U.S. Equity Markets finished yesterday basically flat after a volatile session that saw plenty of two-way price action, as the S&P gave up all of its gains with a late sell-off. Despite the volatility, the VIX closed lower by 4% at 28.95. U.S. Federal Reserve Governor Jerome Powell told members of the Senate Committee on Banking, Housing, and Urban Affairs that the central bank’s top priority is to slow the rapid growth of prices and maintain the economy. The Chair explained that because of this, its monetary policy must adapt to the rapid changes in activity and inflation, as many cost metrics have surprised to the upside – pushing the Fed to continue its rate hikes. If these actions work, he believes they could help orchestrate a “soft” economic landing and avoid a recession. But Powell also admitted the possibility of failure and that the U.S. economy could see a significant deceleration – likely driving the central bank to pursue another 0.75% rate hike in July to bring long-term interest rates to neutral territory. Within the S&P 500, seven of the 11 sectors finished lower. European Markets closed lower. U.K. Consumer Price Index (“CPI”) growth for May reached its highest level in 40 years, supporting additional interest-rate hikes from the Bank of England. The German government was said to prepare for the second stage of its emergency gas plan, which would include the use of coal-fired utilities to provide power. International Energy Agency Executive Director Fatih Birol said European governments should prepare for a complete lack of natural gas from Russia this winter. European Central Bank Governing Council member Olli Rehn said he expects it to raise rates by 0.25% in July and possibly by a larger amount in September. In Asia, China’s Finance Minister Liu Kun said the government will increase stimulus spending in addition to supporting the sale of local bonds for infrastructure projects. Chinese COVID-19 infections increased in the southern part of the country, threatening the technology hub of Shenzhen with extended lockdowns. Bank of Japan Minutes from the most recent policy meeting showed board members continued to see the need for ongoing easy-money policies to support economic growth. The Bank of Korea warned inflation could hit its highest level in 14 years, supporting the need for additional interest-rate hikes. Elsewhere, Oil fell 3.19% on reports that the Fed may raise interest rates by another significant margin, while Gold rose 0.3% on Dollar weakness.
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The S&P 500 closed 0.13% lower at a price of 3759.
The Dow Jones Industrial Average closed 47 points lower for a 0.15% loss at a price of 30,483.
The NASDAQ 100 closed 0.16% lower at a price of 11,527.
The Stoxx Europe 600 Index closed 1.1% lower.
This morning, the MSCI Asia Pacific Index fell 0.7%.
This morning, the Nikkei closed 0.08% lower at a price of 26,171
The Bloomberg Dollar Spot Index closed 0.5% lower.
The Euro closed 0.5% higher at $1.0568.
The British Pound closed 0.1% higher at 1.2274.
The Japanese Yen fell 0.1% closing at $136.22.
Germany’s 10-year yield closed 13 basis points lower at 1.64%.
Britain’s 10-year yield closed 15 basis points lower at 2.50%.
US 10 Year Treasury closed 11 basis points lower at 3.14%.
West Texas Intermediate crude closed 3.19% lower at $106.07 a barrel.
Gold closed 0.30% higher at $1839.10 an ounce.
This morning on the Economic Front we have German, Euro-Zone and U.K. S&P Global Manufacturing PMI at 8.30 am, 9.00 am and 9.30 am respectively. This is followed by U.S. Weekly Jobless Claims and Current Account at 1.30 pm. Finally, we have Fed Chair Powell’s second day of Testimony to Congress at 3.00 pm.
Cash S&P 500
Incredible two-way volatility in the S&P with the market rising over 100 Handles off Yesterday morning’s scary move lower before finding strong resistance at the May lows of 3800/3810. This resistance level saw strong selling as the S&P fell 40 Handles into the close. My S&P plan worked well with the market trading lower to my 3690 buy level before rallying to my 3711 T/P level with a 3802 high print. This has been the worst half-year start for Global Assets since 1932 and as Fox news pointed out yesterday the Biden Administration cannot afford the current run rate in Consumer Sentiment, Equity Markets and Inflation especially ahead of the Mid-Term Elections in November. My view remains the same that Bond Yields and the Dollar need to reverse in a big and sustained way, Inflation needs to come down and the Fed will pivot way before the Fed Funds Rate get anywhere close to the Dot Plot rate of 3.8%. 10-Year Treasuries are trying to fall, closing at 3.14% yesterday which is well off this month’s 3.53% spike higher. Ideally, I would like to see Bond Yields trade lower to at least 2.6%. Despite the late sell-off into the close I am still expecting a rally into Quarter end, before continuing into the seasonally strong first two weeks of July. The S&P has support from 3690/3720 where I will be a small buyer with a 3669 ‘’Closing Stop’’. Meanwhile I am still long from two weeks ago at 3985 and given the points made last week, I will now lower my exit level on this position to 3905.
My Euro plan worked well as the market rallied to my 1.0520 T/P level on yesterday morning’s 1.0480 long position and I am now flat. It is crucial for the bulls that the Euro holds the now key 1.0520 support level. Today, I will be a buyer on any dip lower to 1.0465/1.0525 with a tight 1.0425 stop. If I am taken long I will have a T/P level at 1.0575.
March Dollar Index
The Dollar fell as expected yesterday and I am still flat. I will now lower my sell level to 104.40/105.00 while leaving my 105.75 stop unchanged.
Unfortunately, the DAX just missed my initial 12940 buy level with a 12968 low print before following the American Markets higher and I am still flat. The DAX has support from 12930/13010 where I will be a buyer with a 12865 stop. I still do not want to be short the DAX at this time.
My latest 7050 long FTSE position worked well. Despite the 9.1% print in May inflation, the FTSE rallied to my 7095 T/P level and I am now flat. Today, I will again be a buyer on any dip lower to 6930/6990 with a lower 6871stop.
Dow Rolling Contract
The Dow just missed my 29950 buy level before rallying off the morning low of 30015 to a late high above 30750. Subsequently, we sold off 300 points into the close. I am still flat. The Dow has short-term support from 29900/30200. I will move my buy level higher to this support level with a now higher 29695 ‘’Closing Stop’’. The McClellan Oscillator improved further, closing last night at -50, for a fourth consecutive rise, while the Fear and Greed Index improved slightly, showing a reading of ‘’Extreme Fear’’ with a 22 print.
Cash NASDAQ 100
Frustratingly, the NDX just missed my buy rang by a few points before reversing yesterday’s morning’s sell-off and close unchanged from Tuesday’s finish. I will now raise my buy level to 11250/11400 with a higher 11095 stop. If I am taken long I will have a T/P level at 11610. Meanwhile I will leave my 14327 long position unchanged with a now lower 12900 exit level
The Bund continued to build on Tuesday’s gains as yields fell by a whopping 13 basis points yesterday. I am still flat and reluctant to chase the Bund higher. However, given the extent of the recent rally I will now raise my buy level to 143.10/143.90 with a higher 142.45 ‘’Closing Stop’’.
Gold Rolling Contract
Gold never came close to yesterday’s buy range and I am still flat. It is obvious that Gold is well supported from 1805/1818 and I will now move my buy level higher to this area with a tight 1791 ‘’Closing Stop’’.
Silver Rolling Contract
Silver traded in a narrow range before having a small rally into the close and I am still flat. I will now raise my buy level to 20.50/21.10 with a higher 19.85 stop.