US Stock Market Overview – Stocks Whipsaw and Close Mixed Despite Mixed Economic Data

US stocks whipsawed between positive and negative territory ahead of the President’s press conference where he denounced Chinese actions. President Trump called COVID-19 the Wuhan virus, antagonizing the Chinese leadership. The Chicago PMI numbers came in worse than expected showing that manufacturing in the mid-west remains weak. The US personal savings rate hit a historic high, while spending tumbled. The Dow closed lower on the session while the S&P 500 and Nasdaq closed in the black. Sectors in the S&P 500 index were mixed, led higher by technology, real-estate was the worst-performing sector.

Total Energy Rigs Decline Buoying Oil

Oil prices rose into the close, climbing 5.6% for the week. Prices rose on Friday following a report from Baker Hughes which showed that the number of active U.S. rigs drilling for oil declined by 15 to 222 this week. The oil-rig count has now fallen for 11 weeks in a row, suggesting further declines in domestic natural gas output. The total active U.S. rig count, meanwhile, also fell by 17 to 301, according to Baker Hughes.

Manufacturing Declines

The Institute of Supply Management reported that the May Chicago PMI came in at 32.3 versus expectations it would rise to 40.0. This compares to 35.4 in April. That’s the weakest since 1982. Among the main five indicators, order backlogs and supplier deliveries saw the largest declines.

Personal Spending Falls while Savings Rise

The commerce department reported that the personal savings rate hit a historic 33% in April. The previous record savings rate was 17.3% in May 1975. U.S. consumer spending, the U.S. economy’s main engine, fell by a record 13.6% in April during coronavirus lockdowns, but there are signs that purchasing is slowly creeping up. Personal income, which includes wages, interest and dividends, increased 10.5% in April,. The jump reflected a sharp rise in government payments through federal rescue programs, primarily one-time household stimulus payments of $1,200.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Prediction – Prices Hold Support as Rig Count Fales

Natural gas prices moved lower on Friday, despite a 2-rig drop during the current week. Prices pushed through support but rebounded to close above support levels. The weather is expected to be warmer than normal for the next 2-weeks throughout the middle of the United States. A weaker than expected Chicago PMI also weighed on natural gas prices.

Technical Analysis

Natural gas prices moved lower on Friday, initially breaking through support near an upward sloping trend line that comes in near 1.83. Resistance is seen near the 10-day moving average at 1.89. Short term support has turned positive as the fast stochastic generated a crossover buy signal in oversold territory. The current reading on the fast stochastic is 18, below the oversold trigger level of 20 which could foreshadow a correction. Medium-term momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices.

Rig Count Declines

Baker Hughes reported that the number of active U.S. rigs drilling for natural gas declined by 2 and oil declined by 15 to 222 this week. The oil-rig count has now fallen for 11 weeks in a row, suggesting further declines in domestic natural gas output. The total active U.S. rig count, meanwhile, also fell by 17 to 301, according to Baker Hughes.

Gold Price Prediction – Prices Rise on Weak Chicago PMI report

Gold prices rallied nearly 1% on Friday, following worse than expected personal spending and weak manufacturing figures. Concerns over the US and China’s locking heads are also helping to buoy the yellow metal. The dollar continued to move lower as yields edge slightly lower, which helped buoy the price of gold.

Technical Analysis

Trade gold with FXTM

[fx-broker slug=fxtm]

Technical analysis

Gold prices moved higher recapturing resistance which is now support near the 5-day moving average at $1,720,  Target support is still an upward sloping trend line that comes in near $1,698. Below that level is support near the 50-day moving average at $1,684. Short-term momentum has turned positive as the fast stochastic recently generated a crossover buy signal. Medium-term momentum is negative but turning neutral as the MACD (moving average convergence divergence) histogram is printing in the red with a rising trajectory that points to consolidation.

The Institute of Supply Management reported that the May Chicago PMI came in at 32.3 versus expectations it would rise to 40.0. This compares to 35.4 in April. That’s the weakest since 1982. Among the main five indicators, order backlogs and supplier deliveries saw the largest declines.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Earnings Preview – Retailers Continue to Headline a Busy Weeks

There is a mix of earnings releases next week, which continue to include some of the retailers which have proven to perform well despite the quarantine. Some of the discount giants such as Dollar Tree, Dollar General and Big Lots knocked the cover off the ball.

Monday

Autohome (ATHM) is expected to release earnings before the opening bell. Expectations are for the company to earn $0.75 per share on $216.89 million in revenue.

Tuesday

Build-a-Bear (BBW), this retailer generally generates revenue when there is mall traffic. Earnings forecasts continue to slide.

Dick’s Sporting Goods (DKS), sporting goods have been left behind as families focus on essentials. The relaxation of restriction should begin to help revenues at Dick’s.

Lands End (LE) Land’s End filed for Bankruptcy and is expected to provide weak earnings.

Wednesday

Canada Goose (GOOS) will likely provide earnings that are in line with some of the revised downward earnings forecasts.

Express (EXPR) This retailer also benefits from Mall traffic which has declined but will rebound with the relaxation of restrictions.

Thursday

Kirkland Brand (KIRK) is a discounter and probably performed better than expected.

Friday

Tiffany and Company (TIF), this retailer should have experienced tough times during the quarantine but should rebound sharply as restrictions get lifted.

