News of the multiple terrorist attacks in Paris and claimed by Islamic State came about 4.30pm New York time so after Futures Markets and US Stock Exchanges had closed for the week but before Spot FX and cash bonds had finished. FX rates were largely unchanged in the last half hour of trade, but Treasuries rallied across the curve, by between 0.5 and 1.0bps with a “risk off” flavour. The atrocities will inevitable weigh heavily on market risk sentiment at the start of this week and, I suggest, is the type of event that could have the Fed re-thinking whether to tighten policy next month if global equity markets see a significant correction in coming days. We simply observe that there was no global equity market rout in the aftermath of the London underground terrorist bombings in July 2005. Neither did it interrupt the ‘quarter point per meeting’ Fed tightening cycle that commence in mid-2004 and ended in 2006.
For anybody following my new Platinum Service it made 180 points on Friday and is now ahead by 925 points for November. The previous five months saw gains of 1600, 2833, 2195, 1810 and 3045 points respectively.
In FX, the EUR and AUD open on the softer side this morning, the AUD at 0.7110/20 and EUR below 1.0720. On safe haven flows, for FX you’d expect JPY to outperform; that’s how it’s initially trading this am. The AUD/USD, USD/JPY, NZD/USD and GBP/USD were all completely unchanged Friday on Thursday’s NY closing level. Rises in US dollar indices (DXY +0.16% to 98.80, BBDXY +0.3% and ADXY -0.3%) were driven by a 0.4% drop in EUR/USD to 1.0773 and pressure on EM currencies, including a slightly higher USD/CNY in onshore trade Friday. Offshore, CNH fell 0.24%, USD/CNH +0.0151 to 6.4068, the first close above 6.40 since 23 September.
Data Friday showed Eurozone Q3 GDP up 0.3%, below the 0.4% expected and 0.4% in Q2. Germany and France both printed 0.3% as expected; Italy fell short at 0.2% against 0.3% expected. US Retail Sales printed at 0.1% against 0.3% expected and ex-autos +0.2% against 0.4% expected, with Headline and core PPI both weaker than expected. As a counter, the UoM preliminary November Consumer Sentiment survey rose to 93.1, above consensus and last month (91.5E, 90.0 October final).
The FT reported Saturday the IMF staff recommended the RMB be included in the SDR, on the agenda at the Nov 30 Board meeting. IMF MD Christine Lagarde is quoted saying ‘I support the staff’s findings’. This doesn’t guarantee an affirmative vote but it seems it’s highly likely. No detail given on the likely initial weight of the CNY in the SDR basket or of any conditionality to the decision ahead of implementation that, as previously announced, would not be before Sep 2016. This could though play with the grain of the weaker trend that emerged last week and which (in CNH) accelerated European trading on Friday.
This morning in a prepared speech the Fed’s Dudley has just said that the conditions for the Fed to start to normalize Monetary Policy ’ could soon be satisfied’, but refuses to say whether ‘lift off’ will start in December.
Meanwhile the Nikkei closed down 1% at 19,393 while the European Stock Markets are opening down an average of 1.7%.
This morning on the economic front we have Euro-Zone CPI at 10.00 am. Finally, on a light day for economic releases we have US Empire Manufacturing at 1.30 pm.
Just to note that the ECB’s Dragi and Coeure are due to speak today at 10.15 am and 4.00 pm in Madrid and Paris respectively.
December S&P 500
The S&P got slammed on Friday and has now closed down on seven of the past eight trading sessions which in itself is very rare. Shortly after lunch the S&P got hit hard with the market trading lower to my average buy level at 2029 before hitting a 2021.25 low print. Subsequently the market rallied to 2036 which enabled me to cover this long position at 2032 as outlined earlier to my Platinum Members and I am now flat. This morning the S&P is opening lower but has bounced off its overnight low at 1999 to trade at 2013 as I write this commentary. The S&P is now trading at the bottom of its Bollinger Band as the market is now down over 100 Handles in the past week. The McClellan Oscillator closed with a negative reading of -202 so based on all of these facts I would not be pressing the downside from here as we are due at least a short-term bounce. Today I will be a buyer from 2006/2011 with a wider 1998 stop. If I am stopped out of this trade, I will use my ‘5 Handle Rule’ to go long again with a stop below whatever new low is printed.
EUR/USD
The idea of buying dips in the Euro continues to work well. Shortly after the US Equity Markets started to fall the Euro traded lower to my 1.0735 buy level before bouncing just before the New York close which enabled me to cover this position at my 1.0760 T/P level as outlined earlier to my Platinum Members and I am now flat. Today I will again be a buyer on any dip lower to 1.0690/1.0720 with a 1.0665 stop.
US Dollar Index
My long 98.50 Dollar position worked well on Friday as shortly after I posted the Dollar traded higher to my 98.80 T/P level. Following the Equity market sell-off the Dollar eventually traded higher to my 99.25 sell level. I am still short and today I will use any dip lower to 98.80 to cut this position and go flat. If I manage to T/P at 98.80 I will use any subsequent rally to 99.20/99.50 to reset my short position with a 99.75 stop.
December DAX
The DAX plan also worked very well on Friday as the DAX dropped hard to my 10610 buy level shortly after the US Markets opened before having a nice 120 point rally which enabled me to T/P at 10670 as outlined earlier to my Platinum Members and I am now flat. Today with the market selling off aggressively following the terrorist attacks in Paris I will again look to buy the market on any dip lower to 10490/10540 with a 10445 stop. Despite the negative price action I do not want to be short the market at this time.
December FTSE
The FTSE continues to lead the World Stock Indices lower and Friday was no exception. Shortly after the US Markets opened the FTSE traded lower to my 6095 buy level before having a small rally which enabled me to T/P on this position at 6130 before the market subsequently traded lower. However, the FTSE is very oversold after its recent large sell-off and I would not press the downside from here as the FTSE is due at least a short-term bounce especially with Gold and the Mining Stocks trading higher today. For these reasons I have bought the market here at 6050. I will leave a wider 5995 stop on this position as I look for the FTSE to trade back above 6100. I still do not want to be short the market at this time.
Dow Rolling Contract
Unfortunately we have not been able to get a short position on board for this 1000 point sell-off over the past 10 days but thankfully we had no buy levels either and are still flat. Today I will use any move lower to 17080/17130 to go long with a 17030 stop. Given the extent of the Dow sell-off and the fact the McClellan Oscillator is getting oversold I do not want to be short the Dow at this time.
December BUND
This morning the BUND opened higher in the middle of my sell range from last Friday at 157.25. I am still short and today I will lower my stop on this position to 157.55.
Gold Rolling Contract
Gold just missed my 1079 buy level by less than $1 on Friday before rallying strongly and I am still flat. Today I will raise my buy level slightly to 1075/1082 with a 1069 stop.
Silver Rolling Contract
No change as I am still long from last week at 14.36 with the same 13.95 stop as Silver tries to follow Gold higher this morning.
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