News of North Korea conducting another (apparently failed) ballistic missile test crossed the wires about 30 minutes prior to the NY close last Friday. 10 year Treasuries lost 2bps during this short window but FX markets were little moved (USD/JPY actually tracked north during the last half hour of trade) while US stock markets had already closed, ending the day down smalls. It not being a nuclear test (currently the main source of U.S. and China angst) it is unlikely to resonate in markets this week. Earlier, rather than respond in ritualistic fashion to the small downside surprise in Q1 US GDP (+0.7% against the +1.0% consensus) markets seemed to take more notice of the strength in the PCE deflator (headline 2.3% against 2.0% expected, core PCE deflator 2.0% as expected) and too the strong Q1 Employment Cost index (+0.8% Q/Q against 0.6% expected). Treasury yields were thus slightly higher post the data and prior to the North Korea news, though the US dollar was little moved.
To mark my 1300th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 36 points on Friday to finish April with a 1276 point gain. Yesterday on the first trading day of May my Platinum Service made 87 points. The previous ten months saw gains of 1335, 1481, 1734, 1351, 1971, 1582, 1142, 1782, 1682 and 2550 points respectively. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1750 points.
Stock markets went out on Friday and for the month on a quiet note but mostly down small, the S&P500 -0.19% to 2,384,2 but still 1.5% up on the week. The VIX pulled up from its near record low close of Thursday to be 0.46 higher at 10.82 – that’s still 3.8 points down on the week.
Yesterday was a rather listless trading session, US data has been on the disappointing side, US equities have been headed sideways, the US Dollar did not build further on Friday’s gains at the start to the week, while oil continues its march lower. Despite all that, the US Treasury curve is a little higher and a tad steeper. (There’s more on that below.) The VIX index has eased further and has been trading below 10 intra-day average in the US. (It was a holiday in much of Europe for the May 1 Labour Day; China too yesterday.)
Outperformers in the FX market have been the AUD and NZD, the Mexican Peso also stronger, funding for the “wall” not included in the funding bill to keep the US government functioning though September 30.
Not helping the tone of US equity markets was a report from President Trump that he’s considering breaking up big banks. Even so, intra-session lows in bank stocks seems to have been unwound, statements one thing, getting it into passed law another.
Yesterday’s announcement in Asia time that Congressional Republicans and Democrats had agreed on a $1.1t omnibus spending package to fund the government through Sep 30 had initially provided the initial bid tone to the US$, the US averting a government shutdown. But this did not carry on further through the New York trading session. US data was on the disappointing side of expectations and the Citi Economic Surprise Index has headed back into negative territory for the first time since last November.
US Nominal Personal Income and Spending in March missed the consensus by 0.1-0.2 percentage points, with downward revisions also released. The US ISM Manufacturing index also missed consensus but remains at a solid level. The downward surprise in last week’s CPI carried through into the headline and core PCE deflators, confirmed by the y/y rate in the core PCE deflator down to a 12 month low of 1.6% from 1.8% in February, emphasising the continued low inflation story and late inflation mail ahead of tomorrow’s expected no change from the FOMC.
That y/y rate was in line with expectations, supporting Treasuries, the rub coming when US Treasury Secretary Mnuchin saying that issuing ultra-long bonds “absolutely” makes sense. Though such a comment might not be all that surprising given the curve, it might have been enough to sees traders pull back after what’s been a strong rally, the US 10 year Treasury yield having rallied from 2.6% to 2.3%. It sits a little above that level this morning. The US ISM Manufacturing index came in at 54.8 from 57.2 (E: 56.5), with some easing in new orders and the employment components ahead of Friday’s jobs report.
While the USD was languid, there has been carryover from Friday with a still soft Sterling after the Europeans made it clear that the divorce would have to be settled before the likes of trade deals could be negotiated.
Elsewhere on the commodity front, NY copper was up 2.11%, but oil was lower, WTI down $0.58 to $48.74 in the wake of a further lift in US rig counts and US production up to $9.27mb as the OPEC May 25 meeting approaches amid softening prices.
This morning on the economic front we have German, Euro-Zone and UK Manufacturing PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed at 10.00 am by Euro-Zone Unemployment. We have no key Economic data due from the US as the Fed starts its two day meeting ahead of the FOMC Statement release at 7.00 pm tomorrow evening. Finally at 5.00 pm the ECB’s Nowotny is due to speak on the Euro-Zone Economy in Vienna.
