There was little in the way of significant market moves yesterday. Instead focus returned to the economic data where eyes were on the inflation figures for both the US and Germany – German CPI was slightly weaker than expected while the US PCE was in line with expectations – with neither showing any lift in the underlying pace of inflation despite the labour market in both countries having tightened significantly over the past year. Pressure it seems is down when it comes to inflation. While the US PCE was a touch stronger than expected in the month, up 0.15% m/m against expectations of a 0.1% rise, the rise wasn’t enough to lift the annual rate. Core PCE is now running at 1.5% y/y, a 16-month low. If the monthly pace of inflation persists, that would only be enough to lift core PCE to 1.7% by years end – still below the Fed’s 2% target.
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 email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 26 points yesterday and is now ahead by 1004 points for May, having made 1276 points in April, 1335 in March, 1481 in February and 1735 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.
Against that background, the USD dollar (DXY) fell 0.2% across the board, while US Treasury yields fell 3.84 bps to be at 2.21%. Despite those moves, markets still think the Fed will hike in June – ascribing to an 83% probability, and 1.4 rate hikes are priced for the rest of the year.
The Fed’s Brainard (voter, dove) expanded on the inflation puzzle confronting the Fed. In sum the Unemployment rate at 4.4% is quite low relative to recent decades and previously has been associated with an outbreak of inflation, while at the same time inflation and wages haven’t really lifted and if anything have disappointed. While Governor Brainard seems content to hike in June, she is cautious on the outlook for inflation, stating “if soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy”. These comments are broadly in line with the FOMC Minutes last week.
Other US data was mixed. Consumer Confidence was slightly below expectations at 117.9, but the index remains at very high levels and is broadly suggestive of positive consumer spending in the period ahead. Reinforcing this, US consumption data was positive; nominal spending rose 0.4% m/m while real spending rose 0.2% and this should make Q2 GDP stronger than Q1. For Payrolls on Friday, the “jobs plentiful” less “hard to get” series out of the Consumer Confidence report rose to 11.7 from 10.9 and continues to signal a tightening in the labour market.
German inflation data was slightly weaker than expected at 1.5% y/y against expectations of 1.5%. The Euro did fall on the news but recovered to be 0.2% higher at 1.1187 in New York. A report that ECB policymakers could upgrade their economic risk assessment at next week’s June meeting kept alive the possibility of a change in forward guidance despite Draghi’s softish tones yesterday.
Topping the currency leader board today was the NZ Dollar (+0.6%), followed by the Yen (+0.4%) and the Aussie (+0.3%). The Yen was supported by strong economic data yesterday, though there is little evidence to date that inflation is picking up in Japan. As I go to print the Pound has fallen sharply (-0.5% since 11.00 pm) with a YouGov/Times poll showing the Tories could lose 20 seats at the upcoming June 8 election.
Commodities ended yesterday’s trading session mixed. The oil price did fall with Brent -1.0% to $51.78 a barrel and dragged on equities with the S&P500 Energy sub-index falling 1.3%, though overall equities were down by less with the S&P500 -0.1% and Eurostoxx -0.5%.
This morning on the Economic Front we have Chinese PMI at 3.00 am which printed 51.2 versus 51.0 expected. At 8.55 am we have German Unemployment. Next at 9.30 am we have UK Mortgage Approvals and this is followed at 10.00 am by Euro-Zone Unemployment and CPI. This afternoon at 1.30 pm we have Canadian GDP at 1.30 pm followed by US Chicago Purchasing Manager’s Survey at 2.45 pm and Pending Home sales at 3.00 pm. Finally at 7.00 pm we have the US Beige Book from the Fed.
June S&P 500
Unfortunately the S&P again traded in such a narrow range as thankfully May comes to an end in what has been the quietest trading month in many years with volatility apart from one day two weeks ago practically non-existent. There is no doubt that given the excess valuations that many traders are scared to buy the market while at the same time it is pointless in trying to go short as most of the time you will just lose capital. As I have been saying for many months now the S&P will roll over when no one expects it to with very few traders short and until we get a sell extreme that lasts for more than a few days then the buy the dip will continue. The Central Banks are controlling all markets in my opinion as shown by the Swiss National Bank which is one of the largest holders of the US stock market. I am still flat the S&P and today I will lower my buy level slightly to 2398/2403 with a 2393 stop. At the same time I will leave my sell level unchanged at 2421/2427 with a 2432 stop.
EUR/USD
Unfortunately the Euro just missed my buy level as the market having got close quickly reversed on rumours that the ECB is considering ending its QE Programme at next month’s ECB Meeting with the Euro rallying from a 1.1110 low print to 1.12 on this news. Today I will move my buy level higher to 1.1090/1.1130 with a 1.1055 stop. I will also raise my sell level higher to 1.1260/1.1290 with a 1.1330 stop. The Euro has strong resistance at the November high from 1.1300/1.1320 which was the rebound high following the Trump Election victory.
June Dollar Index
My Dollar plan worked well with the market trading lower to my 97.20 buy level before bouncing 25 points and I used this rally to exit this position at my revised 97.31 T/P level as again I want to keep with my strategy of banking points when available especially when markets are so quiet. Today I will again look to buy the Dollar on any further dip lower to 96.60/96.90 with a 96.30 tight stop. I expect the Dollar to have difficulty in breaking the key 96.50/96.70 support level at its first attempt.
June DAX
The DAX has traded sideways in a 200 points range for the past 2 weeks on low volume. I am still flat the market and today I will now lower my buy level slightly to 12460/12510 with a 12415 tight stop. Despite the negative price action I still do not want to be short the DAX today especially as it is month-end.
June FTSE
Unfortunately yesterday was another trading session of small margins with the June FTSE missing my 7480 buy level with a 7480.50 low print before rallying 40 points and I am still flat. Today I am going to lower my buy level slightly to 7440/7470 with a 7410 stop. Given the fact that today is month-end I still do not want to be short the market at this time.
Dow Rolling Contract
I am still flat the Dow which so far cannot find and room to break higher and challenge its March 1, high at 21,169. As I wrote yesterday the S&P has made 5 intervening new highs in this time and the longer we have this huge negative divergence the bigger the fall in the Dow if this market does eventually roll over. It is a long time since I have seen so many cross currents between the two main Indices especially as we have a Hindenburg Omen on the clock which is valid until August. Today I will lower my buy level to 20900/20955 with a 20855 tight stop. Despite my concerns I still do not want to be short the Dow as today is month end.
June BUND
The Bund continues to trade higher in light volume and I am still flat. Today I will raise my buy level slightly to 161.65/161.95 with a tight 161.35 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold needs to break and close over its 4.5 year mega trend line for at least two days to negate the market staying in a long term bear market. I am still flat Gold which again traded in such a narrow range. Given the significance of this resistance level, I am going to lower my buy level for Gold especially as the market is having difficulty in breaking 1265. My new buy range will be from 1243/1250 with a 1237 stop.
Silver Rolling Contract.
My Silver plan worked well with the market trading lower to my 17.30 buy level. As I wanted to bank some points for yesterday’s trading session I emailed my Platinum Members to lower their T/P level to 17.45 and this was filled shortly after the US Markets opened and I am now flat. Today I will again look to buy Silver on any dip lower to 16.95/17.25 with the same 16.70 stop.
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