Stocks eke out new highs while currency traders continue the low volatility paradigm

June 2, 2014

So sell in May didn’t work out so hot so far with a solid performance in US stock markets which closed on new record highs on Friday night for the S&P 500.

That’s not to say that stocks won’t swoon this northern summer (our winter) but the reality is that when everyone is on a trade or thinks it is a lay down misery it hardly ever is.

If you are into Fibonacci ratios and trading (I am) then the chart above which is the weekly S&P 500 suggests that the next big resistance level is 1,967 which is the 1.382 extension of the November 2011 till September 2009 move. It is a little speculative but we’ll see how it looks. Overall though the S&P looks overdone on my system but like gold back in 2012 it could take 6 months or more to work through.

Anyway at the close  the S&P 500 finished at 1,924 up another 4 points or 0.21%. The Dow eked out a 0.11% gain to 16,717 while the Nasdaq fell 0.12% to 4,243. It’s not like the data in the US was strong – or as it may be weak. Rather it just seems after such a long rally one which defies gravity sellers are more wary than buyers.

In Europe miners continued to hit the FTSE which fell 0.38% to 6,845 at the low of the day. The CAC also fell 0.23% to 4,520 while the DAX managed to eke out at 0.04% gain to 9,943 even though German retail sales fell 0.9% in April showing Germany is not immune from Europe’s economic malaise. In Italy and Spain stocks rose however no doubt in the hope that German economic weakness will help the ECB make the move that most expect this week and cut rates further. At the close of the day Milan and Madrid were up 0.55% and 0.60% respectively.

Locally the swan dive of Iron Ore continues which is going to be a head wind for the ASX today and likely to fall further that the * points it dropped to 5495 bid on the ASX Friday night. September iron ore futures had another $2.50 fall to $92.38 and looks likely to go lower yet and it feels like the slightly stronger than expected NBS national manufacturing PMI in China, up 0.4 to 50.8 in May, won’t be able to rescue the market.

There is potentially a 50 point fall coming for the S&P 500 this week if 5472 gives way.

On the bond boards the US 10’s were up 1 point to 2.48% but well off the 2.40% low of the week. Locally the 3 years were down a point to 97.22 (2.78%) while the 10 year June contract also moving just one point to close at 96.34 (3.66%).

On Currency markets the lack of volatility continues but Aussie dollar remains fairly strong at 0.9315 before a huge week of data. Euro, somewhat incongruously, climbed back above 1.36 and is at 1.3630 while the Pound rallied to 1.6757. USDJPY fell initially but like the previous day found support in the 101.30/40 region.

On commodity markets the good news is that June Nymex crude was down again with a fall of 87 cents or 0.84% to $102.93 Bbl. Gold’s selloff continues and it lost another %10 oz or 0.85% to $1,250, Silver dropped 1.74% to $18.75. Copper is back at $3.15 lb while on the Ags corn and wheat fell around 0.8% with soybeans of 0.38%.

On the data front this week is a huge one locally and across the globe. Chinese PMI kicks things off and we get the AiG PMI and TD Inflation data in Australia along with building permits and Company Gross profits which feeds into the GDP data released Wednesday.

Tonight it’s a raft of Markit and HSBS PMI’s across the globe and German CPI which is likley to be seen as an indicator for the ECB later this week. In the US we get the Markit and ISM PMI’s along with construction spending.

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