USD/CAD Daily Forecast – Canadian Dollar Loses Ground Ahead Of The Weekend

USD/CAD Video 29.05.20.

U.S. Dollar Gains Ground As Canada Reports Grim GDP Numbers

USD/CAD tested the support level at 1.3730 but reversed course and climbed back to 1.3800 as the U.S. Dollar Index rebounded from the 98 level while Canada provided a disappointing GDP Growth Rate report.

Canada’s GDP Growth Rate in the first quarter was -2.1% quarter-on-quarter. GDP Growth Rate Annualized was -8.2% in the first quarter as the Canadian economy received a double hit from coronavirus and low energy prices. Canada expects that GDP growth declined by 11% in April.

The U.S. also reported grim economic data as Personal Spending was down by 13.6% as virus containment measures put significant pressure on consumer activity.

The U.S. Dollar Index has recently breached the low end of the previous 99 – 101 range and tested the 98 level but started to rebound, providing additional boost to USD/CAD.

The equity markets are worried about an additional increase in U.S. – China tensions but the U.S. dollar has not received too much support despite its role of a safe haven asset.

Technical Analysis

usd cad may 29 2020

USD/CAD has once again tested the nearest support level at 1.3730 but this attempt was unsuccessful. Instead of getting below 1.3730, USD/CAD gained significant near-term upside momentum and headed towards 1.3800.

Currently, USD/CAD is trading in the range between the support level at 1.3730 and the resistance level at 1.3850. The 20 EMA has recently crossed the 50 EMA to the downside, suggesting the increase in downside momentum, but USD/CAD will have to stay below 1.3850 to have material chances for additional downside.

In case USD/CAD manages to settle below 1.3730, it will head towards the next support level at 1.3650.

On the upside, USD/CAD will have to deal with the major resistance at 1.3850 which has previously served as the support level in a two-month trading range between 1.3850 and 1.4250.

In case USD/CAD gets above 1.3850, it will gain additional upside momentum and head towards the 20 EMA level at 1.3935. The 50 EMA is located close to the 20 EMA so this resistance level may be very significant.

If USD/CAD settles above both the 20 EMA and the 50 EMA, the next resistance will likely be seen closer to 1.4000.

For a look at all of today’s economic events, check out our economic calendar.

 

Oil Mixed As Traders Hope For Extension Of Current Production Cuts

Oil Video 29.05.20.

U.S. Domestic Oil Production Drops By 100,000 Barrels Per Day

Oil remains under some pressure as the EIA Weekly Petroleum Status Report showed that crude oil inventories increased by 7.9 million barrels per day (bpd).

Gasoline inventories decreased by 0.7 million bpd while distillate fuel inventories increased by 5.5 million bpd. In general, the report painted a picture of a rather weak demand for oil.

Meanwhile, the U.S. oil production declined from 11.5 million bpd to 11.4 million bpd. The pace of the domestic production decrease has slowed down but the downside trend is steady.

I’d note that the oil market did not experience any major sell-off after the inventory news because oil is trading at low levels, so bad news are already included in today’s prices.

The previous major downside move which brought the WTI May 2020 contract into the negative territory was caused by the fears of running out of oil storage. Now that such fears have been eliminated, oil will need serious downside catalysts to return back to sub-$30 levels.

Russia And Saudi Arabia Continue To Discuss The Extension Of Existing Oil Production Cuts

The potential extension of the existing oil production cuts is the main topic of this week.

According to earlier reports, Russian Energy Minister Alexander Novak discussed potential oil production cuts with Russian oil companies.

However, another report stated that Russia wanted to increase its oil production in July instead of sticking to existing production cuts.

A new Reuters report suggested that Saudi Arabia wants to keep existing oil production cuts until the end of the year.

The original OPEC+ deal called for production cuts of 9.7 million bpd in May – June, followed by production cuts of 7.7 million bpd until the end of the year.

If the existing production cuts are kept until the end of the year, the oil market will get significant support.

As usual in these discussions about production cuts, Russia’s position may be a problem.

A Reuters report stated that Russia’s leading oil company Rosneft had trouble with supplying its clients with oil due to production cuts and that it wanted to increase production after June.

The next OPEC+ meeting is scheduled for June 10 so we’ll soon learn whether Saudi Arabia and Russia reached consensus regarding production cuts.

For a look at all of today’s economic events, check out our economic calendar.

Daily Gold News: Friday, May 29 – Gold at Yesterday’s High

The gold futures contract gained 0.09% on Thursday, as it extended its consolidation following bouncing off $1,700 support level on Wednesday. Gold has been trading within a downward correction after reaching new monthly high of $1,775.80 on Monday almost two weeks ago. Wednesday’s price action was quite bullish, but gold keeps extending over month-long consolidation, as we can see on the daily chart:

Gold is 0.6% higher today, as it gets back to yesterday’s high. Financial markets remain in risk-on mode, as stocks hover along their new medium-term highs. What about the other precious metals?: Silver gained 1.18% on Thursday and today it is 2.6% higher, platinum lost 1.14% and today is trading 0.4% higher. Palladium lost 1.61% yesterday and today it is 1.6% lower again.

