Markets have traded in a cautious mood over the past 24 hours, despite solid data releases on either side of the Atlantic. Solid services PMI helped Sterling outperform, but a strong non-Manufacturing ISM was not much help for the USD. Core bond yields have edged a bit lower and equities ended the day down in Europe and flat in the US. Italy’s PM Conte reminded markets that the new government is still aiming for radical change and oil prices wobble on reports that the Trump administration asked OPEC to pump more oil in May. AUD and CAD underperform in spite of a late recovery in oil prices.
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For anyone following my Platinum Service it was flat yesterday as none of my calls got hit and is still ahead by 10 points for June, having made 1927 points in May, 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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The Euro came under pressure early in the session following a radical speech by Italy’s newly elected PM Conte. Speaking before Parliament, Conte pledged his government will push through policies like curbs on immigration, a ‘’citizen’s income for the poor’’, a (lower) two-tiered flat tax structure and higher fiscal spending. Conte noted that ‘’We want to reduce the public debt, but we want to do it by increasing our wealth, not with austerity that, in recent years, has helped to make it (public debt) grow’’, nevertheless market reaction probably reflects concerns over the likelihood of a blowout in Italy’s fiscal deficit and an increase in debt with both likely to break EU rules. 10y BTPS-Bunds spread widen 31bps to 241bps and the Euro slid from 1.1717 to an intra-day low of 1.1653. European equities ended the day lower with bank shares leading the decline. Later in the session the Euro more than recovered the Conte driven losses following reports that ECB sources confirm the Bank will debate a policy guidance at its meeting next week. One official said that Draghi may use his press conference to signal an announcement will come in July. None of this is really new news and it matches consensus expectations, but the reminder that QE policy is likely to end this year was enough to send EUR back up through 1.17.
Meanwhile on the other side of the Channel, the UK Services PMI came in better than expected at 54.0 v 53.0. The market reacted sharply to the headline which suggests the economy is rebounding from a soft Q1, but as one analyst that I follow noted, this occurred in spite of a less positive report write-up. The report noted ‘’new business volumes continued to rise at a relatively subdued rate, with survey respondents noting that Brexit-related uncertainty a key factor holding back decision making among clients’’
The pound has been the outperformer, climbing 0.57% to 1.3394, that said it is difficult to see Sterling maintaining its outperformance while Brexit uncertainty remains hovering like a dark cloud. Next week’s House of Commons voting on the Brexit Bill amendments by the Lords will be important for the pound’s near term outlook.
Key US data releases came in the afternoon and although both the JOLTS report and ISM Non-Manufacturing beat expectations, the data releases were followed by a decline in US equities, the USD and also US Treasury yields. The JOLTS labour market report showed signs of further labour market tightening, with the number of available workers per open position being the lowest since January 1970. Meanwhile the Non-Manufacturing ISM for May printed above consensus at 58.6 (consensus 57.6) and up from last month’s 56.8 while the details in the survey showed rising capacity constraints and higher inflationary pressures. Notwithstanding all the good news, the report also noted some concern about the tariffs on steel and aluminium causing supply disruptions and higher costs. Hard to tell, but the latter could have been a factor for the change in the US Dollar’s fortunes. The DXY index peaked just above the 94.30 mark a few minutes after the data releases, from then on the Index decline over 0.50% before settling at 93.86. US equities also wobbled after the data only to recover a few hours later, ending the day essentially flat.
10y UST yields traded twice an intra-day low of 2.90%, but ended the day at 2.93% following the late recovery in US equities. Moves in the five year part of the curve where more volatile, the 5 year rate started the session at 2.79% traded to a low of 2.74% and closed the session at 2.768%. Move in oil prices ( see more below) probably a factor at play.
In trade-war news, according to the Wall Street Journal, China offered to purchase nearly $70 billion of US farm and energy products if the Trump administration abandons threatened tariffs, according to people briefed on the latest negotiations with American trade officials. Trump’s Economic advisor Kudlow said that the President does not plan to withdraw from NAFTA but is seriously considering separate trade negotiations with Canada and Mexico. Senate majority whip Cornyn indicated that time had run out to approve a new NAFTA deal in 2018 and is now something to consider for 2019.
