The Pound soared 2.2% following the UK PM’s call for early elections. Polls currently put the Tories in front at 42% of the vote, up from the 37% result in the 2015 election, and there is a good chance that the government could increase its majority in Parliament and thereby cement its authority during Brexit negotiations. Elsewhere geopolitics and the unwind of the Trumpreflation trade continued with the US dollar down, US Treasury yields down, while Equities were weighed down by sharp falls in commodity prices (particularly industrial metals) along with disappointing earnings from Goldman Sachs.
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For anyone following my Platinum Service it made 157 points yesterday and is now ahead by 895 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.
UK PM Theresa May called for a snap election on June 8 which has also been supported by Labour’s Jeremy Corbyn. Sterling rallied hard on the news, up 2.2% with the pound reaching a high of 1.2905, but edging back to finish at 1.2844 – its highest level since early October 2016. This 2-cent rise has meant the GBP/USD has broken its 200 day moving average for the first time since the Brexit Referendum and given net shorts in IMM CFTC data, short covering could see a break higher which could bring the September 2016 high of 1.3445 into focus.
The moves in the Pound were also helped along by general US dollar weakness with the US Dollar Index (BBDXY) closing down 0.8%, which is its lowest level since late March. Most other currency pairs were higher with the Euro up 0.8% and the Yen also up 0.4%. Underperforming were the commodity-linked currencies with the Aussie down 0.4% and the Canadian dollar down 0.5%.
Driving the weakness in the Aussie has been sharply lower iron ore prices (along with other industrial metals), with the iron ore price down 4.6% overnight to $63.2 a tonne. A somewhat dovish RBA Minutes also added to the tone which played into the view of the RBA being on hold in 2017. The Minutes showed overt anxiety over the lack of labour market improvement with the Board concluding “developments in labour and housing markets warranted careful monitoring over coming months”. Bumper jobs figures released last week should help alleviate these concerns in the short term while the RBA will take “some time” to assess the effectiveness of recent macro-prudential policies.
The other big mover yesterday was Bond Yields. US Treasury Yields fell 8.2 bps to finish at 2.17%. There was no immediate catalyst, and it seems it is a continuation of an unwinding of the Trump-reflation trade as activity picked up following Easter. Scepticism continues on Trump’s ability to implement his legislative agenda, with Treasury Secretary Mnuchin on Monday stating getting tax reform by August was “an aggressive timeline” and would probably get delayed due to healthcare. A soft CPI print on Friday also added to the uncertainty over the pace of activity given already weak expectations for Q1 GDP. German Bund yields also followed these moves, down 3.1 bps to 0.16%.
US Fed pricing for June now sits at 34%, down from 42% and there is only one more rate hike fully priced by the end of year. Despite moves in pricing, Fed officials are sticking to the script of two more rate hikes for this year. The Fed’s George (non-voter) stated she still sticks to the base case and that while the first Quarter “looks soft” the Fed should not start “overinterpreting what it means for the longer term” and that she does not want to be in the position of “allowing inflation to overshoot the 2% goal or to press labour markets into a condition where they are overheating”.
Equities closed lower across the board with the EuroStoxx down 1.1% and S&P500 down 0.3%. The FTSE100 was down a sharp 2.5%, but a fair chunk of that weakness was due to commodities and health care – with sharp falls in Materials (-4.2%), Energy (-3.4%) and Healthcare (-3.4%). Industrial metal prices were all weaker across the board with particularly sharp falls in Nickel (-4.4%), Zinc (-3.7%) and Copper (-1.9%). The falls reflect some uncertainty around the outlook for commodity demand from China and the US.
This morning on the economic front we have Euro-Zone CPI and Trade Balance at 10.00 am. This is followed at 12.00 pm by US MBA Mortgage Applications. Finally at 7.00 pm the Fed will release its Beige Book.
Meanwhile the Fed’s Rosengren (non-voter, hawk) speaks at a Hyman Minsky Conference in New York at 5.00 pm.
June S&P 500
My S&P plan worked very well yesterday with the market trading lower to my 2335 buy level before rallying to my 2341 T/P level. Subsequently I emailed my Platinum Members to re-buy the S&P again at 2336 before we had another nice rally to 2343 and this move higher again enabled me to cover this position at 2341 and I am now flat. Subsequently the S&P made a new low at 2330.25 before again rallying into the close. This market continues to be a buy on dips until we get a sell extreme that breaks and closes below the strong support from 2300/2320. Just to be aware the rising 100 Day Moving Average support is at 2303/2304. Today I will again look to buy the S&P on any dip lower to 2330/2335 with a 2325 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2313/2319 with a 2308 stop. The S&P has strong resistance at 2348 and very strong resistance at 2356/2360. However I still do not want to be short the S&P at this time.
