Markets have continued to rally hard on the back of the French Presidential elections on Sunday. European equities have surged a massive 4%, while the Euro has risen 2.1% since the weekend to be 1.0935 – its highest close since mid-November. The fear index (VIX) has also moved significantly lower to 10.78, after having been at 16 ahead of the elections. With centrist Macron seen easily beating Euro-sceptic Le Pen (betting odds give Macron a 89% chance of winning and polls put him at 61% of the vote) it seems markets are pricing the Dog Days Are Over for Europe. Moves in the past 24 hours were more centred on the US. The S&P500 rose 0.6%, the Dow was up 1.1% and at 20,996 is within a hairsbreadth of its record closing high, while the NASDAQ breached the 6,000 level for the first time. US Treasury yields rose 5.9bps to 2.33%.
To mark my 1300th 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 28 points yesterday and is now ahead by 1190 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.
While Bond Yields did gap higher following the French election, yesterday’s moves appear more related to expectations for Trump’s impending “broad principals” tax plan.
Trump – in his own words – is expected to have a “big announcement on Wednesday having to do with tax reform” and that the tax cuts will be “bigger I believe than any tax cut ever”. It is widely tipped that the “broad principals” will be for the Corporate Tax Rate to be cut to 15% from 35% (note this figure is not a surprise having been widely cited previously). The key for markets will be how will such a tax cut be funded and what is the likelihood of the tax cut being passed by Congress.
If the overall tax cut adds to the deficit after the initial 10-year window then it cannot be passed by a simple majority. It is unclear whether other revenue measures such as a “border tax” would be proposed to make up for the revenue loss. It is reported House Speaker Paul Ryan asked the Joint Committee on Taxation to analyse the budget effects of a temporary cut in the corporate tax rate to 20% which would expire after three years. Costings being cited in the media suggest that would lower federal tax revenue by 1.8 trillion over a decade, while a cut to 15% would decrease revenue by 2.4 trillion.
Fed market pricing has lifted significantly since last week with a 65% chance of June rate hike (compared to 34% this time last week) and 1.5 rate hikes are priced for the rest of the year.
The US Dollar has fallen 1.0% since the weekend and closed down 0.2% last night in New York. The Euro was up 0.6%, while the Yen fell 1.2%. The Aussie fell 0.4% while the Kiwi was down 0.9%. There is no clear catalyst for the weakness in the Kiwi.
Finally the Canadian Dollar fell 0.5% following news the US placed tariffs on Canada’s soft lumber exports which are worth around US$6.4bn a year. The US found Canada had been improperly subsidising its exports and a tariff of around 20% will now generally apply – similar to the level applied in the 2001 dispute. Is this an opening gambit ahead of NAFTA renegotiation? Commerce Secretary Wilbur Ross stated “What we had tried to do was to clear the air and get this dispute out of the way before the big NAFTA talks went on.”. The Canadian Dollar appears vulnerable to any further trade measures.
This morning on the economic front we have no data of note from the Euro-Zone or the UK ahead of tomorrow’s key ECB Meeting. At 12.00 pm we have US MBA Mortgage Applications and this is followed at 1.30 pm by Canadian Retail Sales.
The focus will turn this afternoon to the US where President Trump is expected to announce his tax policy. Focus will also be on the ability of Congress to avoid a government shutdown on April 28. The spending plan being negotiated would keep the government funded through to Sept 30 with the sticking point being funding for the border wall with Mexico. The Administration is sending mixed messages with tweets by Trump emphasising the border wall and comments by Trump’s Budget Director Mulvaney indicating an appetite to negotiate.
