Yesterday’s trading session was dominated by the heavy selling of Italian debt securities, bonds and stocks, spilling over into other prone European markets, nothing short of a meltdown as others have noted, also selling of the Euro and risk assets globally as the US and UK markets return after their respective long weekends. (The exceptions were base metals and gold, the latter finding no new support.) With Italy’s President rejecting the League/Five Star Coalition’s nominee as Finance Minister (a known Eurosceptic), the President’s choice of former IMF official Cotarelli as a technocrat leader is given the cold shoulder by the Coalition. Moreover, Cottarelli reportedly left a meeting with the President without any agreement on a cabinet team. They are apparently meeting again this morning. Whatever the outcome there, with no indication that a ‘’technical-led’’ government could even work now for a time, there is understandable pressure to hold fresh elections, possibly as early as July. The League/Five Star is already turning the election into an anti-establishment/anti Euro one and that is what the market has in its sights.
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For anyone following my Platinum Service it made 437 points yesterday and is now ahead by 1772 points for May, having made 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Italian yields soared from the open. Two year bonds spiked higher by a net 186bps in a savage move as investors became agitated about redenomination risk given the rapid pace of change in Italian politics. Italian 10y yields also jumped, still by a huge 48bps daily move, spilling over into global markets, with investors though shying away from Spanish, Portuguese, and Greek bonds. Spanish 10 year bond rose by 9.6bps, Portuguese bonds by 12.2, and Greek bonds by 31.3bps. The 5 year credit default swap on Italian sovereign debt spiked higher from 170 to 290, the highest since 2012/13 in the aftermath of the Euro debt crisis.
Global bond markets rallied sharply, German 10 years by 8.4bps, having rallied by 6.2bps on Monday, the yield down to just 0.26%, having been over 0.6% as recently as a fortnight ago. US 10 years came back from the weekend and have dropped by 14.5bps for the session, the yield down to 2.786%. Markets are still pricing for the high likelihood of the Fed hiking on 13 June, but have understandably scaled back the odds given current market turmoil. No surprises then that stocks were down in Europe and in the US, the Eurostoxx 600 index by 1.37%, Milan by 2.65% and Madrid by 2.49%. The Dow was down 500 points in the afternoon session and has ended down close to 400 points, -1.58%, the S&P by 1.16%, and the Nasdaq by 0.5%.
It has been relatively measured in the currency space by comparison. The Euro has been sold down another big figure testing support at just over 1.15 earlier in the London session and again in NY, currently trading at 1.1575. With the VIX higher, by 3.8 points, it is not surprising that the AUD and the NZD are lower. There was support yesterday for the yen and the Swiss France, the DXY also making some positive headway.
What can the ECB do? It can take steps to calm European money markets and provide liquidity as needed. It could also potentially wheel out its post Euro debt crisis policy of Outright Monetary Transactions (OMT), a programme to support a Euro economy’s secondary bond market if requested to do so, but that programme was intended to come with an accompanying fiscal plan. ECB President Draghi might yet have to step up and ‘’do whatever it takes’’ to support the Euro as he famously said back in 2012. At the end of the day, it will be Italy’s politics that will remain under focus. Market pressure is one risk that can be addressed by the ECB; political pressure is another, largely beyond the purview of the ECB.
On the Spanish political scene, Prime Minister Rajoy is facing a no confidence vote on Friday and it seems that the centre of the road Ciudadanos Party might also now be angling toward another election.
Just to throw some more geopolitical spice into the mix, the US Administration has arced up again on US-China trade tensions, now with a plan to be unveiled on June 15 spelling out $50bn in Chinese goods that will then be subject to tariffs. Controls on Chinese investment are also expected on June 30. China issued a follow up statement to the effect that they will protect their interests. Meanwhile preparations for the US-North Korea June 12 Summit continue. The President has also been tweeting on Chinese aggression to obtain technology from American companies to undermine creativity and innovation as well as practices that undermine fair and reciprocal trade.
