Weekly Fundamentals - 26 June 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
What an incredible week all as a result of a political gamble indulged in by the prime minister of the UK who, having problems with some of his own party decided to hold a referendum on the EU. He lost, has lost his job and Europe is in turmoil. In other words a whole continent is taken hostage because of an internal fight in the Tory party.
The UK will now most likely end up with a clown as prime minister in the fat shape of Boris Johnson and we have a bunch of really nice new friends; Marie Le Pen in France, Trump in the USA and a bunch of racists who run far right parties in Europe.
Up until now the English always felt a bit smug about France having their problem with xenophobia, and racism and how chauvinist they can be and how tolerant and open we think we are here. Well now that Marie LePen (and Trump) count us allies, that reputation has gone out the window.
The Scots and Irish may leave and the little Englander can live happily ever after in a little England.
 
In conclusion to our report last week we wrote:
"This week is GBP dominated.
Our view is very much that the remain camp will win by a margin. This will be GBP positive at least in the short term before political in-fighting in the ruling Conservative party takes hold.
Markets do not like political uncertainty and the GBP's gains whilst potentially meaningful may prove to be short lived.
We have made a number of changes this week to our medium term views in light of the COT data and as usual these form the backbone of our recommendations this week.
 
Our recommendations for next week are therefore:
Begin taking profits on risk assets
Continue selling both gold and silver.
Sell the CAN$ and YEN.
Buy GBP for a potentially meaningful post referendum rally. Take profits upon such a rally prior to the ascent of political uncertainty.
 
Now let's see how we fared on our recommendations:
We said that the week would be dominated by the GBP. We were right but take no credit for that.
We stated that REMAIN would win. We were hopelessly wrong. We will never again make the mistake of underestimating the power of populist politicians and the populist press.
We stated that the GBP was a buy at least until the vote. We were correct. On Thursday the GBP enjoyed its biggest rally in 30 years before falling to the lowest it has ever been in 30 years.
We stated that political uncertainty would ensue in the UK post the vote. Again we were correct.
We stated that profits on risk assets should be taken. Again correct.
We advocated the continuing selling of gold and silver. Totally wrong as precious metals caught a very strong bid.
We said to sell the CAN$ and the YEN. We were right in the case of the CAN$ and wrong in the case of YEN.
 
I would describe the week as an average one.
 
A reasonably quiet week in terms of data but one that will be driven by the EU's response to the LEAVE vote. The repercussions are already starting as the rating agency has cut the UK's economic outlook from stable to negative.
 
USD: The US$ Index rose last week.
We start on Tuesday with GDP expected to rise from 0.8% to 1.0%. This is followed by Consumer Confidence rising from 92.6 to 93.2.
On Wednesday we have the Crude Oil Inventories number.
Thursday sees the release of the usual Unemployment Claims number estimated at 269,000 from last month's 259,000.
Lastly on Friday we have Manufacturing PMI thought to rise from 51.3 to 51.6.
COT data shows that large commercials slightly increased their net short position in the US$ Index from -9,434 to -13,195. This remains close to a 52 week rolling extreme. We therefore remain VERY BULLISH.
 
EURO: The EURO fell sharply against the USD last week.
On Sunday we have the Spanish Parliamentary Election and that is the only political item of not for the EURO.
Naturally all attention will be focused on the EU response to the LEAVE decision.
COT data for the Euro shows that large commercials very marginally increased their net long position from +70,705 to +73,398. As this is not close to a 52 week extreme we remain SLIGHTLY BEARISH.
 
GBP:The GBP fell meaningfully against the USD last week. It is trading at a 30 year low.
All attention will be on the EU response to the referendum and the about to commence political battles which are about to commence for both the Conservative and Labour parties.
On Thursday we have the Current Account figure predicted to improve from -32.7B to -28.1B.
On Friday we have Manufacturing PMI which is expected to make a very marginal improvement from 50.1 to 50.2.
COT data shows that large commercials increased their net long position from +58,611 to +68,128. This remains reasonably close to the 52 week extreme so we therefore remain VERY BULLISH.
 
YEN: The YEN rose meaningfully against the USD last week.
A busy week for the YEN in terms of data.
We start on Tuesday with Retail Sales expected to worsen from -0.9% to -1.6%.
On Thursday we have both Household Spending and Tokyo Core CPI. The former i s expected to fall further from -0.4% to -0.9% whilst the latter should remain unchanged at -0.5%.
On Friday we have both the Tankan Manufacturing and Non-Manufacturing Index figures. Both are expected to worsen, the former from 6 to 4 and the latter from 22 to 19.
COT data shows that large commercials very marginally decreased their net short position -57,384 to -56,542 which is close to a 52 week extreme. We therefore remain BEARISH.
 
AUD: The AUD rose slightly against the USD last week.
There is no news for the AUD this week.
COT data shows that large commercials decreased their net long position from +9,618 to +6,143. We therefore remain NEUTRAL.
 
CNY: One item for the CNY this week on Thursday which is Manufacturing PMI expected to remain virtually static from last month's 50.1 at 50.0.
There is no COT data for the CNY.
 
COT data of note on products we regularly comment on in our DAILY REPORTS and WEEKLY BONUS VIDEOS and for those products which show large commercials with extreme net positions.
 
S&P500: Large commercials substantially decreased their net short position from -109,040 to -59,567 last week. We therefore remain BEARISH.
GOLD: Large commercials increased their net short position from -298,077 to -312,137 last week. Now that large commercials hold a net short position which is greater than 100,000 we are bearish and it is now once again above the 300,000 mark. We therefore remain VERY BEARISH.
SILVER: Large commercials increased their net short position from -81,744 to -89,936 last week. We therefore remain VERY BEARISH.
 
The gold:silver ratio decreased from 74.30 to 74.24 indicating very slight silver outperformance last week.
 
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials decreased their net long from +45,307 to +34,485 last week. Large commercials generally carry a net neutral position. This therefore remains an interesting situation on the long side and we therefore remain SLIGHTLY BULLISH.
US 30 YEAR BOND: Large commercials increased their net short position from -109,005 to -124,426 last week. This is now a 52 week extreme. We therefore remain VERY BEARISH.
CRUDE OIL: Large commercials very slightly increased their net short position from -317,532 to -317,581 last week. This continues to be close to a 52 week extreme and we therefore remain BEARISH.
CAN$: Large commercials very substantially decreased their net short position from -40,910 to -14,134 last week. We therefore alter our view from VERY BEARISH to BEARISH.
NZD: Large commercials substantially decreased their net long position from +1,538 to +814 last week. We therefore remain NEUTRAL.
NASDAQ100: Large commercials decreased their net short position from -85,350 to -79,805. This remains close to a 52 week extreme. We therefore remain VERY BEARISH.
RUSSELL2000: Large commercials increased their net long position +10,447 to +16,037. We therefore remain NEUTRAL.

THOUGHTS FOR NEXT WEEK
There is not a great deal to say for next week with the exception that it will be GBP and EU driven.
COT data changes have been marginal but they are figures up to last Tuesday only so the volatility we witnessed towards the end of the week will be reflected in next week's figures.
However based on what we did witness last week our trading thoughts are as follows:
 
Buy the GBP as it is due a corrective bounce from a 30 year low
Continue selling precious metals especially gold
Short the 30 year Treasury Bond
Trade risk from the long side but stay very nimble.
 

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