expect the Dow to continue to be a buy on dips as long as we do not close below 24000. Today I will now raise my buy level to 24050/24210 with a 23940 stop.
September NASDAQ
My long 7000 NASDAQ position worked well with the market rallying 120 points off this low and this rally higher enabled me to cover my long position at my 7030 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7000/7050 with a 6960 stop.
September BUND
The higher equity markets sees the Bund opening lower this morning and I am still flat. I will now lower my buy level to 161.40/161.80 with a 161.05 stop. I will also look to sell the Bund on any move higher to 162.70/163.10 with a 163.40 stop.
Gold Rolling Contract
Gold is trading lower but in a small stair step fashion. I still believe that with the DSI at just 8% bulls and the Managed Money Accounts holding their smallest net-long position in Gold Futures since the end of December 2015 that it is only a matter of time before Gold rallies. As I am aggressively long Silver I have not bought Gold yet which is trading at 1240 this morning. Today I will lower my buy level slightly to 1225/1234 with a 1219 stop.
Silver Rolling Contract
Yesterday Silver traded lower to my second buy level at 15.80 for a now average long position of 15.95. I will leave my stop unchanged at 15.55 while lowering my T/P level on this position to 16.20.
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