Friday night’s joint US UK and French air strikes against Syria have thus far drawn only verbal condemnation from Russia (and too Iran and China) with Russia’s prediction of ‘’global chaos’’ if the West hits Syria again not filling markets with fresh dread, at least judging from the limited FX mark movements evident in the first two hours of the new trading week. Both the risk-sensitive Australia and New Zealand dollars have started the week marginally weaker than they ended on Friday night, prior to the military action against Syria.
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For anyone following my Platinum Service it made 60 points on Friday and is now ahead by 1119 points for April, having made 1760 points in March, 2256 points in February, 879 points in January, 946 points in December, and 823 points in November Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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On Friday, JP Morgan, CitiiGroup and Wells Fargo all beat their street estimates for Q1 earnings yet their stocks all fell, showing just how high the bar has been set for earnings growth to continue propelling stocks forward. JPM’s adjusted EPS of $2.37 beat its $2.27 estimate, Citi reported EPS of $1.68 against $1.61 expected. Wells Fargo reported $1.12 against $1.06 expected. The latter’s stock fell 3.1% after disclosing it faces additional penalties of as much as $1 billion linked to auto insurance and mortgage sales practises.
Not helping the broader market was a downside surprise on the University of Michigan Consumer Sentiment reading (97.8 from 101.4 last and 100.3 expected). The February/ March stocks market volatility received the blame, though the absolute level of confidence remains very elevated (the prior reading was after all the highest since early 2004).
Despite Friday’s dip in all the major US stock indices, of between 0.3% and 0.5%, they all produced decent gains on the week, NASDAQ leading the way despite the recent travails of the some of the ‘’FANG’’ stocks. The VIX closed the week a point lower at 19.0.
In FX, it turned out to be a fairly uneventful Friday save for another pasting for the SEK adding to the earlier week post CPI pain, off another 0.8%. AUD was well ahead of the G10 pack after punching above 0.78 to a high of 0.7806 in mid-morning London trade before pulling back to 0.7764 to be just 0.13% up on the day (still the best performer). The other commodity linked currencies, NZD, CAD and NOK, all finished lower despite oil adding another 30-60 cents: On the week, USD Indices were down by 0.3-0.5% while NZD, CAD and AUD (in that order) were the top performers, all up over 1%:
US Treasury yields were narrowly mixed on Friday with the 2-10s curves flattening by another 2bps or so to 47bps. On the week 2s are up just under 9bps and 10s just over 5bps:
In commodities, oil continues to push ahead on an enduring impact from the factors that have been driving it up for a few weeks now (geopolitics, speculation of US policy on Iran in particular – declining inventories – below 5 year averages – and Saudi’s reported desire to see Brent at $80). Friday’s Baker Hughes rig count saw US drillers adding a further seven rigs, bringing the total to 815, the highest since March 2015, but evidently we are not seeing a ramp up in North American shale oil production to counter these other influences. Iron ore and gold were also higher Friday but coal and the broader metals complex were lower. On the week oil is up an impressive 8%+ with coal (both metallurgical and steaming) the only hard commodity to be lower.
In other news Friday, the US Treasury Department’s semi-annual report to Congress on macroeconomic and foreign exchange policies of major trading partners has added India to the list of countries whose foreign exchange and economic policies are under its close scrutiny, while again opting not to accuse leading trading partners of being currency manipulators. So the Treasury decide once again not to label China a currency manipulator despite President Donald Trump’s vows during the election campaign that he would do so. The report declared nevertheless that the Trump administration is ‘’deeply concerned’’ by the large trade imbalances that exist across the world economy. China has an extremely large and persistent bilateral trade surplus with the United States, by far the largest among any of the United States major trading partners, it said. The report also said the China’s economic development was going in an ‘’increasingly non-market direction’’.
