• DJIA added 244.02 points, or 0.90%, at 27,332.10.
  • The S&P 500 index added 13.83 points, or 0.46%, at 3,013.75.
  • The Nasdaq Composite index COMP ended 48.10 points higher at 8,244.14, a gain of 0.59%.

U.S. stocks rallied in late trade to mark fresh records. All three major indexes closed at record highs on Friday, with the S&P 500 finally getting through the 3000 psychological level, ending 48.10 points higher at 8,244.14, a gain of 0.59%. The DJIA added 244.02 points, or 0.90%, at 27,332.10. The S&P 500 index added 13.83 points, or 0.46%, at 3,013.75. The Nasdaq Composite index COMP ended 48.10 points higher at 8,244.14, a gain of 0.59%.

Investors banked on the likelihood of a rate cut at the Federal Reserve’s July meeting following what appeared to be a rubber stamp sealed on the matter by Federal Reserve Powells two-day congressional testimony and various Fed speakers this week. As for corporate's the key focus has been on Facebook Inc. The shares of the tech giant were sunk on the back of a report that the Federal Trade Commission voted to impose a record $5 billion fine on the company. This also followed Thursday evening's criticism from the U.S President Trump following the company’s planned virtual currency project, Libra.

Looking ahead, it will be U.S. corporate earnings reporting season again with a slew of big banks set to kick off the festivities. At the same time, with the Federal Reserve interest rate decision taking place this month, ears will be to the ground for further speeches from Fed Chair Powell and NY Fed President Williams which are expected to further solidify the case for a 25bp cut. There will also be further remarks by voters Evans, Rosengren and Bullard. As for data, retail sales will be keenly eyed.

DJIA levels

On the downside, there are three distinct Fibo' targets with the confluence of stop territories. The 23.6% retracement of the 3rd June low to 12th July recently printed high falls in at 26706 which meets April 23rd and 1st May double-top highs. The 38.2% retracement of the same range falls in at 26324 and meets 25th Feb and 11th June highs. The 50% meets the 3rd Dec spike high and mid-June lows. On the upside, the 28500s come into play.

  • The S&P500 broke above the 3,010.00 resistance.
  • Support can be seen at 2,950 and the 2,910 level.

S&P500 daily chart

The S&P500 is trading into uncharted territories as it has reached this Friday 3,014.25.

S&P500 4-hour chart

As the market broke above 3,010.00 the next level of resistance to the upside can be located near 3,045.00. Support is at the 2,950.00 level. If that level fails to hold prices, further down lies the 2,910.00 level.

Additional key levels

  • Gold bulls taking back the control, with price making a higher low.
  • On the upside, 1410 was cleared by the close and bulls can look ahead to 1440.

Gold prices have ended the Wall Sreet session as stocks close at 1414, +071% higher between $1,403 and $1,417oz. Futures also finished higher on Friday which has left a bullish week candlestick following a weaker Dollar on the back of Federal Reserve Chairman Jerome Powell's two-day testimony which rubber-stamped a rate cut from the Fed' this month. Gold for August delivery on Comex added $5.50, or 0.4%, to settle at $1,412.20 an ounce making for a weekly rise of 0.9%.

The major question that remains to be answered in the coming months surrounds the trajectory for growth in the months immediately following a Fed cut, argues analysts at TD Securities:

"Should growth dynamics pivot in the aftermath of this year's expected cuts, which would lead market historians to record the Fed's actions as insurance cuts, gold's performance would likely sour as the need for further cuts would abate. However, should growth remain on a contractionary trajectory and prompt the Fed to continue lowering rates in a bid to stimulate the economy, gold would likely extend its gains further."

Gold levels

From a technical perspective, the price of the yellow metals has broken up out of the recent consolidation, extending from the recent lows of 1381 and basing now in the 1400s, although remains below the 1439 prior highs. There are a series of bearish pin bars on the daily charts which are keeping a lid on bull's appetite. The 20-day moving average was a support level but on a break lower, bears would target a 50% retracement of the April swing lows to late June swing highs around 1352. On the upside, 1410 was cleared by the close and bulls can look ahead to the 1440 key resistance which makes way for a continuation to the May 2012 lows at 1527.

