In the USA, inflation expectations as measured by the University of Michigan on Friday fell to 2.3%, back to not only where they were at the end of last year, but equalling the lowest level recorded in the 24 years history of the survey. Consumer price inflation meanwhile dropped from 2.0% to 1.9% in April in core (ex food and energy) terms and back to levels last seen in October 2015. Whether looking at wages growth, CPI, the Fed’s preferred core PCE deflation measure or inflation expectations, inflation pressures are currently receding. I doubt this poses a serious challenge to the likelihood of a June Fed move, but beyond this, the (inflation) data dependency of additional tightening is surely paramount.
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For anyone following my Platinum Service it made 42 points on Friday and is now ahead by 583 points for May, having made 1276 points in April, 1335 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.
Neither Philadelphia Fed president Patrick Harker nor Chicago Fed President Charles Evans speaking on Friday said anything to disturb June Fed thinking. Harker said “Overall, things are looking good. We’re essentially at normal now, and based on the strength of the economy, I continue to see two more rate hikes as appropriate this year”. Evans also said he could see two more rates rises this year, though couched this by saying “The one lingering difficulty, I would say, and it’s an important one, is that inflation pressures are still under-running our 2 present objective in the U.S.. At the moment, I think the downside risks still predominate.”
US Retail Sales on Friday also disappointed in terms of April headlines (0.4% and 0.3% ex-autos) though positive revisions for March more than compensated for the March headline misses. The impact of the US data was that 2 year US Treasury yields finished 4.5bp lower at 1.292% and 2bps down on the week and 10s -6.1bps to 2.327% (-2.3bps w/w). The US Dollar lost about 0.3% on average, just when it looked to be on track to record its strongest weekly showing of 2017 to date. This lifted the AUD, a move helped earlier in the day by stronger than expected China April loan data which alleviates some of the immediate concerns about tighter monetary conditions driving commodity price weakness and hence a weaker AUD. The data fuelled a brief short covering rally to back above 0.74. The Aussie then fell back into, but rose after, the US data to a high of 0.7421 before closing the week just below the figure, where it now sits at the start of the new week.
Stock markets went out mixed on Friday with the S&P500 lower at the open (post-data) but little changed thereafter, to end -0.15% at 2,390.9 (-0.3% on the week). VIX lost 0.2 to 10.4 and ends the week down 0.17.
In commodities, Gold added $3.5 to $1,227.7 for an overall flat week. Oil was flat on Friday to leave both WTI and Brent +3.5% on the week after the previous Friday’s mini ‘flash crash’. Friday’s Baker Hughes U.S. oil rig count rose by another 9 rigs to 712, now the 17th straight weekly rise. The LMEX index gained just 0.07% and is down 0.4% on the week while iron ore added back $1 to $61.38 – still 35 cents down on the week.
This morning on the Economic front we have no data of note due from either the UK or the Euro-Zone. At 1.30 pm we have US Empire Manufacturing and this is followed at 3.00 pm by the NAHB Housing Market Index. Finally at 9.00 pm we have the Total Net/Long Term TIC Flows. Earlier we had the release of Chinese Factory Output which cooled more than expected, while both Russia and Saudi Arabia have agreed to extend oil cuts which sees Oil trading higher at $49
Meanwhile the Bundesbank’s Dombret and ECM Member Nouy are speaking this morning at an Economic Conference in Frankfurt.
June S&P 500
Just when you thought the markets could not get any quieter, Friday arrived with probably the smallest trading range for the S&P all year. I have written at length over the past two weeks about my concern for the US stock market but until we get a sell extreme that lasts for more than a few days it is still a ‘’buy on dips’’. This morning the S&P is trading higher on the back of the higher oil price. The S&P has held this huge 2345/2366 ‘’Open Gap’’ for three weeks now while key support this week is last week’s 2378.50 low print. I am still flat the market and today I will now raise my buy level to 2382/2388 with a 2377 stop. Remember I will be a very aggressive buyer on any dip lower to 2347/2353 over the coming days with a 2342 stop. My only interest in selling the S&P is still on a rally higher to 2410/2416 with a 2423 wider stop.
The sell-off in the Euro did not last long with the market closing above key resistance at 1.0920 on the back of the weaker US Retail Sales data. Last week the Euro held its 200 Day Moving Average at 1.0830 and given the significance of Friday’s New York close above 1.0920, I will now move my buy level higher to 1.0890/1.0925 with a 1.0865 stop. The price action is telling me not to be short the Euro at this time.
June Dollar Index
I know most of you do not trade the Dollar Index given the crazy 8/9 point spreads that the spread betting firms charge especially when the Dollar trades with just a one point spread on the ICE Exchange. Late Friday the Dollar hit my 99.10 buy level and I emailed my Platinum Members to only add to this position on any dip lower to 98.80 with the same 98.50 tight stop. Given my concerns for the Dollar I will now lower my T/P level on this position to 99.20 and if my second buy level is triggered I will then lower my T/P level to 99.00. Remember a break and close below 98.50 is bearish for the Dollar.
Shortly after the open this morning the DAX was trading at my 12830 sell level. In keeping with my strategy of banking points when available I just emailed my Platinum Members to exit this trade at 12800 and I am now flat. This morning the DAX has made a new all-time high which was the main reason that I cut my short position and today I will again look to sell the market on any further rally higher to 12890/12940 with a 12985 tight stop. Given how overbought the DAX is trading I would expect the market to having difficulty in initially breaking the 12900/13000 next resistance level. Despite the positive price action I still do not want to be long the market at this time.
Earlier this morning the FTSE traded higher to my 7415 sell level. The FTSE’s all-time high is at 7445 and we have the potential to have a Double Top here especially with Cable now trading at 1.2930. Remember on Friday I said Cable was a good buy at 1.2850 and the low was 1.2843. Today I will now lower my stop to 7451 on this short position. Despite the positive price action it is too risky to be long the FTSE at these levels especially with the market so severely overbought.
Dow Rolling Contract
I am still flat the Dow which only traded in a 52 point range on Friday. I cannot remember the past time that the range for the Dow was so small. I will now raise my buy level slightly to 20810/20870 with a 20765 stop. Despite the negative divergence between the Dow and the S&P at this time I still do not want to be short the market.
Unfortunately the Bund just moved higher as I was posting my commentary on Friday and I am still flat. Today I will now raise my buy level to 160.15/160.45 with a 159.85 tight stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of the 3.5 month trend line at 159.45 with a 159.15 stop.
Gold Rolling Contract
Gold is trying to rally off last week’s 1214 low with the market trading at 1231 this morning. I am still flat and today I will now raise my buy level to 1213/1220 with a 1207 stop.
Silver Rolling Contract
Shortly after I posted on Friday Silver was trading at my 16.38 latest buy level. Overnight Silver traded higher to my 16.50 revised T/P level and I am now flat. I am still bullish Silver as pointed out that I added some more Silver to my pension at 16.40 two weeks ago. Finally this trade is now in profit. Today I will again look to buy Silver on any dip lower to 16.10/16.45 with a 15.70 stop which is just below the key 15.80/16.00 support level from last December.