Seven of my nine market calls got hit yesterday in what turned out to be a volatile trading session as markets started Q3 in a risk positive tone supported by mostly positive data releases. Equities had a good day in Europe and a solid one in the US, although technology shares were the exception with the NASDAQ down 0.49%. Bond yields have continued to move higher led by US Treasuries, a factor that has contributed to the USD outperforming across the board. The USD outperformance is also reflective of an emerging wondering theme with the market questioning last week’s central bank policy shift in Europe. In what was a holiday shortened trading session in the US, ahead of Independence day on Tuesday, the ISM manufacturing PMI beat expectations (57.8 vs 55.3 exp and 52.1 prev.) reaching an almost 3-year high, backed by strong New Orders and Employment components. The data release triggered a bond selloff with 10y UST yields leading the way. 10y UST closed at 2.3499%, 3.5bps higher relative to where I marked prices yesterday morning.
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For anyone following my Platinum Service it made 187 points yesterday on the first trading session of July, having made 1023 points in June, 1071 in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
After four days of decline, the uplift in US Treasury yields boosted the USD index (DXY) with the big dollar outperforming across the board. The yen was the biggest loser, down 0.88%, more than erasing yesterday’s gains after PM Shinzo Abe’s LDP’s drubbing in Tokyo assembly elections over the weekend. USD/JPY is now trading with a 113 handle for the first time in seven weeks and if US data this week continues to surprise on the positive side (Non- Farm Payrolls on Friday), a move above 114 could well be on the cards.
Some of the US Dollar strength is also reflecting some doubts on how quickly European central banks will take their foot of the easing pedal. Yesterday Reuters reported a conversation with six ECB policy makers indicating some concern over recent market turbulence, suggesting some are having doubts about signalling in July that they are moving closer to dialling back their easy policy (I still think an announcement in September is more likely). Yves Mersch, a member of the ECB’s executive board, noted that ‘’we need to have patience’’ with its accommodative policy stance but added that ‘’we don’t necessarily have to wait for prices to reach 2 % before adjusting monetary policy’’. The Euro traded softer with a move above the mid1.14s looking like a big barrier at the moment.
Meanwhile, spoiling the better than expected data releases, the UK manufacturing PMI underwhelmed (54.3 vs56.3 exp) and although it still suggestive of expansion it fell to a 3 month low. Cable is 0.66% lower at 1.2942 and it continues to find the air quite thin above 1.30. This morning BoE Vlieghe notes that a premature hike would be a bigger mistake that a late one.
Although not the biggest underperformers, commodity link currencies could not avoid the stronger USD wave, with NOK, CAD, AUD and NZD down between 0.30% and 0.50%. Looking at the intraday chart, it is interesting to note that most of the AUD underperformance came yesterday afternoon before reversing course. Earlier this morning the RBA left Interest Rates unchanged. This sees the Australian Dollar weaker but not as weak as yesterday’s post ISM release at 0.7645 as it trades currently at 0.7615.
The FT reports China’s president XI has warned President Trump of ‘’negative factors’’ emerging in their relationship amid tensions over Taiwan, North Korea, steel and the South China Sea. The two leaders are due to meet later in the week as part of the G 20 summit. Trump is also scheduled to meet President Putin.
This morning on the Economic Front we have UK Construction PMI at 9.30 am and this is followed at 10.00 am by Euro-Zone PPI. With the US Markets closed for Independence day all attention will switch to Sweden. Similar to the RBA, the Riksbank is unanimously expected to leave its policy measures unchanged, but the post meeting Statement will be scrutinized to see if the easing bias has been removed. Late in April, the Bank surprised the market by extending its QE programme (additional SEK15 bn), noting that inflation was expected to take longer before stabilising around 2% while also stressing ‘’considerable uncertainty over political and economic developments abroad’’. Since then, European political concerns have eased thanks to Macron’s presidential election win in France and domestically the economy has performed well with inflation printing above expectations. Given this backdrop I expect the Riskbank will remove its bias for a near term cut.
Meanwhile the ECB’s Praet speaks in Rome at 1.30 pm and this is followed at 5.30 pm by Nowotny speaking in Vienna at 5.30 pm.
