U.S. Equities climbed after a report the U.S. is considering delaying President Donald Trump’s plan to impose tariffs on Mexico. Treasuries pared gains and the Mexican Peso rebounded from Thursday’s lows. The S&P 500 Index extended its advance as Bloomberg News reported that Mexico is pushing for more time to negotiate. Treasuries rose on speculation that major central banks will keep a dovish stance as the trade war jeopardizes growth. The Euro rallied as European Central Bank President Mario Draghi touted “somewhat better” than expected first-quarter data. Investors pushed up the value of American equities despite the tariff threat that has led several analysts to forecast increased risk of a recession in the world’s largest economy. Sentiment remained fragile, though, with a U.S. official saying the most likely outcome is still that a 5% tariff goes into effect. Goldman Sachs Group Inc. put the odds that the U.S. imposes duties on imports from Mexico at 70%, according to a note dated June 5.
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As trade tension spurs speculation that rate cuts are coming, Friday’s jobs report will be especially scrutinized for signs of cracks in the economy. The International Monetary Fund said the U.S. expansion risks being knocked off course by a further escalation of the trade conflict or a significant downturn in financial markets. The S&P 500 closed 0.6% higher at 2,843. In Europe the Stoxx Europe 600 Index closed flat after a volatile trading session while the Nikkei closed this morning with a gain of 0.5% finishing the week at a price of 20,884.
One of the most volatile trading sessions of the year so far for the Euro with the market rallying to a high of 1.1309 on upbeat comments from Dragi at yesterday’s press conference before falling 80 points on stronger US Data before spending the rest of session trading sideways/higher into the close. At the end of the New York session the Euro rose 0.5% to $1.1273. Meanwhile the Bloomberg Dollar Spot Index decreased 0.1%. and the Japanese yen declined less than 0.05% to 108.51 per dollar.
Bets the Federal Reserve will slash borrowing costs have risen since Chairman Jerome Powell signalled this week he is open to easier policy amid trade tension. Draghi used similar tactics in promising to react to any deterioration in the outlook. Australia this week cut rates for the first time in three years, and there’s speculation the Bank of Japan will add stimulus. The Bond markets were quiet yesterday as we wait for the NFP data at 1.30 pm. The yield on 10-year Treasuries fell one basis point to 2.13%. In Europe, Germany’s 10-year yield slid one basis point to -0.24%, while Britain’s 10-year yield declined a second consecutive four basis points to 0.825%.
Commodity Markets traded higher yesterday after a tough week with the Bloomberg Commodity Index gaining 0.8%. and West Texas Intermediate crude closing higher at $52.59 a barrel.
This morning on the Economic Front we already had the release of German Industrial Production which fell 1.5% versus a -0.5% expected. At 8.30 am we have the UK Halifax Housing Price Index. This is followed at 1.30 pm by US Non-Farm Payrolls including the Unemployment Rate and Average Earnings. Finally at 3.00 pm we have Wholesale Inventories.
June S&P 500
My S&P plan worked well with the market trading higher to my 2836 sell level before falling 15 Handles on Dragi. As I wanted to get June back on track after a difficult week I covered this position ahead of Dragi’s press conference at 2833.50 before going short again at 2843. As I wanted to be flat overnight I covered this position at 2840 and I am now flat. As I mentioned yesterday the S&P needs to break above 2850 and close over 2860 for a few days for a possible run to new highs. I still hold this view believing that the real sell-off for the US Equity Markets will occur either in late summer or in Q4. The S&P has short-term support at 2830 and today I will be a buyer on any dip lower to 2825/2835 with a 2817 stop. Ahead of a potential volatile trade weekend I do not want to be short the S&P at this time.
My Euro plan worked well with the market trading higher to my 1.1305 sell level before hitting my 1.1280 revised T/P level and I am now flat. Today I will again look to sell the Euro from 1.1330/1.1370 with a 1.1405 stop. My only interest in buying the market is on a dip lower to 1.1160/1.1200 with a 1.1135 stop.
June Dollar Index
No Change as I am still a seller on any rally higher to 97.80/98.20 with the same 98.55 stop.
My DAX plan worked well with the market trading lower to my 11910 buy level before rallying to my 11950 T/P level and I am now flat. Today I will again look to buy the DAX from 11860/11930 with the same 11795 stop.
Theresa May steps down today as leader of the Conservative Party. I do not think this will have much affect on the FTSE. I am still flat and I will now raise my buy level to 7170/7210 with a 7135 stop.
Dow Rolling Contract
The Dow has now rallied 1200 points since 9.00 am last Monday morning as yet again anyone trying to hold a short position gets slammed. This is and will continue to be a buy on dips market until we get a proper acceleration to the downside that lasts for more than a couple of weeks. The Dow is now comfortably above its 25430, 200 Day Moving Average while the VIX closed under 16 with a 15.93 print. Meanwhile the McClellan Oscillator finally closed in positive territory last night with a reading of +17. As I mentioned in yesterday’s commentary if the Dow can continue to build value above 25720 then there is every chance we can make new all-time highs. Last night we closed at this level so it is too soon to chase the market higher especially as we wait for the NFP data at 1.30 pm. Today I will move my buy level higher to 25460/25620 with a 25370 tight stop.
I am still flat the market and today I will now raise my buy level to 7195/7235 with a 7155 stop. I still do not want to be short the market at this time.
Just like the Euro above, the Bund had a volatile trading session yesterday by trading in a 100 point range. My Bund plan also worked well with the market trading higher to my 171.50 sell level before hitting my 171.20 T/P level and I am now flat. Having traded to a low of 170.68 the market turned around into the close and is now trading at 171.30 this morning. Today I will again look to sell the Bund on any further rally to 171.70/172.10 with a 172.55 stop.
Gold Rolling Contract
After the huge run higher over the past 10 days Gold is struggling to break the key 1340/1350 resistance zone. I am still flat and I will leave my 1310/1319 buy level unchanged with the same 1302 stop.
Silver Rolling Contract
Shortly after I posted yesterday morning Silver traded higher to my 14.90 T/P level on my latest 14.75 long position. I am still flat and today I will again look to buy the market from 14.38/14.78 with a 14.05 stop and a 14.95 T/P level if executed.