The prospects of an end to ECB easy money sparked a sell-off in EU bonds spreading across the Atlantic and into the US. The Euro also got a boost lifting other European currencies along the way, meanwhile equities moved higher shrugging off the spike higher in yields. The AUD retained its post GDP gains, and barring the Brazilian Real, EM FX also outperformed the dollar.
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For anyone following my Platinum Service it lost 10 points yesterday and is now flat for June, having made 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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The big news yesterday has been the ECB signalling that the end of QE is nigh. ECB chief economist Praet made it clear that next week’s policy meeting the Governing Council will ‘’assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases’’. He then stressed that his personal view is that inflation is showing signs of convergence towards target, that there is underlying strength in the economy (he said recent weaker growth was mostly temporary) and that a tightening labour market is translating into wage growth and less slack. As if playing from the same sheet of music, Bundesbank Weidmann said that inflation was ‘’now expected to gradually return to levels compatible with our target’’ and then ECB’s Hansson said that the Bank could hike faster than market pricing, before stating it is “reasonable” to signal end of QE soon.
ECB comments sparked a sell-off in bond yields across the board with Italian BTPS leading the way (10y tenor +14bps to 2.90%). Not surprising given the ongoing Italian political /fiscal uncertainty as well as the fact that along with other EU peripheral sovereign bonds, Italy has enjoyed a lower borrowing rate thanks to the ECB bond purchasing programme. Core global bond yields also endured some ECB pain with 10y Bund climbing 9.6bps to 0.459%, 10y Gilts rose 9bps to 1.371% and 10y UST yields are currently trading at 2.97%, 4.4bps higher relative to levels this time yesterday.
In currencies the Euro led the gains against the USD and after a small wobble, the AUD managed to retain Tuesday’s post GDP gains. The Euro traded to an intra-day high of 1.1797 and now it has settled at 1.1774. The initial rise in the Euro weighed on the AUD, but with equity markets unfazed by the move higher in yield, the AUD recovered its poised along with other risk sensitive currencies. The Aussie now trades at 0.7667, 10pips below its intra-day high (up 0.66% over the past 24hrs).
Looking at EM currencies, it is interesting to note that the rise in global bond yields triggered a broad based sell-off in the USD consistent with the fact that US Treasuries have lagged the move higher on global bond yields. So far so good for risk assets, one exception however, has been the Brazilian Real which underperformed despite the fact that the central bank auctioned additional contracts in FX swaps aimed at supporting the currency. At this stage, EM concerns are seen as few bad apples, but Brazil is now certainly in the watch list along with the Turkey, Argentina, Venezuela and Indonesia.
In economic news, the US Trade Deficit narrowed to a 7-month low as exports hit a record high, adding to the case for a strong Q2 GDP result. The Atlanta Fed’s GDPNow forecast sits at 4.5%. Trump’s economic advisor Kudlow is trying to play down concerns about a trade war, suggesting that US trade tensions are just a ‘’family quarrel’’.
A rising union dispute at La Escondida copper mine in Chile continues to support the rise in copper. The red metal climbed 2.3% overnight and is up 6.6% over the past 5 days. Meanwhile oil prices had another wobble following a US government report showing a surprise increase in domestic crude stockpiles (WTI -0.89% @ 64.94). Overall, for the AUD, commodity prices remain buoyant and continue to suggest the AUD has room to trade higher.
This morning on the Economic Front we have German Factory Orders at 7.00 am and this is followed by Italian Retail Sales at 9.00 am. Next we have Euro-Zone GDP at 10.00 am. At 1.30 pm we have US Weekly Jobless claims and this is followed at 7.00 pm by Consumer Credit.
The Bank of England’s Ramsden and Bank of Canada Governor Poloz are both speaking this afternoon at 4.00 pm and 4.15 pm respectively.
June S&P 500
The S&P has rallied almost 100 Handles since last Tuesday’s test of the 50 Day Moving Average at 2675 as yet again one short position after another is stopped out. The VIX closed at 11.65 last night which is the lowest close since the market top on January 26, when the VIX closed at 11.08. The Weekly results of the Investors Intelligence Advisors Survey were released yesterday showing that the percentage of bulls has risen to 52.9% which is the highest level since the mid-March high when the reading was 55.5%. Subsequently the S&P fell over 140 Handles over the next couple of weeks. Yesterday the S&P missed my 2743 buy level with a 2747 low print before rallying to close at 2770 and I am still flat. The S&P has good resistance at 2800 and today I will be a seller on any further rally to 2795/2805 with a 2812 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller from 2825/2845 with a 2858 stop. My only interest in buying the S&P is on a dip lower to 2745/2753 with a 2738 stop.
My Euro plan worked well with the Euro trading higher to my 1.1790 sell level before selling off to my revised 1.1765 T/P level and I am now flat. The Euro has strong resistance from 1.1870/1.1920 and today I will be a seller in this area with a 1.1955 stop. A break and close over 1.1880 will then see me look to set up a long position at higher prices. Today I will raise my buy level slightly to 1.1655/1.1695 with a 1.1625 stop.
June Dollar Index
I am still flat the Dollar and I will now lower my sell level again to 94.10/94.50 with a 94.85 stop. I still do not want to be long the Dollar at this time.
Unfortunately the afternoon sell-off in the DAX just missed my 12670 buy level before the market rallied over 100 points into the close and I am still flat. Today I will now raise my buy level to 12730/12790 with a 12670 stop. I still do not want to be short the DAX at this time.
The FTSE continues to trade sideways and lag the rally of the US Indices. I am still flat and today I will now raise my buy level to 7635/7675 with a 7605 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
My Dow sell range was an error yesterday as there is now way that I would have a 40 point sell level for a market this volatile. Personally I went short the Dow at 25110. The Dow has strong resistance from 25200/25260 and today I will move my second sell level higher to 25250 with a higher 25320 stop. Given how severely overbought the Dow is trading my only interest in buying the market is on a dip lower to 24820/24950 with a 24750 stop.
Unfortunately the NASDAQ just missed my 7135 buy level by seven points before rallying to close at a new all-time high for the third consecutive trading session and I am still flat as thankfully we had no sell levels in this market. Today I will now raise my buy level to 7130/7170 with a 7090 stop.
My Bund plan did not work well as after the market traded lower to my 160.40 average buy level I was quickly stopped out of this trade on the ECB headline in relation to the ending of QE near the low of the day at 159.85 and I am now flat. The BUND has now fallen over 425 points from last Tuesday’s 164.05 high print as clearly I have lost my edge in this market for the time being. I am going to stay flat the Bund until I get a better feel for the market but in my opinion the Bund is too volatile to trade at this time.
Gold Rolling Contract
Gold tried to rally over 1300 before a late sell-off saw the market settle at the 1296 level and I am still flat. With the Daily Sentiment Index reading at just 10% bulls it is only a matter of time before both Gold and Silver rally. Today I will now raise my buy level to 1282/1289 with a 1275 stop.
Silver Rolling Contract
Silver finally rallied to my 16.70 T/P level on my latest long 16.50 position. Subsequently I emailed my Platinum Members to re-buy Silver at a price of 16.65. I am still long and I will now raise my stop on this position to 16.25 with a 16.95 T/P level. If either of these levels are hit I will be back with a new update for my Platinum Members.