Emmanuel Macron was elected French President late last night with a business friendly- vision of European integration, defeating Marine Le-pen, a far right nationalist who threatened to take France out of the European Union. Exit polls put the vote at 65/35% in Macron’s favour, though incoming Interior Ministry figures are currently more like 61/39% (though if you recall two weeks ago, Macron’s final showing proved to be better than earlier official counting suggested). With all votes now countered Macron has won 66% of the votes – a gap wider than the 20 or so percentage points than the pre-election surveys had suggested. “I know the anger, the anxiety, the doubts that very many of you have also expressed. It’s my responsibility to hear them,” Macron said. “I will work to recreate the link between Europe and its peoples, between Europe and citizens” he added. Market reaction so far has been muted, though EUR/USD has pushed clean above 1.10 (high of 1.1023) for the first time since November 8th 2016 (so exactly six months ago), having just kissed 1.10 late on Friday to close in New York at 1.0998.
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For anyone following my Platinum Service it made 110 points on Friday and is now ahead by 371 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.
The question now is whether real money investors, hesitant to commit more to Eurozone assets ‘just in case’, will now do so with more gusto. If the Euro is to move higher they will need to, in so far as last Friday’s FX futures market positioning data from the CFTC showed the previous net short position in EUR/USD all but eliminated last week. I do expect that the Euro can grind higher in coming weeks and months partly in anticipation of the ECB now expressing more confidence that downside risks to the Euro-Zone economy and inflation have further receded. We’ll hear from Mr. Draghi later in the week (he speaks to the Dutch parliament on Wednesday).
There wasn’t a whole lot of market movement on Friday in the wake of the April US employment report showing a 211k rise in Non-Farm Payrolls and a drop in the Unemployment Rate to 4.4% from 4.5% (back to the levels of late 2006/early 2007 and last lower way back in May2001). Market impact was neutralised by average hourly growth down to 2.5% (back to where it was in August 2016) thanks to downward revisions to prior months. Market-implied odds on a June rate rise lifted slightly (to around 75% from 70%). Bearing in mind Fed Vice-chair Stan Fischer has spoken of the desire to see wages growth of at least 3% to be consistent with the inflation target and with two CPI reports and another payrolls/earnings report to be seen before the Fed hands down their next decision, markets are understandably hesitant in pushing pricing much closer to 100% for June.
None of the various Fed speakers on Friday offered up their views on June, but several of them expressed their enthusiasm to start shrinking the balance sheet before the end of the year. The biggest story of the week turned out to be commodity prices, where another fall for iron ore on Friday means it is down 10% on the week. Oil’s minor bounce Friday still leaves crude 5-6% lower and gold is off over $40 or 3.3% on a week ago. This proved much more negative for AUD than other commodity currencies, though AUD/USD did manage to pull back up through 0.74 on Friday to close the week -0.9% at 0.7424, well up on its 0.7368 intra-day low. This was aided by a small bounce back in oil, and the Dalian iron ore futures price jumping by about 3% in the Friday night session.
Stock markets went out on Friday with the S&P500 +0.41% to 2399.29 – a new record closing high and 0.6% higher on the week. The Dow ended +0.26% and the NASDAQ +0.42%. The VIX added 0.11 to 10.57 but is still down by a quarter point or 2.3% on the week. Earlier the Eurostoxx 50 gained 0.85% to be 2.8% on the week, continuing its impressive run since the results of the first round of the French elections (now +6.4%), with the likelihood being that these gains extend following Macron’s election victory.
In US rates markets, 2 year Treasuries finished 0.4bp higher at 1.312% and 4.8bps up on the week and the 10- year -0.5bp to 2.35% (+6.9bps on the week). The 10yr Bund added another 2.4bps to 0.418% to be 10.1bps higher on a week ago. Here, the risk is that Bunds yields continue rising while French yields fall, alongside Euro-peripheral bond markets. Residual Euro Zone political risk now lies largely with Italy, but that should not be until next year.
This morning on the Economic front we already had the release of German Factory Orders which came in stronger with a 1.0% print versus 0.7% expected. At 9.30 am we have the Euro-Zone Sentix Investor Confidence. Finally at 3.00 pm we have the US Labour Market Conditions Index Change.
