The markets shrugged off the acrimonious ending to the G7 Meeting as instead, its onwards and upwards for markets, with Kim Jon Un and Donald Trump both now holed up in Singapore ahead of their historic meeting scheduled to begin at 9am Singapore time (2 am London Time). They will both be leaving just a few hours later, but the omens are good for a ‘’successful’’ summit, with positive headlines from US Secretary of State Mike Pompeo saying negotiations with North Korea are ‘’moving quite rapidly’’ and ‘’talks to come to a conclusion quicker than thought’’. So maybe John Paul Young is right and love really is in the air, just not between North America’s leaders either side of the 49th parallel.
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That risk sentiment has shrugged off a small knee-jerk move lower as Monday’s market re-open is evidenced by US stocks ending in modestly positive territory (S&P500 +0.1%), US Treasury yields fractionally higher (10s +0.5bp) and the Japanese Yen down the same amount as the Canadian dollar. The Swiss Franc is hardly moved even though the Swiss referendum on Sunday soundly defeated the ‘’Vollgeld’’ initiative that would have had profound implications for the way the Swiss financial sector would be allowed to operate.
The big moves in bonds since Friday night are not actually in US treasuries but rather German Bunds and Italian BTPs, the former up almost 5bps at 10 years and the latter down a whopping 29bps. This is on the strength of the interview published over the weekend with new Italian Finance minister Giovanni Tria. Highlights include that:
‘’It is not just that we do not want to get out of the Euro: we will act in such way that conditions are not approached that could call into question our presence in the euro’’.
‘’New fiscal plans (due in September) will be completely consistent with the objective of continuing on the road to reducing debt/GDP ratio’’ and
‘’The focus on keeping the accounts in order and reducing debt is not’’ just because of Europe, ‘’but because there is no need to crack confidence in our financial stability’’
And on the so called ‘’parallel currency’’ (or ‘’Mini Bots’’) idea: ‘’nothing is solved with buffer solutions’’.
Angela Merkel could not have scripted it better herself.
Euro outperformance against most other G10 currencies is attributable to this, with the Euro-centric DXY actually a touch stronger due to weakness in the other components, notably JPY and GBP
Sterling is suffering in front of the first day of a two-day debate on the Lords amendments to the Government’s Brexit Bill. But this is not the reason the pound is down. Rather it was some rather alarmingly weak UK Industrial Production data and a blow out in the Trade Deficit. Manufacturing Production in April fell by 1.4% on the month against an expected rise of 0.3% (overall Industrial Production down 0.8%) while the April visible Trade Deficit printed at 14bn against 11.3bn expected, the blow out reflecting bigger deficits with both the EU and non-EU trading partners. The NIESR research group currently pegs Q2 GDP at just 0.2%.
The Aussie dollar currently sits at 0.7609, so less than 10 pips away from where it ended in New York last Friday, having recovered from an intra-day low near 0.7560 earlier in the London morning in what looked like it was building into a significant ‘’risk-off’’ end to the week. A smart recovery in the Brazilian Real (more than 5%) came to the AUD’s assistance in New York, having been the proximate cause of Thursdays sell-off, after the central bank flooded the market with FX swaps (its de facto method of intervening).
Emerging market currencies in general are on a weaker footing however (losses for RUB, TRY, MXN and ARS on Monday) and remain a weight on AUD. Commodity prices are mixed including a near 1% fall for ‘’Dr. Copper’’. Oil is also mixed (Brent down but WTI up) with Iran still displaying strong public resistance to output cuts when OPEC formally meet later this month.
This morning on the Economic Front we have UK Employment at 9.30 am and this is followed at 10.00 am by the German ZEW Survey including Current Situation/Expectations. Finally at 1.30 pm we have US CPI and reaction to the Trump/kim Summit.
June S&P 500
The S&P recovered all of Monday’s early sell-off as we wait for the Trump/Kim Summit to begin which is now just hours away as I go to press. The Daily Sentiment Index reading is now at 74% S&P bulls which is higher than the 71% trader optimism that occurred on March 12, before the S&P topped and subsequently fell 140 Handles. This level of optimism is one of the many reasons why the S&P is now just 3% from its all-time high on January 26 with the market now trading over 311% off its March 2009 lows. I am still flat the S&P as we wait the news that I alluded to in yesterday’s Daily Commentary: The US-North Korea Summit which will take place early today, also today, the UK faces votes to derail its Brexit policy. Tomorrow the US Federal Reserve will make their next pronouncement on the level of the Fed Funds Rate, followed by the ECB on Thursday and Bank of Japan on Friday. Given the level of optimism I am not going to chase this market higher and today I will leave my buy level unchanged from 2760/2768 with a 2753 stop. I will however raise my sell level to 2799/2809 with a 2815 higher stop. Again if I am taken short and subsequently stopped out of this position I will be a more aggressive seller from 2825/2845 with a 2853 stop.
The Euro traded in a narrow range yesterday as the market goes on hold ahead of this week’s key announcements. Today I will leave my buy level unchanged from 1.1645/1.1685 with a 1.1615 stop. I will also leave my sell level unchanged from 1.1880/1.1920 with the same 1.1950 stop.
September Dollar Index
No change as I am still a seller on any rally higher to 93.90/94.30 with a 94.65 stop.
The DAX just missed my 12690 buy level before rallying 200 points over the last few hours of trading. Thankfully we had no sell levels in the DAX as we wait for the FOMC decision tomorrow and of course the ECB on Thursday. Today I will now raise my buy level to 12670/12740 with a 12600 stop which is just below last Friday’s low print. I still do not want to be short the market at this time.
I am still flat the FTSE which also had a strong performance yesterday, helped by the weakness in Sterling as we wait for the vote on Brexit later today. I am now going go to chase this market much higher and I will only raise my buy level to 7640/7680 with a 7605 stop.
Dow Rolling Contract
The Dow Transports made a new five month closing high yesterday and this helped to drag the Dow higher also. I am still flat the Dow and today I am going to leave my buy level unchanged from 25050/25180 with the same 24950 wider stop. Despite the Dow underperforming the S&P I still do not want to be short the market at this time.
I am still flat the NASDAQ which rallied strongly yesterday. Today I will now raise my buy level to 7080/7130 with a 7040 stop. The NASDAQ has strong resistance from 7260/7320 and today I will look to go short on any rally to this area with a 7365 stop.
The Bund did trade lower to my initial buy range yesterday. However as I wanted to protect the small gain in Silver I lowered my Bund buy level which did not get filled and I am still flat. Today my only interest in buying the Bund is on a dip lower to 157.80/158.30 with a 157.45 stop.
Gold Rolling Contract
Gold is clinging on to $1300 as prices still have not confirmed the advance in Silver which made a new recovery high at 16.98. I am not going to chase this market higher and today I will leave my buy level unchanged from 1282/1289 with the same 1275 stop.
Silver Rolling Contract
As I wanted to bank some points for yesterday’s trading session I covered my latest 16.75 long Silver position at my revised 16.92 T/P level and I am still flat. Today I will again look to buy the market on any dip lower to 16.50/16.80 with a 16.25 stop and a 17.10 T/P level if executed.