Virtually no market reaction in yesterday’s Australian Federal Budget, which has seen Fitch and Moody’s quickly out affirming their prevailing AAA sovereign ratings. We haven’t yet heard from Standard & Poor’s. There was a quick dip in AUD/USD yesterday, trading down through the lows seen shortly after yesterday’s poor Retail Sales data, seemingly on the announcement that the current year ‘underlying cash balance’ and ‘net operating balance’ were both a bit more negative than in last December’s MYEFO. But this quickly reversed when the numbers over the forward estimates (through 2021) were seen to ahead slightly better than MYEFO (and indeed the net operating balance is now projected to return to surplus in 2019-20 not 2020-21 – this is as the full effects of the additional revenue seen accruing from the extra Medicare surcharge from 2-2.5% and levy on the banks supports revenue, while additional infrastructure spending holds up the cash balance relative to the net operating balance since the latter only captures recurrent expenditure. The ratings affirmation also helped.
To mark my 1350th 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 email@example.com for details.
For anyone following my Platinum Service it made 56 points yesterday and is now ahead by 438 points for May, having made 1276 points in April, 1335 in March, 1481 in February and 1734 in January. The previous seven months saw gains of 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.
Yesterday’s Australian Retail Sales numbers, showing a 0.1% drop in March with February revised down to -0.2% and Q1 real spending of just 0.1%, suggest downside risk to earlier Q1 GDP estimates and took an immediate bite out the AUD. AUD/USD fell to 0.7364 immediately after the numbers and then leaked to 0.7335 ahead of the Budget following which we saw a low of 0.7329, the lowest since January 9th this year.
While commodity prices falls and then the weak retail sales numbers have been the local drivers of AUD’s fall from grace, on-going revival in the US dollar’s fortunes is also part of the story. The BBDXY dollar index added almost 0.5% over the course of Tuesday. The fresh grind higher in US treasury yields is the key driver (10s now back at 2.4%), alongside further slippage in EUR/USD post-Sunday’s French election win for Emmanuel Macron. June Fed tightening odds are now sitting at around 80%. The Fed’s Esther George, a note hawk, last night said she saw risks in delaying rate hikes. Both she and Eric Rosengren said they favoured beginning the process of balance sheet normalisation this year.
US data saw the JOLTS (job-opening) unchanged but still at a very elevated level, while the NFIB Small Business Optimism Survey came in at a still very strong 104.5, down from 104.7 but above the 104.0 expected. The optimism of Donald Trump supporters, heavily represented in the NFIB survey, is so far undimmed. Overnight the President sacked FBI Director Comey but the market reaction so far has been muted.
Earlier this morning we had the release of Chinese PPI which rose 6.4% y/y. This producer price inflation cooled more than expected in a sign that manufacturing activity may be losing momentum as the government cracks down on financial risks.
This morning on the Economic front we have no data from either the Euro-Zone or the UK as all eyes turn to ECB President Dragi’s Address to the Dutch Parliament at 12.00 pm. My own view is that this is unlikely to be the place – or the time – to discuss shifting language on economic risks and ECB policy prospects. At 1.30 pm we have US Import/Export Price Index. Finally at 7.00 pm we have the US Monthly Budget.
Meanwhile at 5.00 pm the Fed’s Rosengren is due to speak at the Vermont Business Group on the Economy.
June S&P 500
It took a long time but 20 minutes before the Chicago close the S&P traded to a low of 2388.25 which put me long at my 2390 buy level. As I did not want to have an overnight position in the S&P especially with a lower buy level in the Dow, I Emailed my Platinum Members to exit this position at 2393.50 and I am now flat. The key for the S&P today is staying over the 2377/2383 support zone as a break and close below here could well see the S&P attack the large ‘’Open Gap’’ from 2345/2366 following the first round of the French Election last month. My own view is that given how low the VIX is trading that the S&P is in dangerous territory but again until we get a sell extreme that sticks it is very difficult not to be a ‘’buyer on dips’’ which has been the theme for most of the last 8 years. Today I will again be a buyer from 2377/2383 with a 2372 stop. I am not going to chase this market lower and I will leave my sell level unchanged at 2406/2412 with a 2417 stop.