June S&P 500
It took a while but finally on the re-open of the Futures Market on Sunday night, the S&P hit my 2377 buy level before rallying to a high a 2388 yesterday afternoon and this rally enabled me to cover this long position at my 2382 T/P level and I am now flat. With the Fed starting its two-day meeting today I would expect the market to stay bid until we get the announcement tomorrow. Remember the S&P has still a large ‘’Open Gap’’ from the Friday before the first round of the French Election at 2345 to Last Monday’s Chicago low at 2366. This ‘’Open Gap’’ will get filled at some point and maybe this will some after the FOMC Statement tomorrow. Either way I am a very aggressive buyer on any dip lower to 2346/2352 with a 2341 stop over the coming days. Today given the fact that I do not see much of a sell-off on the S&P ahead of the Fed I will look to buy the S&P on any dip lower to 2374/2379 with a 2369 stop. Even though the S&P is grossly overvalued I still do not want to be short the market at this time. Meanwhile the NASDAQ continues to make new highs with the 5-day RSI closing at 92.4 rapidly approaching the 96.4 high from February 22, which was the most overbought in nearly 20 years since July 1997.
I am still flat the Euro which just missed my 1.0860 buy level after I posted on Friday. The Euro has very strong support at 1.0777 which is the high ahead of the French Election and just like the S&P above is a buy on dips. Today I will move my buy level slighter higher to 1.0840/1.0880 with a 1.0815 stop. Given the significance of the 1.0777 support level I will be an aggressive buyer on any dip lower to this area over the coming days with a 1.0725 stop. I will also be a small seller on any rally higher to 1.0995/1.1030 with a 1.1055 tight stop.
June Dollar Index
My Dollar plan worked well with the market trading lower to my 98.60 buy level ahead of a rally higher to 99.10 yesterday. As I wanted to be flat ahead of Friday’s US GDP data I emailed my Platinum Members to exit this position at 98.70 and I am still flat. Given how oversold the Dollar is trading plus the significance of the 98.00/98.40 support level I will again look to buy the Dollar on any dip lower to 98.20/98.60 with a 97.85 stop. Remember a break and close below 98.00 is bearish opening up the possibility of a move lower to at least 95.00 over the coming weeks.
I am still flat the DAX which was closed yesterday. Today I will move my buy level higher to 12370/12420 with a 12320 stop. Despite the strength of the Euro I still do not want to be short the DAX at this time.
My FTSE plan worked well with the Futures Market trading lower to my 7140 buy level. As I wanted to get May off to a positive start I emailed my Platinum Members to exit this position for a small gain at 7157 and I am now flat. With Sterling under pressure following the comments from the EU yesterday, the FTSE market is starting to recover. Today I will again look to buy the market on any dip lower to 7140/7170 with a 7110 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow has traded in a very narrow range since I posted on Friday with the weaker Dollar preventing the market from falling. Today I will move my buy level slightly higher to 20810/20870 with a 20760 stop. Again if I am taken long and subsequently stopped of any long position or I manage to T/P on long position, either way I will be an aggressive buyer of the Dow on any dip lower to 20620/20680 with a 20575 stop. Ahead of the FOMC tomorrow I still do not want to be short the Dow at this time.
My Bund plan worked well on Friday with the Bund trading lower to my 161.35 buy level before rallying back above 161.80. This rally enabled me to cover my long position at my revised 161.61 T/P level and I am now flat. Today I will again look to buy the Bund on any dip lower to 160.90/161.25 with a 160.60 tight stop.
Gold Rolling Contract
With every weekend speculated to be a military one we are going to see Gold rallying on a Friday and if there is no military action over the weekend then Gold will dip on a Monday before re-grouping ahead of the next weekend. This is what happened on Friday with God trading to a high at 1270 before selling off to a 1254 low yesterday. After Gold traded lower to my 1258 buy level I emailed my Platinum Members to exit this position at 1260 especially as I am long Silver and I am now flat Gold. Today I will again look to buy Gold on any dip lower to 1247/1253 with a 1242 stop.
Silver Rolling Contract
Silver has now closed lower in 10 of the past 11 trading sessions and is severely oversold on both the Daily Chart and William Index. However despite the number of down days for Silver the pace of the sell-off has slowed over the past three days which I take to be positive. I am still long at 17.53 with the same 16.75 stop. If I am stopped out of this trade I will be a more aggressive buyer on any further dip lower to 16.40/16.70 with a 15.90 stop.