So after months of the EU imploring UK Prime Minister Theresa May to, on Friday she finally gave a response. This following an all-day meeting at her country retreat in which she faced down the ‘’Brexiteers’’ in her cabinet, reportedly under pain of being sacked if they dissented and having to call a local mini-cab to take them back from Chequers. Confirmation that the Government seeks a ‘’soft Brexit’’, at least with respect to goods and agriculture, so remaining in the single market for these sectors and some form of Customs Union, was greeted mildly positively in New York. Sterling added about 0.2% to gains seen earlier in the session in conjunction with an across-the-board sell-off in the USD in the wake of The June US Payrolls report (more below). This morning has Sterling add another 0.25% or so to Friday’s New York closing level, while earlier this morning UK Brexit Secretary David Davis has resigned.
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The most obvious criticisms of the government proposals, as far as the likely EU response is concerned, are that they do not immediately endorse the principle of free movement of people endemic to the EU single market, and that they draw a clear distinction between good and services. The status of the latter – representing 80% of the UK economy are yet to be determined. This is at a time when the EU has grown increasingly wary of distinguishing different sectors such is the interconnection of goods and services sectors. Think of a UK truck driver – living in the services sector – delivering a consignment of goods to France. The UK can and doubtless will therefore be accused of cherry picking.
That said, the UK has finally laid out a position and the ‘’Hard Brexiteers’’ have been quietened for now at least. So far this morning, we have heard from the Irish and Austrian Prime Ministers, who have said that while they have concerns about the British proposals, negotiators could be more optimistic than they were a week ago. Of course, if England beat either France or Belgium on Sunday, that position could quickly change.
For broader markets, a slightly bigger than expected rise in US Non-Farm Payrolls on Friday (213k) as well as upward revisions to the prior two months (by 37k) was no match for slightly softer than expected average hourly earnings growth (0.2% for an unchanged 2.7% yr/yr) and a 0.2% rise in the Unemployment Rate to 4%, albeit the latter was driven by a 0.2% rise in the participation rate.
As a result, stocks rallied, bond yields fell and the US dollar was universally weaker, DXY by 0.5% and the broader BBDXY by 0.4%. NZD (+0.63%) and AUD (+0.57%) were the best performing G10 currencies over the 24 hours from Thursday’s NY close, having already enjoyed a small ‘’buy the fact’’ response to the earlier confirmation of US tariffs on $34bn of Chinese imports going into effect (and subsequently matched by equivalent Chinese tariffs on US goods). The return of some semblance of stability to the Chinese Yuan and steadier Emerging Markets FX in general, is the real story here, after several weeks during which AUD in particular has moved (down) in lockstep with the CNY and broader EM FX sell-offs.
The Canadian Dollar slightly underperformed other commodity-linked currencies on Friday, even though the net result of Canada’s own labour market data (employment +31.8k, unemployment +0.2% to 6.0%) was to see market-implied odds on the Bank of Canada lifting rates by 0.25% on Wednesday lift from 81% to 87%.
The NASDAQ was Friday’s best performing global stock index and is also strongest on the week with a 2.4% gain, in stark contrast to losses of more than 2% for both the Nikkei and Shanghai. In bonds, Treasury yields were +/- 1bps lower across the curve with the 2/10s spread half a basis point steeper on the day but still 4.7bps flatter on the week to 28.5bps.
In commodities, contrasting fortunes with WTI oil up but Brent down, and industrial metals, gold and coal all down (bar zinc). On the week, coal (both steaming at coking) has maintained its advance, gold is little changed but base metals are all down with the LMEX index losing another 4.5% to now be 12.7% off its early-June highs and to its lowest reading since mid-August 2017.
Today we have no data of note from either the Euro-Zone, UK or the US and I cannot remember the last time that this has happened on the same day.
September S&P 500
My S&P plan worked well with the market trading lower to my 2731 buy level 30 minutes before we had the NFP release. I almost always go flat into a major announcement and after the S&P hit my buy level I emailed my Platinum Members to exit any long position for a small gain at 2733.50. Subsequently the S&P rallied to my 2763 sell level, and as I did not want to have a short position on board over the weekend I emailed my Platinum Members again to exit any short position at 2760.50 and I am now flat. This morning the S&P is trading higher at 2770 and the big question now is this the breakout to the upside that I have been looking for over the past week to develop. I think it is especially as both the NASDAQ and S&P are trading well above their 50 and 200 Day Moving Averages and these key support levels should repel any subsequent sell-off over the coming days. Today I will now look to buy the S&P on any dip lower to 2752/2760 with a 2745 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2731/2739 with a 2725 stop. I do not want to be short the S&P at this time.
The Euro continues to make gains and today I will now raise my buy level to 1.1660/1.1700 with a 1.1620 stop. I will also raise my sell level slightly to 1.1830/1.1870 with a 1.1905 stop.
September Dollar Index
I am still flat the Dollar which is again opening weaker this morning. Today I will now lower my buy level to 92.75/93.15 with a 92.45 stop. I still do not want to be short the market at this time.
The DAX just missed my buy level on Friday before rallying into the close and that rally has continued this morning with the DAX again trading over 12500 despite the stronger Euro. Today I will now raise my buy level to 12370/12450 with a 12320 stop.
Just like the S&P above the FTSE also traded lower to my 7510 buy level before Friday’s Payroll data. Unfortunately I covered this long position ahead of the data release at 7516 and I am now flat which is frustrating when you see that the FTSE traded over 7600 overnight. Today I will again look to buy the market on any dip lower to 7510/7550 with a 7470 stop.
Dow Rolling Contract
The Dow has been difficult to trade over the past three weeks. On Friday the Dow just missed my 24230 buy level with a 24251 low print before rallying over 24600 this morning which is just shy of its 24630 50 Day Moving Average. The McClellan Oscillator continued to improve closing on Friday at +109. The only negative on Friday was this rally occurred on the lowest trading volume of the year as most traders took the week off for the July 4th Holiday. I am still flat the Dow and today I will now raise my buy level to 24300/24460 with a 24215 tight stop. I still do not want to be short the Dow at this time especially as the price action is positive.
The NASDAQ also just missed my buy level on Friday before rallying and I am still flat. The NASDAQ is the strongest of the three Indices that I cover as we sit just below all-time highs. The NASDAQ was led higher last week by biotech stocks which gained more than 5% over the week. Today I will move my buy level higher to 7150/7200 with a 7110 tight stop. The NASDAQ has strong resistance from 7350/7400 and I will be a seller on any rally to this area with a 7440 stop.
I am still flat the Bund and today I will now lower my sell level to 162.95/163.35 with a 163.65 stop. Given the insanely low yield I still do not want be long the market at this time.
Gold Rolling Contract
Gold is trading higher this morning having just missed my 1246 buy level on Friday and I am still flat. Today I will now raise my buy level to 1245/1252 with a1238 stop.
Silver Rolling Contract
My latest long 15.95 Silver position worked well on Friday with the market trading higher to my 16.15 T/P level and I am now flat. This move higher has helped the Daily Sentiment Index to improve slightly from its recent 8% low print to close on Friday at 18%. The big question now is whether the recent low at 15.75 is indeed the tradeable low that I have been looking for or are we going to have one more test of this key support before finally seeing much higher prices. I am going to give the improving DSI the benefit of the doubt and today I will now look to buy Silver on any dip lower to 15.75/16.10 with a 15.45 stop. If I am taken long I will have a T/P level at 16.35.