The recent economic data releases have been confirming negative coronavirus impact on global economies. Today’s Personal Spending number release came out worse than expected. However, the Personal Income data was better than expected. The market will await today’s Fed Chair Powell speech at 11:00 a.m. We will also have a speech from President Trump today. Investors are now waiting for the Chicago PMI release at 9:45 a.m. There will also be Michigan Sentiment number release at 10:00 a.m.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for today:

Friday, May 29

  • 5:00 a.m. Eurozone – CPI Flash Estimate y/y, Core CPI Flash Estimate y/y
  • 8:30 a.m. Canada – GDP m/m, RMPI m/m, IPPI m/m
  • 8:30 a.m. U.S. – Personal Spending m/m, Personal Income m/m, Core PCE Price Index m/m, Goods Trade Balance, Preliminary Wholesale Inventories m/m
  • 9:45 a.m. U.S. – Chicago PMI
  • 10:00 a.m. U.S. – Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations
  • 11:00 a.m. U.S. – Fed Chair Powell Speech

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Two Steps Forward, One Step Backward in the S&P 500, Right?

Stocks defended the opening bullish gap, and scored further gains intraday before the sellers took over in the session’s final 45 minutes. Have we seen a turning point?

In short, that’s unlikely, and let me tell you why exactly I think so.

S&P 500 in the Short-Run

Let’s start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The day looked like the bulls were firmly holding the reins, but another daily setback struck as we approached the closing bell. I say daily, because the volume didn’t really overcome its recent highs, and stock prices haven’t suffered a profound setback either. All that the bears were able to achieve, was pretty much reminiscent of the stock behavior during the unfolding breakout above the 61.8% Fibonacci retracement.

In other words, yesterday’s setback isn’t really a fly in the ointment for the bulls. The daily indicators keep supporting the bulls, with no imminent sell signals. The sky still remains clear for the buyers for now.

Yesterday’s intraday Stock Trading Alert captures the key reason why:

(…) Against the backdrop of strengthening high yield corporate bonds (HYG ETF), the S&P 500 upswing has been progressing nicely throughout the day, and a local top in either seems to be very far away indeed.

While the sellers might try to close the week and month on a bearish note, the above words ring true also today because we haven’t seen junk corporate bonds falling through the floor. Let’s see precisely what I mean by that.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) gave up all their gains since the market open, but the relatively low volume of the daily upswing rejection continues to favor the bulls. While it wouldn’t come as a surprise to see a sharper consolidation of recent sharp gains, a running consolidation with higher highs and higher lows is all we’ve been getting so far. And that’s a very bullish type of consolidation, boding well for the credit markets.

In short, the credit market uptrend is well established, and serves as a tailwind for stocks.

The chart of the high yield corporate bonds to short-term Treasuries ratio (HYG:SHY) with the overlaid S&P 500 prices (black line), also supports the view we haven’t seen a game-changer yesterday.

Key S&P 500 Sectors and Ratios in Focus

While technology (XLK ETF) gave up its intraday gains, the swing structure of higher highs and higher lows, remains intact. And that’s the definition of what an uptrend is. The sector simply appears to be trading sideways, consolidating recent sharp gains. Yesterday’s lower volume versus the preceding higher one, sends a bullish message as buyers appear in droves when prices get lower.

Just as the tech sector, healthcare (XLV ETF) also supports the prospect of more gains to come. It’s been knocking on the door of April and May highs, and an upside breakout of the recent trading range is only a matter of time in my opinion.

The price action in the financials (XLF ETF) also follows a bullish path. We’ve seen volume rise during last three sessions, and yesterday’s session gives an impression of verification of the breakout above the April highs as the sector is consolidating recent gains.

The volume differential that favors the bulls is even more pronounced in the consumer discretionaries (XLY ETF). Real estate (XLRE ETF) for example, just extended its recent gains yesterday, disregarding the move lower in the index.

It has been only the leading ratios that suffered pronounced setbacks yesterday, as consumer discretionaries to staples (XLY:XLP) challenged their Wednesday’s intraday lows, and financials to utilities (XLF:XLU) moved below them already. But we haven’t seen what mathematicians would call an inflection point yet. In other words, it’s likely we’ll see both ratios stabilize and support the move higher in stocks next.

As for the stealth bull market trio, materials (XLB ETF) outperformed both energy (XLE ETF) and industrials (XLI ETF) as the latter two closed down – but again, on lower volume than during the preceding up days. Overall, this bull market trio still favors the stock upswing to continue.

Summary

Summing up, yesterday’s late-day reversal didn’t likely mark a call to start selling lock, stock and barrel everything in sight. Conversely, it appears to be a part of the ongoing consolidation that keeps resulting in higher highs and higher lows. As today is the last trading day of the week and month, the closing prices are of key importance for the timing of the anticipated challenge of the early March highs. While the credit market and sectoral analysis favor the stock upswing to continue, yesterday’s weak performance of the Russell 2000 (IWM ETF) is a short-term watchout. The balance of risks is skewed to the upside over the coming weeks though.

I expect stocks to slowly grind higher overall despite the high likelihood of sideways-to-slightly-down trading over the summer – but we’re nowhere near the start thereof. Right now, the breakout above the three key resistances (the 61.8% Fibonacci retracement, the upper border of the early March gap, and the 200-day moving average) is still unfolding with the bears running for cover and FOMO (fear of missing out) back in vogue. In short, the ball remains in the bulls’ court to show us what they’re made of. Will the weekly and monthly closing prices later today still lean in the bulls’ favor on higher timeframes? I would cautiously say so.

