U.S. Equities fell to the lowest level since March as a rally in 10-year Treasuries rekindled concern that a key recession signal has started to flash warnings amid what could be a protracted trade dispute with China. The S&P 500 slumped back towards 2,800, with 10 of the 11 main groups lower on the day. Selling accelerated in the afternoon session as the retreat in the 10-year yield pushed it more than 9 basis points below the rate on the three-month bill, further inverting a part of the yield curve watched for its ability to signal a recession. Bonds were in demand after President Donald Trump declared that the U.S. was “not ready” to reach a trade deal with China. Stalled talks in the U.S.-China trade war and escalating tensions have soured sentiment for risk assets. That’s driven sovereign bonds higher and pushed global stocks toward their first monthly decline of 2019. With the Federal Reserve reiterating last week that it remains fully in patience mode, investors have little reason to bid stocks higher.
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For anyone following my Platinum Service it made 52 points yesterday and is still ahead by 1818 points for May, having made 955 points in April, 1027 points in March, 1013 points in February, 1671 points in January, 2803 points in December, 1541 points in November and 2094 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Equities
The S&P 500 closed 0.85% lower at 2803 having hit an intra-day high of 2841. Worrying the Dow fell 0.93% or 237 points to close at a price of 25347 which is well below its 200 Day Moving Average which comes in at 25432 this morning. The NASDAQ was the strongest of the US Indices closing just 0.3% lower. In Europe, the Stoxx Europe 600 Index lost 0.2%. However this morning on the back of the weaker US Futures Markets the Stoxx is opening a further 0.7% lower. Meanwhile the MSCI Emerging Market Index fell 0.2%.
Currencies
The FX Markets were quiet with the Bloomberg Dollar Spot Index rising 0.3%, but so far holding below the key 98.20/98.50 resistance area. The rally in the US Dollar saw the Euro fall 0.3% to close at $1.1164, where it is trading this morning in London. The sell-off in equity markets saw investors buy the Japanese Yen which is trading 0.25% stronger at 109.20 per dollar.
Bonds
A key slice of the Treasuries yield curve is falling deeper into inversion as growing angst over trade friction is overshadowing expectations that the Federal Reserve will cut interest rates by year-end. The gap between 3-month and 10-year rates dipped Tuesday to negative 9.2 basis points. That is the most negative since March, when this closely watched segment of the curve inverted for the first time since 2007. Gaps between most other sectors of the curve have narrowed as well. Historically, an inverted curve has been a signal that a recession is looming. ”Haven” buying drove the 10-year yield to the lowest in 19 months on Tuesday after comments from President Donald Trump further dimmed the prospects of a U.S.-China trade deal. Renewed tensions in Europe also damped demand for riskier assets. The flattening trade faces risks, including Friday’s release of the Fed’s preferred inflation gauge, which is forecast to hold below officials’ 2% target. Another low reading could spur traders to price in more rate cuts in 2019, potentially re-steepening the curve. The yield on 10-year Treasuries decreased six basis points to 2.26%, the lowest since September 2017. Meanwhile in Europe, Germany’s 10-year yield fell to -0.16%, the lowest in more than three years.
Commodities
Gold futures declined 0.4% to $1,284.10 an ounce, while West Texas Intermediate crude gained 0.4% to $58.88 a barrel in what was a quiet session for the commodity markets after traders returned from the long weekend.
This morning on the Economic Front we have German Unemployment at 8.55 am. This is followed at 12.00 pm by the US MBA Mortgage Applications. Finally, at 3.00 pm we have the Richmond Fed Manufacturing Index.
June S&P 500
The S&P ended the day with a Downside Key Day Reversal as nervousness over China coupled with the fact that the Yield curve inverted. This was an ugly session with 10 of the 11 S&P components closing lower. As mentioned yesterday we had our fifth Hindenburg Omen last Friday. There is no doubt that a recession is coming in the US with the key point when will it start. Shortly after I posted yesterday morning the S&P traded lower to my 2822 buy level before rallying to a rebound high of 2841. Unfortunately I covered this position too early at my revised 2826 T/P level and I am still flat. This morning the S&P is trading lower at 2788 as the market looks for the 2776 200 Day Moving Average to provide some decent support. However a break and close below the 2775 level for more than a few days will be bearish for a move lower to 2640 and possibly 2540. Today I will be a buyer on any further dip lower to 2765/2776 with a 2759 stop. Given how close we are to long-term support I still do not want to be short the S&P at this time.
EUR/USD
Despite the aggressive fall in the US Treasury yields the Dollar is stronger across the board. As a result the Euro is trading lower at 1.1164 this morning and I will now lower my Euro buy level to 1.1080/1.1120 with a 1.1035 stop. Despite the negative price action in the Euro I still do not want to be short the market at this time.
June Dollar Index
I am still flat the Dollar with the market so far unable to break the key 98.20/98.60 resistance area. Today I will be a seller on any move to this area with a tight 98.95 stop.
June DAX
Just before the close the DAX traded lower to my 11980 buy level. As I wanted to be flat overnight I emailed my Platinum Members to exit any long position for a breakeven and I am still flat. This morning the DAX is trading at 11925 as I go to press with the market again trading better than the US Indices. The DAX has key support from 11760/11820 and today I will be a buyer on any dip to this area with a 11715 stop.
June FTSE
Eventually the FTSE traded lower to my 7245 buy level before having a small rally to my revised 7257 T/P level and I am now flat. Despite the Pound trading near its low for the year the FTSE is again under pressure this morning. The FTSE has strong support from 7100/7150 and I will be a buyer on any dip to this area with a tight 7070 stop.
Dow Rolling Contract
Just before the close the Dow traded lower to my 25390 buy level. In hindsight I should have exited this position especially with the market trading at 25230 this morning. I added to this position at 25240 for a now average long position at 25315 which is 400 points below the high made yesterday afternoon. Worrying the Dow has closed below its 200 Day Moving Average which comes in at 25432 this morning. If the Dow cannot break back above this key pivot point then we could well see an acceleration lower to 24100 and possibly 23500 over the coming weeks. Probably most of you did not taken the Dow long position given how late in the session it was triggered. I will leave my 25180 stop unchanged and I will now lower my T/P level on this position to 25330. If any of the above levels are hit I will be back with a new update for my Platinum Members.
June NASDAQ
This morning the NASDAQ is trading in my buy range form yesterday. As I am long the Dow I did not take this trade myself and I am still flat. If you did go buy the market I would use a stop at 7195 on your position. The NASDAQ has strong resistance from 7320/7380 and today I will be a seller on any rally to this area with a 7430 stop. If I am taken short I will have a T/P level at 7275.
June BUND
No Change as I am still short from yesterday morning at 167.75 with the same 164.10 stop. I will now raise my T/P level on this position to 167.70.
Gold Rolling Contract
Gold got hit hard yesterday before having a small rally on the back of the sell-off in the US Equity Markets. I am still flat and today I will leave my 1260/1269 buy level unchanged with the same 1252 stop.
Silver Rolling Contract
Silver traded lower to my 14.30 buy level yesterday. I am still long and I will now raise my stop on this position to 13.85. I will also lower my T/P level on this trade to 14.49.
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