Boston Fed President Eric Rosengren (hawk) said Friday the Federal Reserve will probably need to raise interest rates at least three more times this year in the face of a robust U.S. economy, even while possible trade disruptions pose risks. In contrast St. Louis Fed President James Bullard (dove) said he is worried that aggressive rate rises could invert the yield curve later this year or next and sees no reason to lift rates now.
Finally, China published its March money supply and credit growth numbers on Friday and they all came in a fair bit softer than expected and down in annual growth terms from the start of the year. March M2 money supply printed 8.2% y/y (8.9%E, 8.8%P) and the broad Aggregate Social Financing credit measure 1,330bn (1,800bn E, 1,173.6bn P). These come in front of tomorrow’s Q1 GDP and march activity readings, and suggest some risk of small downside surprise on the latter, Industrial Production in particular.
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 Retail Sales. This is followed by Business Inventories and the NAHB Housing Market Index at 3.00 pm. Finally we have the Net Long Term TIC Flows at 9.00 pm.
Meanwhile the Fed’s Bostic speaks on the US Economy at 6.15 pm.
June S&P 500
Friday was a frustrating trading session for my S&P calls with the market missing my 2687 sell level with a 2680 high print before selling off to a low at 2644.50 which just missed my 2642 buy level before having a small rally into the close and I am still flat. Last night on the re-open of the Futures Market the S&P is trading higher at 2675. Today I will raise my buy level to 2634/2649 with a 2627 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2608/2620 with a 2598 stop. I am reluctant to go short the S&P and today I will now raise my sell level to 2689/2703 with a 2711 tight stop.
I am still flat the Euro which has not budged despite the military action taken against Syria after the US Markets closed on Friday evening. Today I will leave my buy level unchanged from 1.2220/1.2265 with the same 1.2190 stop. I still do not want to be short the Euro at this time.
June Dollar Index
No change as I am still a seller on any rally higher to 90.10/90.50 with a 90.80 stop.
The DAX continues to hold in and only fell marginally on Friday despite the Dow falling over 400 points at one stage and I am still flat. I am reluctant to chase this market higher and today I will raise my buy level to 12260/12330 with a 12205 tight stop. I still do not want to be short the DAX at this time.
The FTSE again traded in a narrow range on Friday with the market never coming close to either my buy or sell range on Friday. Today I will now raise my FTSE buy level to 7100/7145 with a 7060 stop. I will also raise my sell level slightly to 7285/7325 with a 7360 tight stop.
Dow Rolling Contract
On Friday I correctly stated that the Dow would have strong resistance at 24675 which was precisely what happened as the market topped at a price 24660 before getting slammed. I was annoyed with myself for having no sell level into this resistance area. Thankfully the subsequent 420 point sell off in the Dow saw the market trade lower to my 24260 buy level before rallying into the close to my 24320 T/P level and I am now flat. Last night the Dow re-opened over 200 points higher as the buy the dip scenario continues to pay dividends with the market building a bigger cushion over its 200 Day Moving Average. Today I will again look to buy the Dow on any dip lower to 24150/24295 with a tighter 24090 stop. As I have a sell level above in the S&P, I no longer want to have a sell level in the Dow at this time.
Unfortunately the NASDAQ missed my buy level on Friday before re-opening last night to test the key 6700 resistance level as mentioned in Friday’s Commentary. I am still flat the market and today I will now raise my buy level to 6550/6610 with a 6505 stop. If the NASDAQ does break and close over 6700 this evening I will then raise my buy level especially as the upside target level on a break of 6700 is 6975 and possibly 7125/7175.
The BUND continues to trade sideways in a narrow range and I am still flat as I am reluctant to chase the market higher. Today I will again leave my buy level unchanged from 158.25/158.60 with the same 157.95 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1319/1326 with the same 1311 stop.
Silver Rolling Contract
I am still long Silver from early last week at 16.65 with the same 16.80 T/P level. I will continue to add to this position at 16.35 with a higher 16.10 stop. If my second buy level is filled before I manage to exit my original position I will then lower my T/P level to 16.70.