Yesterday’s trading session was noticeable for its absence of any key Economic releases where a further lift in oil prices seems to have had the largest identifiable role in bond and equity markets. The US Dollar has regained a measure of support, though it has been at the margin rather than specific US factors. Even the Euro struggled for support despite what should have been Euro yields supportive comments from an ECB Governing Council member, even if not Draghi. With the US embassy slated to open in Jerusalem today, it has been unrest on Gaza border strip that has seen dozens of Palestinian deaths as tens of thousands converged to protest, a stark contrast to the celebratory scenes at the embassy’s opening. This unrest news saw further support for the oil price, coming on top of the renewed US sanctions on Iran. Brent is up over 1% on the day to over $78 with the price of Brent (and the Brent-WTI premium front end contract premium) rising to the highest levels seen since 2014 when oil prices were on the way down from over $100/bbl.
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Bond yields were first supported in Europe and the US, the German 10y up 5.2bps to 0.611% and the US 10s tipping over 3.00% again in the afternoon US session. US equities have made small net gains (0.1%-0.3%) with energy (and health) stocks the standout.
The USD has been steady to a little higher, the Bloomberg Spot Dollar Index up 0.2% with the AUD back to 0.7527 this morning amid a slight rise in the VIX (but still with a 12 handle, just), small net gains on the LME (nickel the stand out) and supportive major resource commodity prices, including by extension from its oil price link, LNG.
Among central bank speakers, it was the remarks from the Banque de France Governor and ECB Governing Council member Villeroy that attracted market attention, adding to bond price headwinds. He noted that the current inflation slowdown is clearly temporary and that the first rate hike could come after a few quarters following the end of the Asset Purchase Programme, not years: ‘’The time when our net asset purchases will end is approaching — and as I already said, whether it will be in September or in December is not a deep existential question.’’ As far as the first rate hike is concerned, we could give additional guidance on its timing – ‘’well past meaning at least some quarters but not years — and it is contingency on the inflation outlook.’’
Also speaking at the same Banque de France Conference, the Fed’s Mester (voter) also gave her usually hawkish bias on the outlook for rates, noting the Fed may have to raise rates above 3% and that the short-term equilibrium interest rate is rising on the back of ‘’fiscal policy turning from restrictive to stimulative, the economy growing above trend, and investment rising’’.
Trade tension talk has also been getting a further run. There was Trump’s Twitter announcement over the weekend that he had instructed the Commerce Department to help out China’s large telecoms firm ZTE’ the first major concession in the trade negotiations. Media reported yesterday that China would reciprocate, with Chinese regulators restarting their review of Qualcomm’s takeover. Meanwhile, the Wall Street Journal reported that China would remove tariffs on some US agricultural products in exchange for Trump’s U-turn on ZTE. Vice Premier Liu He, a key economic advisor to President Xi, will visit the US this week to continue the talks. Adding to the uncertainty, US Commerce Secretary Ross has been talking up trade tensions on the wires, saying that the US market is the most open and exploited market in the world and that ZTE had done some inappropriate things and raising the possibility of alternative sanctions. Clearly, it is all still very much a work in progress.
This morning on the Economic Front we already had the release of German GDP which came in at +0.3% versus +0.4% expected. At 9.30 am we have UK Unemployment and Average Earnings and this is followed at 10.00 am by the German ZEW Survey. At the same time we have Euro-Zone Industrial Production and GDP. Next we have US Retail Sales and the New York Empire State Manufacturing Index at 1.30 pm, and this is followed at 3.00 pm by Wholesale Inventories and the NAHB Housing Market Index. Finally at 9.00 pm we have the Total Net TIC Flows for March.
