FOMC October meeting minutes are gabbling most of the headlines this morning, but ahead of that it was the latest fall in Oil prices – with WTI crude below $40 for the first time since 27 August – that captured much of the market’s attention and ensured that NZD, AUD, CAD and NOK occupy four of the five bottom places in the G10 scoreboard of the past 24 hours. The ever-mercurial Swiss France is actually the worst performer on the day – even as expectations for a cut to the ECB’s Deposit Rate on 2 December ramp higher. Indeed, CHF is vying with NZD for the FX wooden spoon in terms of performance over the past week. Perhaps the view here is that ‘anything the ECB can do, we (the SNB) can do better’.
For anybody following my new Platinum Service it made 90 points yesterday and is now ahead by 1102 for November. The previous five months saw gains of 1600, 2833, 2195, 1810 and 3045 points respectively.
Sterling is a touch firmer after the BoE MPC’s Ben Broadbent said he sees a solid recovery in domestic demand and that output is much closer to potential to than in 2012. He also notes that the gap between market and economists’ forecasts for rate rises tends to widen when risky assets do poorly.
Oil’s latest drop (since partially retraced) came on news that US inventories had risen to their highest level for this time of year since 1930 (according to Bloomberg). Accompanying the Oil price drop, industrial traded metals are all lower again, though Iron ore is actually a touch firmer, +$0.77 to $46.35 for the 62% fines grade imported by China. In terms of potential strengthening in Chinese demand, we’d note that at the nationwide (weighted average) level, Chinese property prices turned positive in year-on-year terms last month.
As for the Fed minutes, while we often characterise these as offering something for everyone, my immediate take is that there were somewhat fewer two-handed economists/policy makers in evidence at the October meeting than we are used to. The Minutes indicate that ‘most’ Fed officials said lift-off conditions could be met by December’ with only ‘some’ members suggesting that a reference to December was too strong an indication. But the Minutes play up the recently softer labour market reads as the key reason for inaction in October, and by implication play up the relevance of the subsequent numbers (very strong) as a key factor governing policy disposition between October and December. In short, it is going to take either a disastrous November payrolls report or major sell-off in US/global risk asset, to stop the Fed going next month.
As for market reaction to the Fed minutes, though we saw a knee-jerk move higher in the US Dollar (taking the narrow DXY index to within a whisker of 100 (99.853) and to its best level since April) this was quickly reversed. DXY is now lower on the day. 2-year Treasury note yields added 1.5bp to a new cycle high of 0.8940 but have also since more than fully retraced the gain. More evidence here that December lift off is fully priced and highlighting the risk that the Dollar falls and Interest Rates markets rally out of the 17 December meeting.
On this point, newly installed Dallas Fed President Richard Kaplan spoke yesterday afternoon and while not rejecting the notion of December lift-off, has marked himself out as on the dovish side of the Fed spectrum. He indicates that the Fed will use its ‘dot-point’ forecast in December to signal the gradualist nature of the expected path for the Fed funds rate post lift-off.
This morning o the economic front we already had the Bank of Japan Monetary Meeting, where a no change in Interest Rates was announced. Both the Yen and the Nikkei have strengthened on this news with the Nikkei closing up 1% and this is helping European Markets to open higher again this morning. At 9.30 am we have UK Retail Sales and CBI Trends. This is followed at 11.00 am by THE Minutes from the last ECB Meeting. At 1.30 pm we have the US Weekly Jobless Claims and the Philly Fed Business Outlook. Finally, at 3.00 pm we have the US Leading Index.
The Fed’s Lockhart and Fisher are both speaking at different conferences later this evening.
December S&P 500
The S&P is back to the theme that prevailed for the first seven months of 2015 namely that you can only be short for a few hours as no matter what news is released the market rises. This huge rally that we have seen since the S&P made its low at 1998.50 last Sunday night – shortly after the US Futures Markets opened – came despite the McClellan Oscillator again closing in negative territory with a reading of -30 as yet again the internals are refusing to participate in this rally. It is only a few major stocks such as Apple that are leading this market higher but with Apple having such a huge weighing across all the Indices its influence is thus significant. Yesterday my S&P plan worked well but you had to be quick as shortly after the US Markets opened the S&P traded higher to my 2058 sell level before having a quick six Handle drop which enabled me to cover this position at my 2054 T/P level as outlined earlier to my Platinum Members and I am now flat. Thankfully we again went flat into the FOMC Minutes as trying to second guess what is going to materialise out of these Minutes is not worth the risk. Today I will again look to go short on any further rally higher to 2092/2098 with a 2103 stop. I will also look to buy the S&P on any sell-off to 2070/2075 with a 2065 stop.
EUR/USD
As more and more major banks and economists state that it is only a matter of time before the Euro breaks parity against the US Dollar this short Euro trade has become too crowed for my liking. It is interesting to watch the price action in the Euro as it tried again to break 1.0620 but yet again ran into a wall of support. I am still flat the Euro and this morning’s ECB Minutes from its October 22 Meeting will be key to set the trend for the Euro today. If the Euro sells off following the Minutes I will be a buyer from 1.0620/1.0650 with a 1.0595 stop. If I am taken long and subsequently stopped out I will be a more aggressive buyer on any further dip to 1.0535/1.0565 with a 1.0510 stop. I do not want to be short the Euro today.
December Dollar Index
I am still flat the Dollar which tried to break through 100 yesterday. Today I will lower my sell level to 100.10/100.40 with a 100.70 stop.
December DAX
The one market that has been very hard to short all year is the DAX and yesterday was no exception as the market has now broken and closed over 11,000 again for the first time since before the August 20/24 meltdown. The DAX is now trading nearly 12% higher on the year and today I will raise my buy level to 10930/10980 with a 10880 stop. The price action continues to tell me not to be short the market at this time.
December FTSE
So far my FTSE plan for yesterday is not working out. I am short at an average of 6285 as I broke my own rule of running a position into the FOMC minutes. I will leave my stop the same at just above this morning’s high at 6330.
Dow Rolling Contract
Just like the S&P above you had to be quick with any short position in the Dow yesterday. Fortunately, after the Dow rallied initially to my 17590 sell level shortly after the US Markets opened I covered this position for a small gain at 17560 as I wanted to be flat ahead of the FOMC Minutes and I am still flat. I am surprised how quickly the Dow has been able to recover from last week’s sell-off especially when you see how strong the US Dollar is trading. Judging from yesterday’s Minutes it seems that Interest Rates will finally start to rise in December but then you look at the Housing data yesterday which saw an incredible 11% fall in Housing Starts last month and you wonder by the Fed raising rates will it tip the US back into recession. Despite the positive price action in the Dow I just cannot bring myself to buy this market and today I will again look to go short on any rally higher to 17850/17900 with a 17945 stop.
December BUND
Unfortunately, the BUND just missed my buy level yesterday as the market now looks to break 158.00. I am still flat the market and today I will raise my buy level slightly to 157.30/157.60 with a tight 157.15 stop. I still do not want to be short the BUND at this time.
Gold Rolling Contract
Gold is holding its next key support at the 1060/1070 area so far. Today I will be a small buyer on any dip lower to 1060/1067 with a 1054 stop.
Silver Rolling Contract
No change as I am still long at 14.36 from last week with the same 13.95 stop.
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