June S&P 500
Last Wednesday the S&P closed weak at 2331 with the key to this weak close the fact that it did not break the March low of 2317.75 whereas the Dow did. This is known as intra-market positive divergence and wow did this signal work with the S&P trading 90 Handles higher at 2390 yesterday afternoon and now within a hair of the March 1 all-time high at 2400. Despite some anecdotal evidence of the US economy slowing down the market is now solely focussed on Trump’s tax cut proposal this afternoon. If the S&P breaks this March 1 high, then the next resistance is level is at 2412 which is the top of the Weekly Bollinger Band. Given how overbought the S&P is trading I would expect the S&P to initially having difficulty in breaking this now key 2400/2412 resistance level. For these reasons I will now look to sell the market from 2404/2413 in small size with a wider 2418 stop. Given the volatility I will trade in smaller size within a wider price range. My only interest in buying the S&P is on a dip lower to 2373/2379 with a 2368 stop.
EUR/USD
The Euro rallied hard yesterday buy so far is having difficulty in breaking the 1.0950 resistance level. This is not surprising given how severely overbought the Euro is trading. The weakness in the US dollar will continue as the mounting evidence of the consumer slowdown in the US gets reflected in the main economic components which I believe will materialise later this year. However given how overbought the Euro is trading I will now look to sell the market in front of the 500 day moving average at 1.10 with my sell range for today being 1.0970/1.1010 with a 1.1040 stop. I do not want to raise my buy level from yesterday and will leave it unchanged at 1.0810/1.0850 with a 1.0870 stop.
June Dollar Index
Unfortunately the Dollar missed my 98.50 buy level by three points yesterday and I am still flat. Given how oversold the Dollar is trading I will now raise my buy level to 98.25/98.65 with a 97.90 stop. I still do not want to be short the Dollar at this time.
June DAX
After Monday’s huge move higher in the DAX the market traded in a narrow range yesterday weighed down by the strength of the Euro. With the ECB and Dragi press conference tomorrow it is difficult to be short the market and today I will leave my buy level unchanged from 12370/12425 with the same 12325 stop.
June FTSE
Incredibly I have not so far being stopped out of my 7205 average short position at my 7240 stop as the FTSE also traded in a very narrow range, despite the huge 250 point rally in the Dow. Last Tuesday’s break down of the Head & Shoulders 7180/7220 is proving to be strong resistance. However as I want to be flat ahead of Trump this afternoon I have now cut this position here at 7210 for a small loss and I am now flat. I will be a more aggressive seller on any further rally higher to 7255/7285 with a 7310 stop.
Dow Rolling Contract
It is so hard to stay short any US stock market as shown yesterday with the NASDAQ breaking 6000 for the first time to close at a new all-time high. Meanwhile the Dow has rallied over 600 points in just 3.5 trading sessions as yet again every short position got slammed. Thankfully we have had no sell levels in the Dow for the past month and are still flat. The Dow has strong resistance at its 21169 all-time high and today I will be a small seller from 21150/21220 with a 21280 stop. Given the extent of the upside move over the past few days I do not want to be long the Dow at this time unless we trade lower to 20710/20790 where I will be a buyer with a 20650 stop which is just below the key 20660 pivot and support level.
June BUND
Since the French Election result on Sunday the Bund has got hit hard and is now down nearly 350 points in the past week, a move which will not please Dragi and the ECB. Yesterday the Bund traded the whole of my 160.80/161.10 buy range which thus puts me long at an average 160.95 price. I am still long and I will leave my stop unchanged at 160.55. I will now lower my T/P level on this position to 161.10 as I try to get flat ahead of Trump this afternoon. If I am stopped out of this position I will be a more aggressive buyer on any further dip lower to 160.10/160.45 with a 159.80 stop.
Gold Rolling Contract
Gold traded lower to my 1262 buy level yesterday afternoon. As I am long Silver and wanted to bank some points for yesterday’s trading session I emailed my Platinum Members to exit this position at 1265.25 and I am now flat. I am very surprised how weak Gold is trading especially when you see Dollar falling 2% over the past few days. Today I will again look to buy Gold on any dip lower to 1252/1258 with a 1247 stop.
Silver Rolling Contract
Silver traded lower to my 17.67 buy level shortly after lunch yesterday. I am still long and I will only add to this position on any further move lower to 17.40. I will leave my stop unchanged at 17.15.
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