Last but not least, we’ll hear Powell speak later today, and Trump will focus on China. When the latter has been announced, it marked the start of the heavy S&P 500 selling 45 minutes before the closing bell yesterday. As tensions have been rising, the short-term direction in stocks very much depends on the overall balance of President’s announcement as regards Hong Kong, the Uyghur bill, coronavirus, the China-India border and foremost the trade deal. We’ll monitor and act accordingly on the unfolding developments.

We encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Silver Price Daily Forecast – Silver Gets To New Highs

Silver Video 29.05.20.

Silver Continues Its Upside Move

Silver managed to get above the resistance at $17.50 and gained upside momentum. The move is supported by gold price upside and weaker U.S. dollar.

Gold has managed to settle above $1700 per ounce as the increase in U.S. – China tensions drives demand for safe haven assets.

Gold/silver ratio has firmly settled below 100 and continues to decline. Before the coronavirus crisis, gold/silver ratio was below 90, so a possible return to pre-crisis levels could be very beneficial for silver.

The U.S. dollar continues to lose ground against a broad basket of currencies despite its safe haven status, and the U.S. Dollar Index has already tested the 98 level. Weaker U.S. dollar is bullish for silver as it makes it cheaper for buyers who have other currencies.

In the near term, silver’s price action will heavily depend on the global market reaction to the upcoming news conference of the U.S. President Donald Trump where he is set to unveil new measures against China.

If the markets will be in a bearish mood following the news conference, the precious metal segment may gain additional upside momentum as investors will increase purchases of safe haven assets.

Technical Analysis

silver may 29 2020

Silver managed to get above $17.50 and has good chances to develop significant upside momentum. The recent peak in RSI is yet to be reached, so silver should not have problems with momentum given the right catalysts.

If this upside move continues, the next resistance is located at $18.15. In case silver manages to settle above $18.15, it will gain additional upside momentum and head towards resistance at $19.00.

This level will likely serve as a material obstacle on silver’s way up since it’s the pre-crisis high of 2020. In fact, silver has tried to test the $19.00 level two times this year, and each such attempt failed. The last time silver traded above $19.00 was back in September 2019.

On the support side, silver will continue to get significant support near $17.00. The support at this level was so strong that a move below it may signal a change of a near-term trend for silver.

In case silver gets below $17.00, the next support area is located between pre-crisis levels at $16.50 and the 20 EMA at $16.60.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Daily Forecast – Trump’s Announcement, China’s Response Sets the Tone

Gold is trading higher on Friday in reaction to lower Treasury yields and a plunge below long-term support by the U.S. Dollar. The catalysts behind gold’s strength are lingering U.S.-China trade tensions as traders cautiously await Washington’s response to the Chinese parliament’s approval of a national security law for Hong Kong.

At 12:26 GMT, August Comex Gold is trading $1745.60, up $17.30 or 1.00%.

The price action suggests that traders are betting against the U.S. Dollar ahead President Trump’s response to China’s tightening control over Hong Kong, which could worsen tensions between the two over the financial hub.

Traders fear that new U.S. sanctions against China might escalate into something more serious. If Trump announces more tariffs, for example, then look for retaliation by China. Both moves will put pressure on the U.S. and Chinese economies at a time when they are just starting to show signs of recovering from the impact of the coronavirus pandemic.

Moh Siong Sim, a currency strategist at Bank of Singapore, doesn’t expect Trump to come down too hard on China because of the state of economy. He said, “You can never quite predict Trump. But I think this year it’s really difficult for him to do tough action.”

Trump to Hold Press Conference

U.S. President Donald Trump is expected to hold a news conference on China later on Friday as his administration moves to pressure Beijing over its treatment of Hong Kong.

“People will be looking for guidance to see whether that could trigger further escalation between the two largest economies. After Trump’s speech, people will also be keen to see China’s response,” said Bank of China International analyst Xiao Fu.

“Even with many economies reopening, the economic status is still quite weak. So with this new geopolitical tension it means that recovery in many parts of the world can take longer, which could lift gold prices.”

Daily Forecast

The direction of the gold market the rest of the session on Friday will be determined by Trump’s announcement. A soft response by Trump to China could help the U.S. Dollar recover, pressuring gold prices.

But a tough response that garners a swift retaliation from China will likely drive the U.S. Dollar lower against the major currencies, which will be supportive for gold.

For a look at all of today’s economic events, check out our economic calendar.

Will the Fed Trigger Inflation This Time, Boosting Gold?

During Great Recession, many people feared that the Fed’s quantitative easing would trigger high inflation, or even hyperinflation. As we know, it didn’t happen. Why? Well, the main reason is that the Fed created money – that’s true – but in the form of bank reserves. And this is a very specific medium of exchange that does not enter the real economy like cash, but stays within the interbank market. You see, bank reserves are a special kind of money used only between commercial banks and central bank and between commercial banks themselves. So, larger supply of reserves does not therefore automatically translate into higher prices.

This can happen only if these additional reserves motivate commercial banks to expand their lending. Investors should remember that in the contemporary banking model based on the fractional reserve banking, the bank deposits account for the majority of the money supply. And when the bank deposits are created? They are created whenever banks grant loans.

As the chart below shows, the growth rate of credit supply was falling during Great Recession, reaching even negative values for some time. Why? For two reasons. First, American households have deleveraged, i.e., they decided to pay back the debts they had, so they were not interested in taking new loans. Second, as the name suggests, the global financial crisis was, well, financial crisis to a large extent. It means that banks were severely hit and they were left with a lot of toxic assets. So, banks themselves were not interested in granting new loans, rather they cleaned their balance sheets. Please also remember that the supervisors tightened the bank capital requirements in the aftermath of the Lehman Brothers’ collapse.