This morning on the Economic Front we have German CPI (Saxony) and Unemployment at 8.00 am and 8.55 am respectively. This is followed at 10.00 am by Euro-Zone Economic and Consumer Confidence at 10.00 am. Next we have US MBA Mortgage Applications and the ADP Employment Change at 12.00 pm and 1.15 pm respectively. At 1.00 pm we have German CPI and this is followed at 1.30 pm by US GDP and Wholesale Inventories. Finally we have the Bank of Canada Rate Decision at 3.00 pm and the Beige Book from the Fed at 7.00 pm.
June S&P 500
My S&P plan worked well yesterday with the market trading my full 2691/2699 buy range a couple of hours after I posted before rebounding to close some of Friday’s ‘’Open Gap’’ with an afternoon high of 2710. This rally enabled me to cover my average 2695 position at 2703. Subsequently I emailed my Platinum Members to re-buy the S&P at 2684 before covering this position at my revised 2691 T/P level and I am now flat. So far the S&P is holding the key 50 Day Moving Average which comes in this morning at 2673 which is positive. However a break and close below here opens up the possibility of a short-term top and an acceleration lower. Today I will look to buy the market on any dip lower to 2675/2683 with a 2669 stop. Given how close we are to near-term support plus the fact that we have month-end tomorrow I do not want to be short the S&P at this time.
EUR/USD
In contrast to Monday, my Euro plan worked well with the market trading the whole of my 1.1520/1.1560 buy range for an average long position at 1.1540 before the market rallied to my 1.1580 T/P level and I am now flat. The 1.1500/1.1550 is key support and is the low from last November in what is a severely oversold market where the DSI is in single digits. The Euro has now fallen from a high of 1.2400 in early April which is a huge move. Today I will again look to buy the Euro on any dip lower to 1.1490/1.1540 with a 1.1445 stop.
June Dollar Index
The Dollar rallied to my second sell level at 94.75 for a now average short position at 94.50. I will now use and dip lower to 94.40 to exit this position. Meanwhile I will leave my stop unchanged at 95.10.
June DAX
My DAX plan worked well with the market trading lower to my 12650 buy level with an initial 12611 low print before rallying over 100 points as the market traded higher to my 12695 T/P level and I am now flat. The DAX has strong support at from 12490/12570 and today I will again look to buy the DAX on any dip lower to this area with a 12430 stop.
June FTSE
As so many of my positions hit at the same time I waited to buy the FTSE which I did at 7600 before the market followed the US Indices higher in the afternoon to my revised 7635 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7510/7550 with a 7475 tight stop.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 24530 buy level before rallying to my revised 24600 T/P level. Subsequently I emailed my Platinum Members to re-buy the Dow at 24480 before covering this position for a small gain at 24520 and I am now flat. The Dow broke its 50 Day Moving Average at 24376 before accelerating lower with a 24245 print before a late rally saw the market go out at its 50 Day MA. The fact that the Dow broke the key 24600 support level so easily and close below here is bearish. Today I will be a small seller on any rally higher to 24580/24700 with a 24780 stop. My only interest in buying the Dow today is on a large move lower to 23925/24050 with a 23840 stop.
June NASDAQ
My long 6930 NASDAQ position worked well with the market trading higher to my 6960 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 6840/6880 with a 6810 tight stop. Remember a break and close below 6850 is a sell signal. My only interest in selling the NASDAQ is on a rally higher to 7050/7090 with a7135 stop.
June BUND
Yesterday was the wildest price movement in the Bund in many years. Just as I posted the Bund spiked 200 points higher on the back of the police shooting in Belgium with the Bund trading to a high of 164.15 which was a yield of just 25 bps. It was only two weeks ago that we were trading over 60 bps with a price of 157.40. I am guessing that by the time you read my commentary you did not have a chance to sell the Bund as the market was already above yesterday’s sell range. Late in the day I emailed my Platinum Members to sell the Bund at 163.10 which was held overnight and covered this morning way too early at 162.85 with the Bund now trading at 162.10. Today I will again look to sell the market on any rally higher to 163.15/163.65 with a 164.05 stop.
Gold Rolling Contract
I am still flat Gold and today I will now lower my buy level to 1275/1283 with a 1268 stop.
Silver Rolling Contract
No change as I am still long at 16.50 with the same 16.70 T/P level and 15.90 stop. I will continue to look to add to this position on any dip lower to 16.10. If my second buy level is filled I will then lower my T/P level to 16.40.
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