Equity markets are responding well to the rally into the close on Wall Street last night. It had looked as though a third and what could have been decisive bearish session in a row was forming, but the bulls managed to claw their way back and leave a decent legacy for Asian and European markets early today. However, despite this rebound on equities there is still a hint of negative bias for market sentiment as Treasury yields remain on a sliding track lower (especially at the longer end of the curve, to leave a “bull flattening” move, something that tends to be risk negative). Chinese economic data for April was somewhat mixed overnight, with the (broadly) two halves of the economy showing differing signals. Industrial production was better than expected, but retail sales was worse and fixed asset investment also missed expectation. This leaves the commodity currencies on the back foot where Aussie and Kiwi are underperforming across the major pairs today. There is a notable improvement across the key commodities though, with oil beginning o show signs of promise with another move higher this morning, whilst gold and silver are also increasingly strong again.
Wall Street rebounded strongly into the close to end the session with the S&P 500 +1.2% higher at 2852. There is an early consolidation on futures, with the E-mini S&Ps -0.1% which all translated to mild gains on Asian markets. The Nikkei closed +0.6% higher whilst Shanghai Composite was all but flat. In Europe, there is an early swing back higher with FTSE futures +0.9% and DAX futures +0.8% but with hints of negative sentiment across other asset classes, can this move last? In forex, the outperformance of JPY and USD smacks of negative sentiment. AUD and NZD are underperformers, along with further downside on GBP which is again eyeing its key April low on Cable. In commodities, the breakout on silver continues to run with further gains of +2% early today, whilst gold is also holding on to yesterday’s gains (+0.3%). The run higher on oil is also being extended by over +2% today for both WTI and Brent Crude.
There are a few important data releases to keep an eye out for on the economic calendar today. The flash reading of Eurozone Q1 GDP is at 1000BST and is expected to show -3.8% (which would be the same as the prelim reading, and down from the -0.1% Q4 2019). Onto the US data, the New York Fed Manufacturing for May is expected to improve slightly to 63.5 (from -78.2 in April) but this would clearly be still extremely negative. US Retail Sales will be key at 1330BST, which is expected to show core sales (an ex-autos) declines by -8.6% in April (after -4.5% decline in March). Industrial Production for April is at 1415BST and is expected to show a decline of -11.5% (after a decline of -5.4% in March). Capacity Utilization is expected to slide further to 68.0% (from 72.7% in March) which would be the lowest reading since July 2009. We are also looking out for the prelim Michigan Sentiment at 1500BST which is expected to show a further deterioration to 68.0 (from the 71.8 for April).
Chart of the Day – Silver
We have seen precious metals strengthening in recent days as risk aversion has taken hold. We have noted previously that silver is like “gold on steroids” and once more its performance over the past week reflects this. Having broken out to a two month high on a closing basis yesterday, the move is storming higher today. The April reaction high of $15.83 held for a month, but we can now take this as another range breakout and imply an upside projection of around $16.90. This comes as the RSI is confirming the breakout above 60 and MACD lines are accelerating above neutral. It is interesting to see that where the 50% Fibonacci retracement (of $18.93/$11.62) at $15.27 has now turned into a basis of support in the past week. This means that 61.8% Fib at $16.14 could be an initial source of consolidation. However, we look to use intraday weakness into the strong breakout support band $15.61/$15.83 as an opportunity to buy. There is now strong support at $15.24 and $14.48 is now a key higher low.
The negative pressure had threatened to build in yesterday’s session, but once more a move for decisive direction has been neutralised. Over the past month, EUR/USD has been consistently ranging, between the extremes of $1.0725/$1.1015. However, this has now tightened to a mini band within the lower half of the range, between $1.0765 support and pivot resistance at $1.0890. Two successive negative closes suggests that there is a slight negative bias for pressure on the lows. This is also reflected as daily momentum indicators are just edging lower again. However, this remains very much a market stuck in a rut for now. If the RSI begins to slip into the 30s (currently low to mid-40s), and Stochastics drop below 20 (which they are beginning to threaten), then it would suggest the support coming under growing pressure. For now though, even the hourly chart is stuck rangebound (hourly RSI oscillating between 30/70). Initial resistance at $1.0825 today.
The outlook for Cable remains under pressure. Having broken below $1.2245 the market has made a move on the support at $1.2160 which is the key April low. So far this support remains intact as the market rebounded into the close yesterday. However, negative momentum is growing and is now implying that the $1.2160 support is likely to be broken. The 14 day RSI is falling below 40 at seven week lows, whilst MACD lines pull decisively below neutral an