Chart 1: US bank credit (annual % change) from January 2007 to December 2010.

However, this crisis is different. The Fed and other central banks did not only introduce quantitative easing, but they also implemented other programs which can turn out to be more inflationary. For example, the US central bank will lend, under the Term Asset-Backed Securities Loan Facility, to holders of certain AAA-rated securities backed by newly and recently originated consumer and small business loans. Moreover, the new Main Street Lending Program set by the Fed in April works like this: commercial banks grant loans to small and medium companies employing up to 10,000 workers or with revenues of less than $2.5 billion, and then they retain 5 percent of the loan on their balance sheets but sell the remaining 95 percent of the loans to the Main Street facility created by the Fed.

All these programs aim to support the flow of credit to employers, consumers, and businesses, encouraging commercial banks to grant new loans to companies that have suffered as a result of the economic lockdown. Moreover, the financial sector has not been hit initially by the coronavirus crisis, while the supervisors eased reserve and capital requirements for banks. The demand for loans from entrepreneurs is also vivid. All this means that the pace of growth of credit and money supply may be higher than during the Great Recession. Indeed, as the chart below shows, they accelerated in March and April.

Chart 2: The annual % change of the US bank credit (green line) and M2 money supply (red line) from January 2019 to April 2020.

 

Summing up, the unconventional monetary policy implemented in the aftermath of the Great Recession did not spur inflation. However, this time may be different. To be clear, we are not saying that we will see hyperinflation in the US. That’s still very unlikely. What we mean is that the commercial banks are – so far – significantly more eager to grant new loans. So, the resulting increase in money supply should create higher inflation after some time, if other factors remain unchanged.

In other words, this crisis is more likely to result in stagflation than the Great Recession, especially as economy faces disruptions in the supply chains. Indeed, please take a look at inflation expectations derived from the 5-year inflation-adjusted Treasuries displayed in the chart below – as you can see, the market does not expect deflation now, as it did in the aftermath of the previous economic crisis.

Chart 3: US 5-year breakeven inflation rate from January 2007 to April 2020

Given that gold is considered to be an inflation hedge, the higher odds of inflation are fundamentally positive for the gold prices. It does not mean that disinflation or deflation would be negative for the yellow metal, as it could shine nevertheless during the crisis of any kind, but increased chances for stagflation should be an additional factor that could encourage more investors to buy gold.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

GBP/USD Remains Well-Supported on a Broadly Weaker Dollar

A strong appetite for risk has weighed on the dollar and all of the major currencies have gained against the greenback this week as a result. The British pound, however, has gained less than most of its counterparts as concerns over Brexit and further monetary policy easing in the UK has weighed.

The session ahead is expected to be a volatile one. Here are some of the scheduled risk events:

  • US President Trump will hold a press conference regarding China. The announcement was made late yesterday which has triggered some risk aversion
  • Fed Chair Powell will speak later today. It will be his last chance to speak before the mandatory blackout period ahead of the June 11 meeting.
  • The US will release its latest PCE index figures.

In addition to the scheduled risk events, trade adjustments are typically made at month-end which stands to further impact the markets today.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD has been underpinned by a weaker dollar as the US dollar index (DXY) has fallen to lows not seen around the middle of March in early trading today.

While the pound to dollar exchange rate has benefited from this weakness, the pair is seen struggling to gain following a bullish break above a horizontal level at 1.2266.

This level is considered important as it acted as support in late April and early May and then proved to be a big hurdle last week.

So far, sellers have stepped in near 1.2350 with the 200 moving average on a 4-hour chart near there to create an obstacle for bulls.

A break above it shows further resistance at 1.2400 followed by 1.2476.

The pair was supported by a rising trend channel yesterday and once again shows upward momentum, but traders looking to take advantage of a weaker dollar may be better off looking at other currency pairs.

Key support for the session ahead remains at 1.2266 as the lower bound of the trend channel on a 4-hour chart is converging to the level. While above it, the next target for GBP/USD falls at 1.2398.

Bottom Line

  • GBP/USD has fallen into a range but holds above key support to maintain a bullish outlook.
  • The session ahead is expected to be volatile with several risk events and potential month-end trade adjustments that stand to move the markets.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast: Euro Continues Highers While Dollar Index Falls to 9-Week Low

EUR/USD is attempting to post a fifth straight day of gains and was last seen approaching highs not seen since the end of March as the dollar remains under pressure.

The currency pair is lifted by prospects of further easing in Europe while the dollar is falling on the back of strength in the stock markets.

It’s expected to be a busy day ahead with several risk events that stand to move the markets.

Trump announced late yesterday that he will be giving a press conference related to China on Friday. Equity markets and some of the risky currencies, such as the Australian and New Zealand dollars, pared some gains after the announcement yesterday.

Fed Chair Powell is scheduled to speak in early North American trading. It will be his last chance to communicate the Fed’s stance ahead of the typical blackout period ahead of the Fed meeting to take place on June 11.

Further, the latest US PCE price index data will be released in the US session which also stands to move the markets. Analysts expect the core component of the index to show a decline of 0.3% last month following a drop of 0.1% in the prior reading.

