There’s nothing like a good ‘source’ story to ruffle the feathers of central bankers. Two Reuters reports in the past week, suggesting disquiet within the ECB Governing Council at President Dragi’s supposed autocratic style, and to his earlier publicly stated ambition to bring the ECB’s balance sheet back up to its 2012 highs – got very short shrift last night. There were three killer phrases in the post-ECB meeting statement and accompanying press conference remarks, as noted by NAB’s Gavin Friend in London:
1. “Together with the series of targeted longer-term refinancing operations to be conducted until June 2016, these asset purchases will have a sizeable impact on our balance sheet, which is expected to move towards the dimensions it had at the beginning of 2012”. Strike 1!
2. “Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate. The Governing Council has tasked ECB staff and the relevant Eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed”. Strike 2!
3. “The fact that the introductory statement that I just read to you – which contains some, I would say rather important, news with respect to the past – has been approved and underwritten unanimously….”. Strike 3!
So, while there may be a lot of wood still to chop between here and the desired €3tn ECB balance sheet, note that the implied €1tn increase compares with the new BoJ balance sheet expansion run-rate of about €675bn a year. So it’s of a comparable scale, albeit as a percent of GDP the BoJ continues to far outpace what the Fed has done and ECB says it intends to do.
As a result of the ECB actions the Euro quickly fell from over 1.2520 to 1.2383 while Bond Yields were slightly higher. This is one of the main reasons why I always stay flat ahead of a major event as you do not know what is going to transpire.
The US equity markets were helped by the latest Weekly Jobless Claims which fell to 279K resulting in the lowest 4 week average since mid-2000 when the Unemployment Rate was at 4%.
This morning on the economic front we have German Industrial Production at 8.00 am. This is followed at 1.30 pm by the latest US Non Farm Payrolls where the consensus is for a 225K rise after last month’s 248K increase. The Unemployment Rate is expected to be unchanged at 5.9%.
December S&P 500
The S&P plan worked well as the strategy of selling spikes with a tight stop continues to pay dividends. After super Mario came up with his latest QE trick the S&P quickly spiked higher to my 2023 sell level before having a nice sell-off after the US markets opened which enabled me to cover this position at 2016 and I am now flat. As today is Non Farm Payroll day I am going to stay flat until the data is released. If the data is stronger than expected I will be a seller from 2034/2040 with a 2045 stop. Given the fact that the S&P has closed over the key 2013 resistance level for the past two days I have to respect this price action and today I will be a small buyer on any dip to 2013/2020 with a 2008 stop.
Euro/USD
My long 1.2470 Euro position worked out well initially as just before the ECB released its no change in policy the Euro was trading at 1.2520 which enabled me to cover my position ahead of the Dragi press conference. Following the latest effort by the ECB to try and reflate the sagging European economy the Euro quickly dropped to my 1.2390 buy level. I am still long as the Euro is now trading below its Bollinger Band and at the bottom of it Williams Index and I will leave my stop the same at 1.2340
US Dollar Index
No change as I am still short at 87.65 with the same 88.05 stop. If I am stopped out of this position I will be a more aggressive seller in front of 88.40 with a 88.80 stop.
December DAX
The idea of staying flat ahead of Dragi’s press conference certainly paid dividends yesterday as the market spiked to a high of 9469 before quickly falling nearly 100 points with the market only rebounding slightly into the close. After Dragi’s dramatic announcement I went short the Dax at 9440 and after a nice sell-off I was able to cover this position at 9380 and I am now flat. Today I will again be a seller on any rally back to 9460/9490 with a 9530 stop. Given the awful economic situation in Germany and despite the actions from Dragi and the ECB I find it very hard to buy this market even though the price action is positive.
December FTSE
The FTSE plan did not work out well yesterday as I was very quickly stopped out of my 6520 short position for a small loss at 6545 and I am now flat. Today I will again be a seller on any rally to 6570/6600 with a 6625 stop. I will also be a small buyer on any dip to 6470/6500 with a 6445 stop.
Dow Rolling Contract
The Dow plan also worked well yesterday as just like the S&P above the idea of shorting spikes with a tight stop continues to work in this very overbought market. Shortly after the Dragi press conference the Dow spiked higher to my 17520 sell level and after a nice sell-off after the US markets opened I was able to cover this position at 17460 and I am now flat. I am going to stay flat until the Non Farm Payrolls are released and if we get a stronger number I will again look to sell any spike to 17590/17640 with a 17680 stop. I still do not want to be long the Dow at this time.
December Bund
No change as I am still short from last Tuesday at 151.35 with the same 151.70 stop. Again if I am stopped out of this position I will be a more aggressive seller from 151.95/152.25 with a 152.55 stop.
Gold Rolling Contract
No change as I am still long at 1140 with the same 1125 stop. If I am stopped out of this position I will use any $10 bounce to reset my long position with a stop below whatever new low is put in.
Silver Rolling Contract
Shortly after I posted yesterday morning Silver traded down to my 15.30 buy level. I am still long and I will leave my stop the same at 14.45. Again if Silver manages to break 15.80 I will look to add to my position.
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