US President Trump was crossing the wires saying that China is ’playing around’ with monetary policy, as he continues to make accusations that other nations and regions have manipulated their currencies to gain “unfair” competitive advantages.

The recent comment comes following prior comments where Trump has said that the U.S. needs a “fair playing field” against China’s weaker currency, which is nullifying the impact of tariffs.
Trump has said before that China’s president essentially heads the Chinese “Fed” and can directly impact monetary policy.

When looking to the yuan, it has weakened significantly since the end of June, just as the Fed has rubberstamped a rate cut for this month which has been weighing on the greenback. USD/CNH currently stands at 6.8789 vs the Dec 2016 high of 6.9861.

In every respect, it looks like the U.S. is on the verge of sparking a currency war while the trade war with China doesn't seem to be going Trump's way. Indeed, one could argue that the Federal Reserve has been yielding to pressure from the White House with its policy.

USD/CNH levels

Analysts at the National Bank of Canada take a look at next week data to be released in the US that includes the June retail sales report.

Key Quotes:

“We’ll get information about economic activity in late Q2 thanks to June data. Industrial production could have mustered only a small gain in the month, as a small expansion of production in the manufacturing segment may have been partially offset by weaknesses in the utility and mining sectors.”

“The June retail sales report will also come out. We expect both the headline and ex-auto gauges to have advanced only slightly, hampered by tepid auto sales and a decrease in gasoline prices during the month. The anticipated 0.2% increase in headline retail sales would still translate into a healthy 7.4% annualized progression in Q2 as a whole, confirming the strength of consumers in the quarter.”

“We’ll also get building permits and housing starts for June. The latter may have increased to around 1,280K in seasonally adjusted annualized terms if, as we believe, groundbreakings for multis rose to a level more in tune with the growing number of permits granted in this category in recent months.”

“The first clues on the state of the manufacturing sector in July will be available with the publication of the Empire State and Philly Fed manufacturing surveys.”

“Several Fed officials are also scheduled to give speeches, notably John Williams (Monday and Thursday), Charles Evans (Tuesday) and Raphael Bostic (Tuesday and Thursday). Finally, the Fed will issue the latest edition of its Beige Book.”

Easier monetary policy is now the base case for the European Central Bank according to analysts at RBC Capital Markets- They think the central bank will lower its deposit rate further into negative territory over the second half of this year.

Key Quotes:

“Recent data suggests the euro area’s pickup in growth early this year was short-lived. A slowdown in the manufacturing sector is becoming entrenched, particularly in Germany. Industrial production likely returned to drag on growth in Q2, and recent PMI data show little momentum heading into Q3. Retail sales have also softened in recent months, though data for the broader services sector has been more positive. Services PMIs ticked higher in all major euro area economies in June, with the overall index hitting a year-to-date high.”

“Easing in political uncertainty and less unrest in France and Italy has likely helped in that regard. But despite signs of domestic resilience, growing external headwinds are likely to keep the euro area from growing at an above-trend rate. We have lowered our 2019 GDP forecast for the currency bloc to 1.1%, which would be the slowest in six years.”

“A subdued growth outlook, along with persistently low inflation and declining inflation expectations, has the ECB contemplating further easing. In particular, President Draghi noted that more stimulus should be expected unless economic conditions improve (he previously said conditions would need to deteriorate to warrant further action).”

“We now expect the ECB will lower its deposit rate from -0.4% to -0.6% over the second half of this year via 10 basis point rate cuts in September and December. It is also likely to signal that further QE is on the table, though we don’t think asset purchases will restart in the near-term.”

Analysts at Wells Fargo estimate that the Federal debt ceiling could be reached in early October. They explained that if the federal government does not have a budget in place and if no deal is reached, the government would enter a partial shutdown on October 1st.

Key Quotes:

“Our base case remains that the true “X date” will fall in the first week of October. But, the late August/early September period could bring the government very close to running out of cash.”