Lastly, the markets are susceptible to month-end adjustment which also stands to impact volatility today.

Earlier today, Europe reported consumer prices to have risen 0.1% since last year which was in line with expectations but down from a rise of 0.4% in the last reading.

Technical Analysis

EURUSD Daily Chart

While EUR/USD shows strong upward momentum and a clear near-term bullish trend, the risk events in the session ahead stand to cause volatile fluctuations.

The pair cleared above it’s 200-day moving average yesterday which sets a bullish tone and suggests dips should continue to be bought.

Resistance for the session ahead is seen at 1.1183 which is just above the late March high.

EUR/USD closed yesterday at 1.1075 resistance but is seen trading firmly above it in the early day. The level is seen as the support for the session ahead.

The single currency is the strongest among the majors in the early day and for the week thus far.

Bottom Line

  • Several risk events in the session ahead suggest it will be a volatile session for EUR/USD and the markets in general.
  • The pair is approaching resistance at 1.1183 which may prove to be a major hurdle for bulls.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Daily Forecast – Test Of Key Resistance At 1.2350

GBP/USD Video 29.05.20.

Increasing U.S. – China Tensions Do Not Help The U.S. Dollar

GBP/USD is testing the resistance level at 1.2350 as the U.S. dollar remains under pressure against a broad basket of currencies despite the increase in U.S. – China tensions.

U.S. President Donald Trump is set to hold a press conference on China on Friday. The key intrigue is whether U.S. will choose some mild sanctions like travel bans for certain Chinese officials or impose new tariffs on China.

Interestingly, the deterioration of U.S. – China relations and the prospect of a new phase of the trade war between the two biggest economies do not help the U.S. dollar which has served as a safe haven asset of last resort during the coronavirus crisis.

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, has broken out of the 99 – 101 range and is trending down, which is bullish for GBP/USD. Currently, the U.S. Dollar Index has settled closer to 98.

It’s too early to say whether the safe haven status is shifting from the U.S. dollar to gold, which is gaining ground today. If that’s the case, GBP/USD will get more support in the upcoming trading sessions.

Technical Analysis

gbp usd may 29 2020

The recent sell-off, caused by fears about upcoming Brexit problems, proved to be temporary, and GBP/USD quickly returned above 1.2250 and headed towards the test of the nearest resistance level at 1.2350.

This level has already been tested several times, and each time GBP/USD met significant resistance. The 50 EMA is located in the nearby and serves as an additional obstacle on the way up.

In case GBP/USD manages to settle above 1.2350, it will gain additional upside momentum and head towards the next resistance level at 1.2450.

On the support side, the nearest support for GBP/USD is located at the 20 EMA at 1.2280, followed by the major support level at 1.2250. Most likely, the whole area between 1.2250 and 1.2280 will serve as one significant support level for GPB/USD.

If GBP/USD settles below this level, it will gain downside momentum and head towards the test of the next support area between 1.2170 and 1.2200.

For a look at all of today’s economic events, check out our economic calendar.

 

US Stock Market Overview – Stocks Closed Lower as China Concerns Rise

US stocks moved lower Thursday as worse than expected economic data, reversed the trend in the S&P 500 index. President Trump announced that he planned to have a press conference on Friday that would discuss issues related to China. That took the wind out of the sales of investor sentiment. GDP contracted by more than expected, Durable Goods Orders tumbled as demand for transportation equipment collapsed. Initial jobless claims have decelerated but it still climbed by 2.1 million. Most sectors in the S&P 500 index were lower, despite the rally in the broader markets. Utilities were are defensive, were the best performing sector, cyclical bucked the trend. US yields were nearly unchanged on Thursday while oil prices rose following news that oil production continued to decline in the US. This helped buoy energy shares.

GDP Shrank More than Expected

GDP which is the broadest measure of economic health, fell at an annual rate of 5% in the Q1 a bigger decline than the 4.8% drop first estimated a month ago. It was the biggest quarterly decline since an 8.4% fall in the fourth quarter of 2008.

Durable Goods Orders Fell

US durable goods, plunged 17.2% in April after dropping 16.6% in March. Demand for transportation equipment collapsed by 47.3%. New orders of capital goods tumbled in April and shipments declined. Orders for non-defense capital goods excluding aircraft, which is a proxy for business spending, dropped 5.8% last month, according to the Commerce Department. Data for March was revised lower to show these so-called core capital goods orders falling 1.1% instead of dipping 0.1% as previously reported. Expectations had been for core capital goods orders diving 10.0% in April. Core capital goods orders dropped 1.3% year over year in April.

Jobless Claims Rise

Initial jobless claims totaled 2.1 million last week, the lowest total since the coronavirus crisis began. Expectations were for 2.05 million. The total represented a decrease of 323,000 from the previous week’s upwardly revised 2.438 million. Continuing claims, numbered 21.05 million, a clearer picture of how many workers are still sidelined. That number dropped sharply, falling 3.86 million from the previous week.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Prediction – Prices Fall Following Larger than Expected Inventory Build

Natural gas prices dropped nearly 3% on Friday as inventories built more than expected. Strong production despite continued declines in rig count, has kept natural gas prices on their heels. The weather is expected to remain warmer than normal for most of the United States which should increase cooling demand. Softer than expected Durable goods order likely reduced natural gas demand. Orders for durable goods, plunged 17.2% in April after dropping 16.6% in March.