Unfortunately the Euro just missed my 1.0625 buy level with a 1.0637 low print before rallying over 100 points as expected. With the US economy clearing slowing down the last thing the market needs is a series of rate hikes at this time despite the stronger Employment data. However with Average Earnings continue to disappoint there is nor threat to wage inflation at this time. With 10 year yields now trading below 2.2% we should see the Dollar continuing to weaken. As long as the Euro can hold the 1.0650 support level then the ”buy the dip” should continue. Today I will move my buy level higher to 1.0675/1.0710 with a 1.0635 tight stop.
June Dollar Index
The Dollar is now within touching distance of its early February low at 98.78. A break and close below here will be extremely bearish opening up a move lower to at least 95.00. I am still flat the Dollar and today I will now lower my sell level to 100.10/100.40 with a tight 100.75 stop. Despite the Dollar trading oversold I still do not want to buy the Dollar at this time.
The DAX continued to sell-off as I posted yesterday morning with the market eventually hitting my 12040 buy level. I did not like the price action in the DAX and I emailed my Platinum Members to exit this position at 12065 and I am now flat. Thankfully after I exited this position the DAX held its price for over an hour before finally selling off. The DAX has mild support at 11935 and very strong support from 11850/11900, where I will be a buyer with a 11795 stop. Otherwise I will stay flat as I do not want to be short the market at this time despite the stronger Euro.
Shortly after I posted it was announced that UK PM May was to hold a pres conference at 11.15 am. I presume everyone stayed flat until we saw what she had to say. After she announced a snap election for June 8, the FTSE sold off quickly to the bottom of my buy range at 7155. After buying the market here thankfully I had a tight 7130 stop on this position which was quickly filled and I am now flat. The 2.5% rise in Sterling did not help the market with the FTSE falling another 70 points as the 7180 break certainly proved its worth with the market so far falling short of my 7040 target from the Head & Shoulders Neckline as mentioned over the past week. This morning the FTSE is severely oversold and trading below the bottom of its Daily Bollinger Band. Given how oversold the market is plus the fact that we are near my 7040 target price I will again look to buy the FTSE on any further dip lower to 6980/7020 with a 6940 wider stop. The FTSE will have strong resistance at 7110/7140 and I will be a seller here with a 7175 stop.
Dow Rolling Contract
My Dow plan worked well with the market initially trading lower to my 20530 buy level before rallying back to a 20600 high print. Following this snap back rally I emailed my Platinum Members to cover this position at 20570 or higher and I am now flat. Subsequently the Dow sold off but so far the March low at 20412 has held. Just like the S&P above I will continue with my strategy of ”buying the dip” and today I will again look to buy the Dow on any move lower to 20390/20440 with a 20345 tight stop. Despite the negative price action I am still not comfortable in being short the market especially with the McClellan Oscillator again closing in positive territory last night. If the Dow continues to sell off over the coming days I will be an aggressive buyer from 20250/20310 with a 20195 stop.
The Bund eventually traded higher to my 163.90 average sell level with a 164.00 high print. Given the uncertainty in all markets I did not see the advantage of holding a short position overnight and I emailed my Platinum Members to exit this position at 163.83 and I am now flat. For those members who did stay short the Bund is currently trading at 163.65. The Bund is extremely overbought and gains from here are likely to be limited. Remember the yield on the Bund is just an insane 16 basis points. Today I will again look to sell the Bund on any move higher to 163.85/164.20 with a 164.60 wider stop.
Gold Rolling Contract
Gold has a 4.5 year trendline at 1292/1294 and if you saw after lunch how quick Gold fell to a low at 1279 on what was believed to have been a $3bn sale in the Futures Market, before the market snapped back. I am still flat Gold which continues to hold its 1260/1265 support price. Given how overbought the Gold market is trading ahead of key resistance from 1292/1300, I will be a small seller from 1295/1301 with a tight 1306 stop. A break and close over 1300 is a bullish breakout and will be the first confirmation that Gold is starting a longer term bull market. I will leave my buy level unchanged from 1266/1273 with the same 1259 stop.
Silver Rolling Contract
Silver continues to underperform Gold as mentioned at length in yesterday’s commentary. I am still flat Silver and my only interest in buying this market is on a dip lower to 17.60/17.90 with a 17.30 stop. Despite the heavy price action in Silver I still do not want to be short the market at this time.