It was another ugly day for the S&P 500 futures. The uncertainty surrounding the British leaving the EU has the German DAX down 9% in the last two sessions and the S&P down almost 6%. After a weak start the S&P futures (ESU16:CME) sold off all the way down to an early low of 1981.50 and then short covered up to 1996.75 midday. After the short covering rally the Standard & Poor’s Global Ratings stripped the U.K. of its pristine triple-A credit rating about three hours after European equities were closed, however, this had little to no effect on the equity markets.The Standard & Poor’s said the country’s ratings was downgraded by two notches to double-A, they also said the vote for “remain” in Scotland and Northern Ireland creates wider constitutional issues for the move.
While the global stock markets have seen steep declines over the last few days it’s the currency markets that most people are worried about. According to International Monetary Fund the sterling accounts for 4.9% of the central bank foreign currency reserve as of the fourth quarter. The fear is the sterling could lose its reserve currency status if central banks decided to move away from the currency. Again, there is a high level of ‘counterparty risk’ that will not go away anytime soon. Yesterday the pound hit a three decade low while the Japanese yen, Swiss franc and the U.S. dollar posted further gains. Contagion will also be another part as the EU’s most indebted country, Italy, prepares to give $44 billion to bail out its insolvent banks.
With stronger currency markets, it becomes more difficult for exporters to remain competitive and the cost of goods go up. This is what may hurt Japan and the US while giving Europe a boost. In the end there are just too many moving parts. The PitBull (Marty Schwartz) said yesterday that we could see a Turnaround Tuesday and this morning the (ESU16:CME) rallied all the way up to 2009.50, up 27.5 handles, or +1.12%. With the S&P futures down 138 handles from its Thursday night 2119.50 high and the big shift in sentiment we think it’s fair to say that the bus may have gotten a little too full.
In Asia, 9 out of 11 markets closed higher (Nikkei +0.09%), and In Europe 12 out of 12 markets are trading higher this morning (DAX +2.14%). Today’s economic calendar includes GDP, Corporate Profits, Redbook, S&P Case-Shiller HPI, Consumer Confidence, Richmond Fed Manufacturing Index, State Street Investor Confidence Index, and a 4-Week Bill Auction.
Our View: The PitBull warned about ‘Turn Around Tuesday’ and it looks like it started last night. It’s 9:40 pm CT and the ESU just traded up to 1998.75. Crude oil just popped up to $47.05. Lets face it….these markets are alive right now. Today we have another round of big name economic reports, but after that, we think it’s going to be all about Turn Around Tuesday and higher prices. Our call, sell the early rallies and buy weakness, 2020-2030 is on TAP and so in the end of the 2Q Rebalance.
As always, please use protective buy and sell stops when trading futures and options.
MrTopStep Mid-Day Update with Top Notch Trading
- In Asia 9 out of 11 markets closed higher: Shanghai Comp +0.58%, Hang Seng -0.27%, Nikkei +0.09%
- In Europe 12 out of 12 markets are trading higher: CAC +2.64%, DAX +2.14%, FTSE +2.33% at 6:30am ET
- Fair Value: S&P -9.12, NASDAQ -10.45, Dow -109.04
- Total Volume: 3.0m ESU and 12.4k SPU traded
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