Markets traded sideways in what was a wait and see mode ahead of Apple’s results after the bell and the FOMC decision later this evening at 7.00 pm. US equities ended the day marginally in positive territory with technology share leading the way while the automobile sector underperformed following another disappointing sales update. The latter appears to have been a factor for the move lower in US Treasury yields with the fall in oil prices and Trump’s tweeting complains on the US political gridlock also contributing to Treasuries performance. Lower US yields have seen the US dollar underperform most G10 currencies with the New Zealand dollar close to the top of the leader board helped by a better than expected dairy auction. News on Apple’s Earning Report came in weaker than expected with revenue and iphone sales slightly missing expectations, although EPS of $2.10, beat analyst expectations of $2.02. Apple shares have fallen over 2% after hours and could set the tone when US markets open again this afternoon.
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For anyone following my Platinum Service it ended the day flat yesterday as none of my calls were hit and still ahead by 87 points for May, having made 1276 points in April, 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.
Looking at the data releases yesterday it is probably worth highlighting sales at all six of the biggest automakers in the U.S. dropped again in April, each company’s figures printed below analysts’ estimates resulting in the fourth consecutive month of falling sales in aggregate. On Monday, March US Personal Spending figures disappointed (0.0% vs 0.2% exp.) and now the new drop in car sales confirms the view that not all is well with the US consumer – a view that I have mentioned consistently over the past six months. The recent soft US data releases are challenging the view that a rebound in activity should be expected in Q2.
Looking at currencies in more detail, NZD is close to the top of the leader board, up 0.44% against the USD and currently trading at 0.6935. Yesterday the GDT dairy auction was stronger than the flat outcome expected, average prices rose by 3.6% and whole milk powder climbed 5.2%. One prominent FX strategist notes that while some global commodity indices are trading close to their lows for the year, the NZ commodity price index such as the CBA version hasn’t fallen at all this year and this supports the NZD fair value estimate, which is around 0.7450.
In addition to SEK (0.48%) and CHF(0.44%), GBP has also been one of the outperformers against the USD boosted by stronger than expected Manufacturing PMI release. In April the survey jumped to 57.3 vs 54 exp; the 9th consecutive month of expansion and the highest reading in almost 3 years. Cable is currently trading at 1.2910 with momentum and technical indicators suggesting a move above 1.30 should not come as a surprise.
The AUD is little changed after yesterday’s RBA decision to leave the cash rate unchanged. The decision was unanimously expected and we now have to wait for the SoMP release on Friday for more details on the Bank’s outlook on the economy.
The Japanese Yen and Canadian Dollar are the two G10 underperformers against the USD. Of note JPY underperformance comes despite the move lower in UST yields, boosted by the softer tone in gold of late and the performance of Japanese equities. Late yesterday, USD/JPY traded above the ¥112 mark for the first time in more than a month and it has remained above the mark so far. Meanwhile CAD’s underperformance (-0.22%) has coincided with the move lower in oil prices. That said as I am about to press the send button oil is staging a bit of a recovery with WTI trading back above $48.
This morning on the economic front we have German Unemployment at 8.55 am and this is followed by UK Construction PMI at 9.30 am and Euro-Zone GDP at 10.00 am. At 1.15 pm we have the US ADP Employment Change where the consensus is for a 175K rise versus last month’s 263K larger than expected increase. Next we have US Services/Composite PMI and ISM Non-Manufacturing Composite at 2.45 pm and 3.00 pm respectively. Finally at 7.00 pm we have the main event of the day namely the FOMC Rate Decision.
As for the FOMC, no change is widely expected both in terms of the policy rate and language of the statement, however any comments on the Fed balance sheet will be closely monitor. My own view is that the Fed will hike in June and again later in the year. The market is currently pricing a 61% chance of a hike in June and 34bps by the end of the year.
