European and US equities have continued to edge higher amid a mild risk positive tone in yesterday’s trading session. US Treasury Yields had a small sell off at the start of the NY session with the move higher in yields helping the USD perform across the board. Commodities had another mixed session, but oil prices have continued to climb higher ahead of OPEC meeting on Thursday. There has been little market reaction to Trump’s budget, but questions remain on optimistic growth assumptions. Solid data releases out of Europe help reverse yesterday’s mild risk off tone triggered by the heart breaking news of a terrorist attack in Manchester. The German IFO Business Climate Index rose to a new all-time high – based on data back to 1991 while French services and German Manufacturing flash May PMI readings also beat expectations. Notably, however, Europe’s Composite PMI reading was unchanged at 56.8, suggesting there may have been some offsetting weakness in other EZ countries that do not report flash estimates. Still reaction to the data saw European equities ex UK performed and helped the Euro climbed to an intraday high of 1.1268.
To mark my 1350th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 48 points yesterday and is now ahead by 798 points for May, having made 1276 points in April, 1335 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.
The positive mood in Europe helped US equities at the open with financial shares leading the way. After four consecutive gains, the S&P 500 closed 0.2% higher and now is within touching distance of its closing record of 2405.77. The Dow and NASDAQ also recorded modest gains on the day, up 0.21% and 0.08% respectively.
Just after the US open, 10y UST yields jumped over 5bps to an intraday high of 2.2869% and are currently trading at 2.2817%. Corporate issuance and a soft T bill auction were been cited by some as the trigger for the move higher in yields. Countering this argument, the 2 year bond auction was well received and I suspect the move probably has more to do with US equity performance and the ongoing rise in oil prices.
The move higher in UST yields has helped the USD performed against most currencies with NZD the exception in G10 (+0.23%) and ZAR (1.09%) the notable winner in EM. The Kiwi got a boost early this morning form better than expected milk forecast from Fronterra ($6.50 17/18, adding 15c to current season). Meanwhile the Rand performance was triggered by reports that ANC Leaders plan to raise Zuma removal at a key meeting.
Looking at G10 currencies in more detail, the strength in the USD has dragged the Euro to the bottom of the pile, down 0.48% and back below the 1.12 mark. But after decent gains over the past fortnight (almost 4%), I suspect the move reflects some profit taking and bit of technical resistance above 1.1260. ECB’s Coeure might have been a factor too noting there is no need to change policy exit sequencing at this stage. Other European currencies followed the EUR move lower and JPY underperformed in line with the move higher in UST yields (currently trading at ¥111.78). Meanwhile the AUD is essentially unchanged seemingly aided by the risk positive tone (VIX still below11) and rise in oil prices (WTI +0.7% and Brent 0.5%), despite softness in gold (- 0.8% and iron ore -1.9%).
Market reaction to Trump’s budget was fairly muted. The $3.6tr spending cuts over 10y were already know and in addition to the growth forecast assumption, question marks still remain on the White House ability to gain approval from Congress.
This morning on the Economic front we have German GIFK Consumer Confidence at 7.00 am. Thisis followed at 2.00 pm by US FHFA House Price Index and Existing Home Sales at 3.00 pm. Finally at 7.00 pm we have the FOMC Minutes. I think these Minutes will reiterate the consensus view within the Committee for two more hikes this year. However, the market is likely to be sensitive to any commentary on the inflation outlook. A June hike still looks like the base case scenario, but if there are any signs of doubts over the expected upward path on inflation this view may be challenged. After dipping into the mid-60s last week, pricing expectation for a June hike have edged higher again and currently sit at 75% while 35bps of tightening are priced by year end. Any commentary surrounding the Fed Balance sheet are likely to be limited to the Committee’s preference for a passive strategy without any details on timing or magnitude.
Meanwhile both ECB President Dragi and Praet are speaking today and it will interesting to see if they try and talk the Euro lower. Praet speaks this morning while Dragi speaks in Madrid at 1.45 pm.
June S&P 500
Unfortunately the S&P missed my 2385 buy level with a 2388 low print after I posted yesterday morning before going on to close the remainder of last week’s 2384/2394 ‘’Open Gap’’ and I am still flat. As I have said countless times no matter how long it takes but all ‘’Open Gap’s’’ in the S&P always get filled. To me it is only a matter of time before the S&P makes new all-time highs and the big question at this time is whether the Dow can break its March 1, all-time high of 21,169 to eliminate the large negative divergence that currently exists between the two Indices. With both the US and UK markets closed next Monday the stock markets could well spend the rest of the week trading higher. Today I will now raise my buy level to 2387/2393 with a 2382 stop while I will also raise my sell level to 2412/2418 with a 2423 stop. If the S&P can break and close over 2410 by the end of the week then we could well see the start of a new leg higher where it this was the case then the 2400 area will offer strong support.
EUR/USD
Frustratingly having got stopped out my short 1.1220 position on Monday at 1.1255 especially with the Euro trading lower as expected to close in New York at 1.1180. The Euro is severely overbought and today I will now lower my sell level 1.1245/1.1285 with a 1.1315 stop which is just above the highs reached after the US Election on November8, last year. I will leave my buy level unchanged at 1.1030/1.1070 with the same 1.1005 tight stop.
June Dollar Index
Finally after another test lower we saw the Dollar rally as expected given the incredibly low DSI reading at just 5% bulls last Friday. I emailed my Platinum Members that I bought more of the Dollar at 96.95 which put me aggressively long at 96.97 before the market rallied to my 97.30 T/P level as I wanted to bank some points for yesterday’s trading session, given how slow the week has been so far. Today I will again look to buy the Dollar on any dip lower to 96.90/97.20 with the same 96.60 stop.
June DAX
The sell-off in the Euro late in the day saw the DAX being bought into the close. The stronger than expected IFO Survey also helped the market. Today I will now raise my buy level to 12530/12580 with a 12470 stop. I am not comfortable in chasing this market much higher hence the lower buy level. The DAX has strong resistance from 12780/790 and then the all-time high at 12840, so the 12780/12840 band should be a major challenge to break. Despite this strong resistance I still do not want to be short the DAX at this time.
June FTSE
I am still flat the FTSE which missed my 7440 buy level with a 7469 low print. Just like the DAX I am reluctant to chase this market higher especially as we are trading near new all-time highs and for today I will leave my buy level unchanged at 7400/7440 with the same 7365 stop.
Dow Rolling Contract
The fact that the Dow closed again over the key 20900 resistance level is a plus. However as mentioned in my S&P Commentary above the Dow needs to break and close over 21169 for the market to turn more bullish. Just like the other Indices I am also reluctant to chase the Dow higher and today I will only raise my buy range slightly to 20780/20840 with a 20720 stop. A failure to break this key 21169 resistance level will soon see me back on the sell side of the Dow.
June BUND
My Bund plan worked well with the market trading lower to my 160.60 buy level before rallying over 30 points and this rally higher enabled me to cover this position at my revised 160.75 T/P level and I am now flat. Today the Bund has strong support from 160.00/160.35 and I will be a buyer in this area with a tight 159.75 stop. So far the low in May is at 160.00 and I would expect any test of this level to result in a decent rally first before the market subsequently trades lower.
Gold Rolling Contract
Gold had a weak finish in New York last night. In am still flat the market and as a result of this weak finish I have now lowered my buy level to 1233/1240 with a tight 1227 stop.
Silver Rolling Contract
No change as I am still long Silver from early yesterday morning at 17.13. I will only add to this position on a move lower to 16.90 with the same 16.75 tight stop. My T/P level remains unchanged at 17.50.
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