CAD has been whipsawed a bit on this NAFTA news alongside a swing in oil prices. The Trump administration was said to have asked Saudi Arabia and allied producers to raise production by 1 million barrels a day amid an increase in retail US gasoline prices to three-year highs. That saw oil prices fall about $1, but they have since recovered. Nevertheless, while both the CAD and AUD followed the move lower in oil prices, but both currencies lagged the late recovery in oil.
As a result, CAD and AUD are the underperformers over the past 24 hours. USD/CAD traded to an intra-day high of 1.3067, before recovering over the past few hours and now trades at 1.2970 (-0.30%). Meanwhile the prospect of a solid Australian Q1 GDP print today, after strong GDP partials over the past couple of days where not enough to arrest the AUD decline. Commodities in general had a decent session (copper +1.7%) but the AUD for some reason traded lower following the decline on oil prices and it did not follow the oil recovery late in the session. AUD now trades at 0.7617, down 0.4% over the past 24 hours.
This morning on the Economic Front we have German Markit Construction PMI at 8.30 am and this is followed by US MBA Mortgage Applications at 12.00 pm. Finally at 1.30 pm we have the US Trade Balance Non-Farm Productivity and Unit Labour Costs.
June S&P 500
The S&P finally closed above the key 2742/2747 resistance level last night. Unfortunately the S&P just missed my 2734 buy level before rallying into the close as thankfully we had no sell levels in the market. Meanwhile the VIX Index fell 2.4% to close at 12.40. To see a new top in the market we will need to see the VIX with either a 11 Handle or ideally a 10 Handle which will give us more confidence in setting up a new short position. Today I will now raise my buy level to 2636/2643 with a 2629 stop. I still do not want to be short the S&P at this time.
EUR/USD
Frustratingly the Euro just missed my 1.1650 buy level by three points before rallying on the rumour that the ECB will announce an end to its QE Programme at next week’s ECB Meeting. I am still flat the Euro and today I will now raise my buy level to 1.1635/1.1675 with a 1.1605 stop. I will leave my sell level unchanged from 1.17851.1835 with a 1.1865 stop.
June Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 94.40/94.80 with a 95.10 stop. I still do not want to be long the Dollar at this time.
June DAX
I am still flat the DAX which is struggling to break and close over the key 12800 resistance level. In my opinion it is only a matter of time before we trade higher. Today I will now raise my buy level slightly to 12620/12680 with a 12570 stop.
June FTSE
The FTSE came within a couple of points of my 7650 buy level before having a small rally and I am still flat. The rebound in Sterling as mentioned in yesterday’s commentary is certainly responsible for the weakness in the market over the past 24 hours. Today I will now lower my buy level slightly to 7590/7630 with a 7545 stop.
Dow Rolling Contract
The Dow came close to my buy level yesterday before following the S&P and NASDAQ higher into the Chicago close. However the Dow has traded mainly in a sideways pattern since we made the high at 25086 high on May 21. However this sideways movement has been volatile. I am reluctant to chase the Dow higher and today I will leave my buy level unchanged from 24490/24655 with the same 24425 tight stop. I will also leave my sell level unchanged from 25080/25120 with the same 25200 stop.
June NASDAQ
The NASDAQ continues to make new all-time highs as one short position after another gets stopped out. I am still flat and today I will be a buyer of the market on any dip lower to 7090/7135 with a 7055 stop.
September BUND
I have now rolled to the September Contract which trades at just a three point discount to the June Contract. I am still flat the market and today I will be a buyer of the September Contract on any dip lower to 160.20/160.60 with a 159.85 stop. I still do not want to be short the market at this time.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1276/1284 with the same 1269 stop.
Silver Rolling Contract
No change as I am still long Silver from last week at 16.50 with the same 16.70 T/P level. Silver needs to break and close over the 16.85/17.05 resistance level before we can say with confidence that the bulls are back in control. I will now raise my stop on this position to 16.05.
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