Technical Analysis

Natural gas prices dropped on Thursday declining nearly 3% but bouncing near support which is an upward sloping trend line that comes in near 1.82. A close below this level would likely see a decline to the June contract lows at 1.60. Resistance on natural gas is seen near the 10-day moving average of 1.89. The 10-day moving average recently crossed below the 50-day moving average which means that a short term downtrend is now in place. Short term momentum is negative as the fast stochastic generated a crossover sell signal. The current reading of the fast stochastic is 5, well below the oversold trigger level of 20 which could foreshadow a correction.

Inventories Rise More than Expected

Natural gas in storage was 2,612 Bcf as of Friday, May 22, 2020, according to the EIA. This represents a net increase of 109 Bcf from the previous week. Expectations were for a 107 Bcf build according to survey provider Estimize. Stocks were 778 Bcf higher than last year at this time and 423 Bcf above the five-year average of 2,189 Bcf. At 2,612 Bcf, total working gas is within the five-year historical range.

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Prediction – Prices Edge Higher Following Weak US Data

Gold prices moved higher on Thursday following a slew of US economic data which came in worse than expected. GDP shrank by 5%, durable goods orders fell by 17% and jobless claims continued to rise climbing by 2.1-million. Despite a robust jobless claims headline number, this was the lowest total since the coronavirus crisis began. The dollar moved lower but failed to generate tailwinds for gold prices as US yields edged higher. Riskier assets continued to rally which capped any upward momentum in gold prices.

Trade gold with FXTM

[fx-broker slug=fxtm]

Technical analysis

Gold prices moved higher but was unable to push through resistance near the 5-day moving average at $1,719,  Target support is still an upward sloping trend line that comes in near $1,693. Below that level is support near the 50-day moving average at $1,675. Short-term momentum has turned negative as the fast stochastic recently generated a crossover sell signal in overbought territory. Medium-term momentum has also turned negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram has also generated a crossover sell signal. The histogram is printing in the red with a declining trajectory which points to lower prices.

US GDP Contracted More than Expected

GDP which is the broadest measure of economic health, fell at an annual rate of 5% in the Q1 a bigger decline than the 4.8% drop first estimated a month ago. It was the biggest quarterly decline since an 8.4% fall in the fourth quarter of 2008.

For a look at all of today’s economic events, check out our economic calendar.

Real Estate Stats Show Big Wave Of Refinancing Is Coming

Current data released for the May Real Estate and Consumer Spending activity suggests a wave of refinancing is taking place – and not much else.  Pending home sales slipped to 69.  That level is 7.4 points below the lowest level in 2010 – at the height of the 2008-09 credit crisis that collapsed the global Real Estate values.  How big is this new low level in Pending home sales?  It’s HUGE.

It suggests the rate of sales in the US for Real Estate has collapsed beyond levels that were seen at the worst possible time in recent history (July 2010).  In fact, over the past 20 years, there has never been a time when the pending home sales index has collapsed below 74 to 75 – until today.

2008-2011 Pending Home Sales Data

Source: https://www.investing.com

The sudden collapse of Pending Home Sales as a result of the COVID-19 virus event should not have come as any surprise to skilled technical investors.  Don’t misread this data – there are still homes selling in the US market, buyers are just being far more selective and discerning in regards to their purchases and timing.

Anyone who understands Supply and Demand theory knows that when price levels are perceived to be excessive, consumers slow their purchases considerably as the supply is determined to be overvalued in price.  This slowing of purchasing results in a supply glut that will eventually push price levels lower (attempting to attract more buyers).

It is this process of shifting perceptions in the Supply and Demand relationship that is likely taking place right now in the Real Estate market.  Low rates in combination with the COVID-19 virus are not prompting more sales of Real Estate right now.  Consumers simply don’t have the confidence (perception) that future price appreciation in Real Estate will be substantially based on the current market environment.  Thus, the perception of the value of Real Estate changes from optimism to caution.

2020 Pending Home Sales Data

A large portion of the issue related to Real Estate is consumer confidence in their ability to earn real incomes and the stability of employment and opportunity related to their future.  The COVID-19 virus event has really disrupted a large portion of the US consumer market as well as the future expectations of consumers and spending habits.  This disruption is likely to take at least 12 to 24+ months to settle before any real bottom is likely to take place on a broad scale.

Real consumer spending has collapsed in April and May 2020.  Even though the US government has spent trillions attempting to support the US economy, the continued shutdown of cities and states has cut consumers’ jobs, incomes, and the need to go out and spend like normal.  Even though they may be saving some extra money throughout this time, the destruction to local and state economies/revenues is devastating.

May 2020 Real Consumer Spending Data

The one aspect of the low-interest rates that we do expect to peak soon is the refinance market.  Stronger homeowners with solid income opportunities are able to refinance at lower rates now and that activity seems to be spiking.  This is very similar to what happened in 2009-2011 where stronger consumers were able to take advantage of very low-interest rates and were able to shed the 5 to 7%+ mortgages and refinance at much lower levels.  Once these transactions peak, these homeowners will likely be settled in their homes for another 5 to 10+ years with new lower rates (unless something disrupts their financial/income situation).