September S&P 500
For a market that was only open for a few hours we certainly witnessed some strong volatility helped by the large Downside Key Day Reversal in the NASDAQ. This is the third reversal since the first one occurred on June 9th and is certainly a worry for markets going forward. Despite the S&P close to all-time highs while the Dow which did make a new all-time high earlier in yesterday’s trading session, the NASDAQ is now trading 6% below its June 9, previous all-time high. My S&P plan worked really well yesterday with the market trading higher to my 2436 sell level before selling off 13 Handles and this move lower enabled me to cover my short position at my 2430 T/P level and I am now flat. This is the second consecutive trading session that the S&P has sold off aggressively in the last 30 minutes of trading. With the Cash S&P closed today, the Futures Market is open until 4.30 pm. I will leave my buy level unchanged from 2409/2416 with the same 2404 stop. Given the negative price action over the past two trading sessions, I will again look to sell the S&P on any rally higher to 2434/2440 with a 2446 stop.
The Euro traded lower as expected yesterday following the release of the latest Daily Sentiment Index reading which showed bullish positions at a 4 year high of 93%. This is not sustainable and if the US stock market starts to sell off in a more meaningful way then we could well see an aggressive move lower in the Euro. I am still flat the Euro and today I will now lower my sell level to 1.1400/1.1440 with a 1.1475 stop.
September Dollar Index
My latest long 95.50 Dollar position worked well with the market trading to a 96.05 high print overnight. This rally enabled me to cover my long position at my 95.90 T/P level and I am now flat. I am still a buyer of the Dollar on dips and today my buy range will be from 95.30/95.70 with a 94.95 stop.
Despite the DAX trading severely oversold I am not going to chase this market higher and today I will leave my buy range unchanged from 12290/12350 with a 12245 stop. I still do not want to be short the DAX at this time.
My FTSE plan also worked well yesterday with the market trading higher to my 7320 sell level before trading lower to my 7295 T/P level and I am now flat. There is no doubt the FTSE has strong resistance from 7320/7350 as in the past three trading sessions the market has had a nice sell-off from this now key resistance level. Today I will again look to sell the FTSE on any move higher to 7325/7355 with a 7380 tight stop. The price action continues to tell me not to be long the market at this time.
Dow Rolling Contract.
The Dow was the strongest of the US Indices yesterday, helped by the continuing rally in Financial stocks. After the Dow traded higher to my initial 21500 sell level I emailed my Platinum Members to cover this position at 21490 as I was already short both the FTSE and S&P. For those members who stayed short the Dow, the market did eventually trade lower with the market having a late sell-off to a 21460 low print. For me to turn bearish the Dow on a more long-term basis I need to see the Dow break and close below its March 1, previous all-time high at 21169. Interestingly, despite the Downside Key Day Reversal in the NASDAQ, the McClellan Oscillator improved to close with a positive 53 print which was well higher than Friday’s negative 1 close. Today I will now raise my buy level in the Dow to 21290/21360 with a 21235 tight stop. Given the price action I do not want to be short the Dow at this time.
My Bund plan eventually worked well yesterday with the market trading lower to my 161.68 buy level before subsequently rallying to my 161.95 T/P level and I am now flat. There is now doubt the Bund is severely oversold following the doubling of yields last week and today I will again look to buy the market on any dip lower to 161.25/161.70 with a 160.95 tight stop.
Gold Rolling Contract
The price action in Gold is not positive especially given how easily it broke and closed below the 1225 support level. As I was already long Silver and after Gold traded lower to my 1225 buy level I emailed my Platinum Members to exit this position at 1227.50 and I am now flat. Gold must hold the 1210 now key support level as a break and close below here could well signal an aggressive sell-off. I would expect this level to hold and today I will again look to buy Gold on any dip lower to 1209/1216 with a 1203 tight stop.
Silver Rolling Contract
After Silver traded lower to my initial average buy level at 16.32, I emailed my Platinum Members to only add to this position on any further mover lower to 16.00 and this was filled overnight. I now have a reasonably large position at an average rate of 16.16 with the same tight 15.80 stop.