Speaking wise today we have the Fed’s Kaplan at 1.00 pm
June S&P 500
The S&P just missed my 2722 buy level yesterday before having a late rally into the close. However this morning the S&P is opening lower, worried by a combination of higher Bond Yields, higher oil and a worsening geopolitical situation after the carnage on the Gazza Border with the S&P trading lower to my 2722 buy level. I have now covered this position here at 2723.50 and I am now flat. Yesterday’s 2742 high should mark at least a temporary top for the S&P especially as we are severely overbought after a 150 Handle rally in just seven trading sessions. The S&P has good support at 2715 and today I will be a small buyer on any dip lower to 2708/2716 with a 2702 stop. I will now lower my sell level in the S&P to 2745/2755 with a 2762 stop. Last night the McClellan Oscillator weakened to close with a +90 print while the VIX closed with a 12 Handle for the second consecutive trading session. The VIX is oversold and anytime this year the VIX has traded this low we have seen a spike in volatility and this should lead to lower prices. However we still have to respect the huge move higher in May.
The Euro was hit after the close last night in New York with the market trading lower to my 1.1925 buy level. I am still long and I will only add to this position on any further move lower to 1.1885 with a now higher 1.1855 stop. I will now lower my T/P level on this position to 1.1945 and if my second buy level is filled first I will then lower my T/P level to 1.1915. If any of the above happens, I will be back with a new update for my Platinum Members.
June Dollar Index
As I am long the Euro I have not sold the Dollar Index as yet. The Daily Sentiment Index is still elevated at 83% Dollar bulls and this is a strong headwind against a further rally in the Dollar from here. Today I will now raise my sell level slightly to 92.95/93.35 with a 93.70 stop.
I am still flat the DAX which again traded in a narrow range yesterday. With US equities trading lower overnight I will now lower my DAX buy level to 12780/12850 with a 12730 stop. I do not want to be short the DAX at this time.
I am still flat the FTSE with the market opening lower this morning. The FTSE looks tired and today with the market so far unable to break above its all-time high at 7745 in what is a severely overbought market, I will now lower my sell level to 7710/7745 with a 7775 stop. The FTSE has good support at 7630 and any this level should hold the downside on any test. With this in mind I will look to be a buyer on any dip lower to 7600/7630 with a 7570 tight stop.
Dow Rolling Contract
My 24950 short Dow position worked well with the market eventually hitting my 24880 target level late yesterday. However I covered this position at my revised 24910 T/P level and then emailed my Platinum Members to go short again at 24970. After this second sell level was filled I covered this position at my revised 24948 T/P level and I am now flat. Yesterday the Dow closed higher for the 8th consecutive trading session which is the longest streak in eight months, since September when it closed higher for nine days. There is now doubt this market is severely overbought after a near 1500 point rally in seven days and is due a correction. The Dow has good support at 24700 and today I will now look to buy the market on any dip lower to 24600/24720 with a 24530 tight stop. My only interest in selling the Dow is on a rally higher to 24950/25100 with a 25180 stop.
Unfortunately the NASDAQ just missed my 7035 sell level with a 7015 high before selling off and that sell-off has continued this morning with the market now trading at 6942. Today I will now lower my sell level to 6990/7040 with a 7075 stop. I do not want to be long the NASDAQ at this time.
Just when I mentioned about the lack of movement in the Bund, yesterday saw the Bund drop 100 points with the Yield now back above 60 bps. This move lower saw the market hit my 158.15 buy level before rallying into the New York close. Given the negative price action I had no interest in holding this position overnight and I covered this trade at my revised 158.23 T/P level and I am now flat. This morning the Bund is opening lower with the next support level not coming in until the 157.60 area. Today I will be a small buyer from 157.25/157.65 with a 156.90 stop. I will also lower my sell level to 158.60/159.00 with a 159.30 stop.
Gold Rolling Contract
Gold continues to probe its 200 Day Moving Average and it looks like it is only a matter of time before we break this level at 1303. As I am back long Silver I will now lower my Gold buy level to 1288/1296 with a 1281 stop.
Silver Rolling Contract
Silver eventually traded lower to my 16.50 by level. I am still long and I will now lower my T/P level on this position to 16.65. I will only add to this position on any further move lower to 16.10 with the same 15.85 tight stop.