June S&P 500
On yet another trading session of small margins the S&P missed my 2379 buy level with a 2381.50 low print before again rallying over 2388 only to subsequently sell off small on the Apple Earnings Report. Volatility has collapsed with the VIX closing at its lowest level since January 2007, which was just ahead of the Global Financial Crisis. At the height of the credit crisis the S&P Futures Contract were doing all time record volume. In March 2009 the E Mini S&P Futures did 6.9 million contracts in one day. There was a stretch where the Futures did over 5 million contracts per day. Over the past six years the E Mini volume has been going down steadily with the average volume now just 1.2 – 1.3 million contracts per day. On Monday the VIX sold off to a low of 9.90 and settled down 6.6% at 10.11, which is its lowest close since February 2007. The last time the VIX got near this low was in July 2014, followed by a few weeks of very quiet markets. Then the E Mini S&P bottomed in July 2014, and the VIX rallied 150% through October 15, of that year. My point here is that while the VIX may fall further the risk of a major sell-off in the US stock market is increasing especially as we are now in May. Remember the fair value for the S&P that I have mentioned over the past few weeks is at 1655. I firmly believe that the US will enter a recession towards the end of this year beginning of 2018. The markets are not prepared for this with complacency the name of the game. Hedge Funds are hugely leveraged and I read one report from Paul Tudor Jones who said that a 3% move in the S&P can cause a 20% fall in a Hedge Fund’s Capital. Today ahead of the FOMC I will again look to buy the S&P on any dip lower to 2370/2376 with a 2365 stop. Again if I am taken long and subsequently stopped out of this trade I will be a more aggressive buyer on any dip lower to 2347/2353 with a 2342 stop. Given the level of complacency I will now look to sell the S&P over the coming days on any rally higher to 2404/2412 with a 2418 wider stop.
Unfortunately the Euro just missed my 1.0880 buy level with a 1.0889 low print before rallying strongly and I am still flat. Given the fact that it is FOMC day I am reluctant to chase this Euro higher even though I expect much higher prices over the coming weeks. For this reason I will leave my buy level unchanged at 1.0845/1.0885 with the same 1.0815 stop. Again if I am taken long and subsequently stopped out of this trade I will be a more aggressive buyer on any further dip lower to 1.0745/1.0785 with a 1.0710 stop. I do not want to be short the Euro at this time.
June Dollar Index
No change as I am still a buyer on any dip lower to 98.20/98.60 with the same 97.85 stop. Remember a break and close below 98.00 is bearish with a target price of 95.00 over the coming weeks.
The DAX has strong resistance from 12550/12600 and today I will be a small seller in this area with a 12640 tight stop. My only interest in buying the DAX is still on a dip lower to 12370/12420 with a 12320 stop. I know my buy level is away from the market but to be honest the risk is too great to buy this market any higher.
I am still flat the FTSE and today I will leave my buy level unchanged from 7140/7170 with the same 7110 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
It is incredible with the US Stock markets close to all-time highs that internally the market continues to struggle as shown by the McClellan Oscillator which closed barely in positive territory with a +21 print last night. If this was a strong market the MO would be closer to +150. However it is only a few stocks that are keeping this market higher. I am still flat the Dow and today I will again be a buyer on any dip lower to 20800/20860 with a 20750 stop. Again if I am taken long and subsequently stopped out of this trade I will be a more aggressive buyer on any further dip lower to 20620/20680 with the same 20575 stop. Ahead of the FOMC this evening I still do not want to be short the Dow at this time despite my very serious concerns for the US stock market going forward.
No change as I am still a buyer on any dip lower to 160.90/161.25 with the same 160.60 stop. Despite the insanity of a Bund only yielding 32 basis points the price action continues to tell me not to be short the market at this time.
Gold Rolling Contract
No change as I am still a buyer of Gold on any dip lower to 1243/1251 with a 1237 stop. As we are near Friday again I would expect Gold to start to move higher. Gold may have one more dip after we get the FOMC Statement and I would expect this dip to be bought.
Silver Rolling Contract
No change as I am still long at 17.53 with the same 16.75 stop. Silver again closed lower yesterday which was number 11 of the past 12 trading sessions, which is a sequence that I cannot ever remember happening before. The only bullish part of yesterday’s price action was the slowing momentum. Again if I am stopped out of this trade I will quickly look to buy Silver again with a new 16.40 stop which is just below the key 16.60/16.80 support level.