There is no doubt that the reduction in the previous record number of short positions in the Euro to flat as reported in last Friday’s IMM data is having a negative effect on the Euro and for the moment has changed my short term view that the US Dollar will continue to weaken from here. Late last night the Euro traded lower my 1.00870 buy level with a 1.0863 low print before rallying small. Again as I wanted to flat overnight I covered this position for a small gain at my revised 1.0876 T/P level and I am now flat. Thankfully for those members still long the Euro is trading at 1.0895 this morning. The Euro has very strong support from 1.0810/1.0850 and today I will again be a buyer in this range with a 1.0780 stop. Despite my concerns for the Euro selling off from here I do not want to be short the market ahead of Dragi’s address to the Dutch Parliament at 12.00 pm.
June Dollar Index
I am still flat the Dollar and today I will now raise my buy level to 98.85/99.20 with a 98.50 stop. Given my concerns for a stronger Dollar as mentioned in my Euro commentary above I still do not want to be short the Dollar at this time.
The DAX had a second consecutive inside trading day as the bulls were unable to push the market higher in severely overbought conditions. This is not particularly bullish and increases the risk of a short term correction. I am still flat the market and today I will now lower my sell level to 12820/12870 with a 12910 tight stop. Remember the all-time high for the DAX is 12830 and should contain the market initially on any test. I will also raise my buy level slightly to 12600/12650 with a 12550 stop.
The FTSE continues to rally off last Friday’s 7140 low with the market now trading at 7300 as I write this commentary. Since Brexit anyone who attempted to short the FTSE on a consistent basis has just got slammed. The FTSE which for years has underperformed the other major Indices is finally playing catchup. There is no point in trying to sell the market as the price action has been positive for the past 11 months. Today I will now raise my buy level to 7245/7275 with a 7210 tight stop.
Dow Rolling Contract
Last night after I covered my long S&P position I emailed my Platinum Member to reduce their buy level in the Dow to 20870/20910 and after the market fell I bought the Dow at 20900. I am still long and I will now reduce my T/P level to 20940 as I try to get today off to a positive start. If I manage to cover this long Dow position at my T/P level I will again look to buy the market on any subsequent dip lower to 20810/20865 with a 20770 stop. As I mentioned yesterday the Dow needs to break the March high at 21169 or else we will still have negative divergence which is potentially a major warning sign that an imminent top is in the market. The other major worry is that internally this market is not healthy as shown by the McClellan Oscillator which closed with a negative 48 print last night. This should not be happening when the US Indices are at or close to all-time highs.
Shortly after I posted the Bund traded lower to my second buy level at 160.15 which put me long at an average rate of 160.30. I got tired of watching this market meander between 160.30/160.40 for a number of hours and as I wanted to be flat overnight I covered this trade at 160.35. The Bund has strong support from 159.70/160.10 and today I will be a buyer in this area with a 159.30 stop which is just below the 3.5 month support line at 159.40.
Gold Rolling Contract
On a day when we had so little movement a lot of my calls got hit. After Gold traded lower to my initial 1217 buy level, Silver had also hit my second buy level and as a result I had too much exposure to the metals. In hindsight I should have kept my Gold position as it traded to a 1224 high overnight but unfortunately I covered this position for a small gain at 1218 and I am now flat. Gold has strong support at 1207/1213 where the 500 Day and 100 Week Moving Averages come in and I would be much more comfortable getting long in this area with a 1201 stop. Gold is severely oversold ad due at least a temporary correction.
Silver Rolling Contract
Silver traded lower to my second buy level at 16.10 which now has me long at an average rate of 16.25. As I have said over the past number of days that Silver is severely oversold with the RSI which is now at its most oversold level in over a year. It may take the stock market to sell-off before both Gold and Silver recover but with Silver now trading over 13% lower in a few weeks since its 18.65 high print last month a rally is now long overdue. I will leave my stop unchanged at 15.70 on this position.