Global Equity Markets Higher Overnight

STOCK INDEX FUTURES

The Dow futures also appear to be poised to grind out slow and gradual gains. In our opinion, the Dow is set to see step wise gains on the charts. Obviously, General Motors is unusually impacted by surging material prices (as our number of other large Companies) and therefore seeing China “talk down” material prices should help increase profitability for companies in the Dow. A small added measure of bullishness was seen from a story suggesting General Motors has improved its relations with suppliers dramatically which in our mind indicates they paid on time. We would remain bullish toward the June Dow futures as long as prices respect 33,922. The Commitments of Traders report for the week ending May 18th showed Dow Jones $5 Non-Commercial & Non- Reportable traders were net short 2,607 contracts after increasing their already short position by 1,489 contracts. After substantial gains last week and a consolidation around 13,500 the NASDAQ appears to be poised to settle into a range defined as 13,500 to 14,000. However extreme volatility in crypto currencies over the weekend is a slight undermine to the tech laden NASDAQ. Nonetheless, we would remain bullish toward the NASDAQ as long as it respects support at 13,317.

CURRENCY FUTURES

While the dollar has managed to consolidate after a tremendous slide early in the month fundamentals continue to sit in favor of the bear camp. With reports that China was cracking down on crypto mining businesses and given extensive volatility in crypto currency’s it is possible that the dollar is being viewed as an alternative flight to quality instrument. In the current set up we see the dollar inversely related to equity market action and would expect to see a retest of consolidation low support today down at 89.73.

In our opinion, the euro needed some balancing of its overbought condition into last week’s highs and the currency has likely achieved that with 4 days of back and forth range trade. While US daily infection numbers appear to be on their way down to a lower plateau one gets the feeling the world trade is beginning to view prospects in Europe as very positive post pandemic. We would prefer to buy the June euro at the bottom of the recent consolidation closer to 1.2174.

INTEREST RATES

Despite strength in global equities, metals and energies treasuries are tracking higher with treasury bonds reaching a 9 day high albeit with a very narrow range so far. Today’s US economic report slate is nearly empty with the Chicago Fed national activity index the only item on the docket. Prices are likely drafting ongoing support from comments from the Dallas Federal Reserve’s Kaplan who indicated hiring issues could make the May jobs report “unusual”. While it is possible that the May jobs report will register a huge gain, the economy severely disappointed expectations last month and as the Dallas Fed president indicated, many companies were unable to hire people because of competition with unemployment and supplemental payments. An issue that is probably providing a thin measure of buying interest is a suggestion from a Senate Republican indicating a narrow window to complete an infrastructure deal. In other words, the lack of another stimulus package certainly takes selling pressure down a notch in treasuries. While it is nearly impossible to guess the actions and timing of actions from the Chinese government, any attempt to diffuse high input prices will likely lift US treasury prices back toward the early May highs. Even if equities continue to grind out gains we suspect bonds will maintain an upward track with recent choppy/mixed data leaving open the potential for return to recent April/May consolidation high areas up at 158-23. While we see the upward track in notes to start the new trading week, resistance is much closer in at 132-21 but in the event that equities severely falter and or there is broad-based commodity price liquidations notes could return to its consolidation high pricing at 132-24. There are no major economic numbers during the Asian and European sessions. The only top-tier economic number during the North American session is the Chicago Fed’s April national activity index which is expected to have a modest uptick from March’s 1.71 reading. Fed Governor Brainard and Cleveland Fed President Mester will speak during morning US trading hours while Atlanta Fed President Bostic and Kansas City Fed President George will speak during the afternoon.