Protrader – June 2019 Market Wrap

//Protrader – June 2019 Market Wrap
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XJO Up 223
All-time high within reach.

Following from the volatility that we saw in May the XJO appeared to be repeating the pattern for the month of June, with the 3rd producing a 70 + point drop after China announced imports tumbled suggesting a weakening domestic economy.

However, this appeared to be a turning point as bargain-hunting buying piled in, and with support from the mining sector with Iron Ore up 70% for the 18/19 yr, and gold reaching the highest level since August 2013, the market rallied to an 11 yr high on the 20th.

With little domestic news and end of fin yr book balancing the market in the final 7 trading days of the fin year then held its breath, trading in a tight range just below the high hit on the 20th, literally within touching distance of its all-time high set in October 2007.

 

KEY ECONOMIC DATA

RBA lowered interest rates to a historical low of 1.25%
RBA Governor Philip Lowe intimated next rate move likely to be down.
AUS unemployment rate @ 5.2%
Australian GDP grew 0.4% & 1.8% annually.

DOW JONES IND AVG 24,830 – 26,600: UP 1770
All aboard Next stop. All-Time high.

DJI 12 MONTH CHART

The first trading day of the month continued the trend from the 22nd of May, testing market lows not seen since January, and at one stage threatening to wipe out the entire calendar year gains to date.

However, an announcement on the 4th of June, largely from left field by the Federal Reserve, which signaled a complete change of tact by working with Trump regarding US interest rates, instigated a 500 + reversal, and the 2nd biggest single-day gain this year.

The magnitude of the announcement that the Federal Reserve not only signaled a further rate cut but more importantly would work in harmony with the Trump administration during the trade negotiations with China, was a historically seismic shift in Fed Reserve policy, which provided confidence to the market that all arms of the US administration were now working in harmony.

This ushered in the longest daily winning streak in 13 months, as the market began to factor in another interest rate cut at the next meeting late July and the implications of this enormous Fed Reserve cultural shift.

Effervescent confidence was evident with the first trading week of June seeing the Dow up 4.7%, NASDAQ up 3.9%, and S&P 500 up 3.9%, in the one week.

From the 17th of June, and after Trump’s tweet regarding meeting Chinese Premier Xi at the G20, the DOW despite hitting an intraday all-time high, basically drifted up another 500 points over the remainder of the month, primarily due to uncertainty leading up to the G20 meeting being held weekend of the 28th – 30th of June.
Key Economic Events and Indicators
US Private employers hired the lowest rate in 9yrs.
US Unemployment rate, steady @ 3.6%
US CPI inched up 0.1%
US Retail Sales again better than expected
All Us banks for the first time since GFC passed the annual strength test.
OIL PRICE UPDATES: A return to reality

 


WTI Crude – Gained $5.09: $53.41 – $58.50

Following the blood bath seen over the previous month, which was instigated by Trumps tweet on April 29th, the Oil market finally found some support in the second week of June, followed by virtually one-way price traffic with geopolitical issues combining with outstanding fundamentals to induce an $7 rally for the remainder of the month of June.

Drowning out the noise

On many occasions in the monthly reports, we have often talked about underlying fundamental data being briefly drowned out/obscured by temporary headlines. What transpired is a classic example of this very situation, with the entire month of May’s price action being an anomaly, which defied the fundamental reality of Oil supply and demand.

In late June, the US Oil stockpiles “unexpectedly” dropped more than the market expected by 12.8 m barrels, which was the biggest drop since Sept 2016. Furthermore, this larger than expected drop was released the same week that it was also announced that US Crude exports reached an all-time historic high of 3.77mbpd, these reports have been described as “one of the most bullish reports ever”.

Let’s do the math. If demand/exports is outstripping supply, which consequently means that stockpiles are being reduced more than expected, where will the price go?

Ignore the tweet, read the datasheet.
Key Oil Price Influences
Russian Oil production dropped to 3 yr low.
Attacks on two tankers off the coast of Iran suspected to be perpetrated by Iran
Missile launched at US drone by Iran
China/ US trade talks hope provided price support
US placed new sanctions on Iran
US Stockpiles dropped by 12.8 mb.
US Crude exports reached record 3.77 mbpd.
US Oil Production down to 12.1 mbpd