“The House of Representatives is scheduled to leave Washington, D.C. for its August recess on July 26, while the Senate is scheduled to finish up on August 2. Neither chamber is scheduled to return until Sept. 9, making it much more difficult for policymakers to react quickly if the “X date” ends up being closer than analysts currently expect.”

“Given the uncertainty, why not lift the debt ceiling before leaving town? Indeed, politicians on both sides of the aisle have stated that they do not want to put the full faith and credit of the U.S. government at risk. The challenge is that policymakers in both parties have a strong preference to tie a debt ceiling vote to a broader budget deal.”

“If the federal government does not have a budget in place past Sept. 30, and if no deal is reached by then, the government would enter a partial shutdown on Oct. 1, and large spending cuts would automatically take place a couple months later.”

“The uncertain fiscal outlook is one more factor likely to tilt the Fed towards a 25 bps rate cut at its meeting later this month.”

Minister Zhong Shan joined the discussion this week in a move observers say shows need to involve more experts as negotiations with the US get tougher. His deputy, Yu Jianhua, is also expected to take more of a role, the South china Morning Post has reported.

The news article explained that China seeks to strengthen its trade negotiation team, including by involving Commerce Minister Zhong Shan, as Beijing and Washington restart talks on a range of thorny issues.

"Zhong joined a phone call with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Tuesday – the first time he had been part of a direct conversation with Washington’s negotiators – in a move that observers said showed Beijing’s need to enlist more experts as the talks get tougher.
It was the first telephone call between top negotiators since Chinese President Xi Jinping and US President Donald Trump agreed to resume stalled talks on the year-long trade war during their summit in Osaka, Japan, on June 29. Even before talks officially restart, China’s imports of American farm products – which the two sides have yet to agree on – are looming as the next contentious issue."

Data released today showed Industrial Production (IP) declined 1.3% y/y in May, a number above expectations. Analysts at BBVA Research see that despite the limited downside risks stemmed from geopolitical and policy uncertainties on activity, the current positive momentum, expected easing in financial conditions and favorable base effects from now onwards could weigh more. Hence, under the assumption of no additional shock, they expect 0.3% GDP growth for 2019.

Key Quotes:

“The annual contraction in IP (c.a.) decelerated further from -4.7% in 1Q19 to -2.6% in the first two months of 2Q19. Besides, May IP increased by 1.3% mom in calendar and seasonal adjusted terms, signaling that the moderation observed in April could be temporary. Our monthly GDP indicator confirms this trend as it nowcasts a growth rate of 0.4% yoy in May (91% of info) and 1.2% yoy in June (32% of info).”

“Despite the downside risk on the back of long Bayram holiday in June (-4 working days in supply side indicators), high frequency indicators began to reconfirm the recovery trend as of June and reducing the likelihood of a “W” pattern.”

“On top of that, strong base effects of the second half of the year and expected easing in both external and internal financial conditions would support the economic activity in the coming period. However, the complacency should be ruled out with prudent and comprehensive policies to enhance confidence as the geopolitical and policy uncertainties still remain.”

“In absence of new shocks, we maintain our GDP growth forecast at 0.3% for 2019.”

Analysts at CIBC, point out that the Surprise Index has been clearly positive for Canada but it has not been reflected on the USD/CAD pair. They consider the pair could fall to 1.28 in the coming months.

Key Quotes:

“While strengthening recently, the C$ hasn’t responded as much as many people would have expected to the historically high level of the Canadian data surprise index. But that doesn’t mean a further rapid appreciation is in order.”

“The surprise index puts a large weight on headline employment and the unemployment rate. But as we showed last week, the quality of those job gains means the apparently tight labour market hasn’t translated into particularly strong consumer spending or GDP growth. Indeed, 2019 GDP estimates for Canada have actually fallen further below those for the US even with the “positive” data surprises.”

“While USDCAD could fall to 1.28 in the coming months, we expect a slowing Canadian economy to see it weaken again through 2020.”