Meanwhile the Fed’s Bullard and Mester are speaking 1.35 pm and 1.45 pm respectively on Economic Policy.
June S&P 500
IT took a while but finally on the Re-open of the Futures Market last night, the S&P traded higher to my 2403 sell level before trading to a 2394 low so far. This sell-off enabled me to cover this short position shortly after getting hit at my revised 2399 T/P level and I am now flat. It is clear from last Friday’s NFP data that there is so far no threat to wage inflation and to me this is still the key which will eventually see the US enter recession by the end of the year/early 2018. It is incredible that with the S&P closing at new all-time highs on Friday that the McClellan Oscillator closed flat, from a -66 print on Thursday. The negative read on Thursday generated a Hindenburg Omen and if we get another HO within 30 days then this signal will be valid through the summer. Remember in the last 30 years we have had only one stock market crash without a registered HO on the clock. Sentiment remains at extreme levels with the Daily Sentiment Index now at 75%. Today I will raise my buy level slightly to 2379/2384 with a 2374 stop which is just below last week’s 2376 low print. I will again look to sell the S&P on any rally higher to 2405/2412 with a 2717 tight stop.
Overnight the Euro just missed my 1.0925 initial buy level and I am still flat. Today I will leave my buy level from 1.0880/1.0920 with a 1.0845 stop. Given how overbought the Euro is trading I will continue to look to sell the market from 1.1065/1.1100 with a 1.1130 stop.
June Dollar Index
The Dollar initially rose on the NFP release on Friday and this rally enabled me to cover my long 98.65 position at my 98.80 T/P level and I am now flat. Today, given the significance of this 98.00 support level plus the fact that the Dollar is severely oversold, I will now look to buy the Dollar on any further dip lower to 98.00/98.40 with a 97.65 stop.
I cannot emphasise enough the importance of my Platinum Service especially with the updated emails. On Friday at 2.40 pm after the DAX had hit my initial 12670 sell level I emailed my Platinum Members to exit this position at 12660 as the price action was positive despite both the S&P and Dow trading heavy at that stage. The other reason that I covered this position is the fact that I wanted to be flat ahead of Yesterday’s French Election. The key to the next move in the DAX is the 12460/12520 support level as a break and close below 12460 is a sell signal, with an initial target level of 12140/12170 on this break. The key resistance level is from 12870/12940 and today I will again be a small seller in this area with a 12995 stop. Meanwhile I will also be a small buyer on any dip lower to 12540/12600 with a 12485 stop.
I am still flat the FTSE and today I will now move my buy level higher to 7185/7210 with a 7155 stop. Given the renewed weakness in Sterling I still do not want to be short the market at this time.
Dow Rolling Contract
While the S&P closed a new all-time highs on Friday, the Dow is lagging behind which may be a warning sign of pending negative divergence. The Dow needs to break its March High at 21169 to eliminate this negative divergence. I am still flat the Dow and given the significance of the above resistance level I will now be a seller from 21110/21180 with a 21230 tight stop. My only interest in buying the Dow is still on a dip lower to 20810/20870 with a 20755 stop.
Very late on Friday the Bund traded lower to my 160.45 buy level but as I wanted to be flat ahead of yesterday’s French Election I emailed my Platinum Members to stand aside. This morning the Bund opened lower before rallying small and today I will again look to buy the market on any dip lower to 160.25/160.55 with a 159.90 stop. Despite the negative price action last week I still do not want to be short the market at this time.
Gold Rolling Contract
My Gold plan also worked well with the market opening in the middle of my buy range last night at 1221.50 before trading to a 1234 high print overnight. As I am still long Silver I covered this long Gold position at my revised 1226 T/P level and I am now flat. Today I will again look to buy Gold on any dip lower to 1218/1224 which contains the 100 Day Moving Average with a 1211 stop which is just below important three month support line at 1214.
Silver Rolling Contract
No change as I am still long Silver at 16.40 with the same 15.70 stop. Unfortunately Silver just missed my second buy level at 16.10 with a 16.15 low print. Today I will leave my second buy level unchanged and I will continue to look to T/P on my original position at 16.70.