May 2020 Mortgage Refinance Index

Concluding Thoughts:

Combining all of this data into a consensus analysis for technical traders, we come to the conclusion that a wave of refinancing has likely peaked and that consumers are now in the early stage of attempting to understand what the recovery will look like going forward over the next 6 to 12+ months.  Add into the mix that we have a US Presidential election taking place in 6 months and the potential policy and tax changes that could take place as a result of this election and we have a real “consumer abyss” setting up over the next 6+ months.

With the Fed doing all they can to support the markets, the COVID-19 virus still causing shutdowns and other issues and the consumer waiting for some clear skies and positive expectations, the US and global economy could be stuck in a mode of greatly decreased consumer activity over the next 6 to 12+ months – which translates into a shift in perspective related to business creation, optimism, income/earnings and much more.  A dramatic shift in consumer expectations over a longer period of time could result in far more damaging longer-term issues for assets, state and local governments and more.

Once the wave of refinancing is completed, we’ll have to see how the housing market data relates to increased consumer optimism.  At this point, we don’t believe anything is likely to change consumer attitudes until after the November 2020 elections.  Skilled technical traders should prepare for some really big price swings over the next 12+ months. This is the time for technical traders to shine with the setups and data that is being presented right now as well as in the future.

Please take a moment to visit www.TheTechnicalTraders.com/tti to learn more about our passive long term investing signals, Also, get our swing trading signals here www.TheTechnicalTraders.com/ttt.  I can’t say it any better than this…  I want to help you create success while helping you protect and preserve your wealth – it’s that simple.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Trader Ltd.

 

USD/CAD Daily Forecast – Flat Despite Broad Weakness Of U.S. Dollar

USD/CAD Video 28.05.20.

Canadian Dollar Fails To Gain More Ground

USD/CAD stays below the resistance level at 1.3800 as the U.S. dollar is losing ground against a broad basket of currencies while oil is steady despite a surprising increase in oil inventories.

Today, the U.S. has provided a number of economic reports. In general, the economic picture continues to look grim.

Initial Jobless Claims report showed that 2.1 million Americans filed for unemployment benefits in a week. Durable Goods Orders declined by 17.2% month-over-month in April. First-quarter GDP Growth Rate was -5%.

However, some hope was provided by Continuing Jobless Claims which declined from 25 million to 21 million.

The new portion of economic data from the U.S. and the continued increase in U.S. – China tensions did not spoil the mood of global markets today. The demand for safe haven assets decreased, and the U.S. dollar found itself under material pressure.

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, has declined closer to 98.5. The U.S. Dollar Index has spent two months between 99 and 101, and a move out of this range could lead to increased downside momentum for the U.S. dollar.

Technical Analysis

usd cad may 28 2020

USD/CAD failed to continue the downside move despite the fact that the U.S. dollar is under significant pressure against a broad basket of currencies. The likely reason for this is that the previous downside move was too fast and USD/CAD needs a pause before it will be able to make the next move.

The nearest support level for USD/CAD is located at 1.3730. This level has already been tested several times and has proved its strength. In case USD/CAD manages to get below this level, it will likely gain additional downside momentum and head towards the next support level at 1.3650.

The 20 EMA has recently crossed the 50 EMA to the downside, suggesting the continuation of the downside trend.

On the upside, a minor resistance near 1.3800 was formed. If USD/CAD gets above this level, it will head towards the test of the major resistance level at 1.3850. I’d expect that USD/CAD will attract a lot of interest if it gets back to 1.3850 as this level served as the low end of the two-month trading range between 1.3850 and 1.4250.

For a look at all of today’s economic events, check out our economic calendar.

Oil Gains Ground Despite The Increase In Oil Inventories

Oil Video 28.05.20.

Oil Inventories Increase By 8.7 Million Barrels

API Crude Oil Stock Change report showed that oil inventories increased by 8.7 million barrels.

The market was surprised by the sudden increase since the U.S. oil production has been trending down since the beginning of the coronavirus crisis while demand is expected to increase as the economy reopens.

Now, the market will wait for the confirmation of this data in the EIA Weekly Petroleum Status report. If the EIA report confirms that inventories have increased materially, oil may be positioned for more downside.

The continued increase of U.S. – China tensions is also playing against oil. At the same time, oil prices are supported by traders’ hope that the reopening of the world economy will lead to a major increase of oil demand at a time when production is cut thanks to OPEC+ deal and cuts from non-OPEC+ producers.

Oil stays at low levels so the market may shrug off some modest increase in inventories as current pricing reflects challenging market conditions, but oil may find it hard to withstand the pressure of a major increase in inventories in case EIA report confirms the API data.

Does Russia Really Want To Continue Current Cuts Beyond June?

Yesterday, we discussed a report which stated that Russia was evaluating the possibility of extending current production cuts for two more months.

According to the OPEC+ deal, production cuts will decrease from 9.7 million barrels per day (bpd) in May – June to 7.7 million bpd from July to the end of the year.

Bloomberg reported that Russia wanted to increase its oil production in July, in stark contrast with the above-mentioned report. As usual, both reports cited unnamed sources.

While the world economy is reopening, the oil market clearly requires additional support. At the same time, Russia and Saudi Arabia may be reluctant to lend a helping hand to the U.S. shale while both countries have the resources to tolerate $30 – 40 oil for some time.

In a recent phone call, Russia’s Vladimir Putin and Saudi Arabia’s Mohammed bin Salman agreed to coordinate actions in the oil market. It remains to be seen whether such coordination will include the extension of current oil production cuts.

For a look at all of today’s economic events, check out our economic calendar.