On another day, news of a near 300k rise in US payrolls, still quite benign earnings growth and a steady but near-full employment unemployment rate (5.0%), might have sent equities and the US Dollar to the moon and Bond Yield’s higher. As it was, market reactions seemed more consistent with a view that the report plays with the grain of a firmer USD/CNY in particular and USD-Asia/EM FX in general and as such this in turn will likely blow back in the form of weaker EM equities and risk markets more broadly.
To mark my 1000th issue of the tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Service which includes all my Premium Daily Commentaries and 1/5 updated emails throughout the trading session. If anyone is interested in this special offer please contact me on bryan@tradernoble.com for more details.
For anybody following my Platinum Service it made 250 points on Friday and is now ahead by 1467 points for January.
One key, though perhaps trite, observation on last week’s markets is that China can’t let its currency move south against the US Dollar without causing ructions in global currency and risk asset markets. No matter that the primary focus of policy makers is now supposed to be on the tradeweighted RMB, not USD/RMB per se.
A good summary of the state of play five working days into 2016 is that the narrow DXY index is 0.26% lower – testament to the safe-haven/funding currency qualities of the JPY and EUR – while the broader BBDXY dollar index is 0.62% higher and led by USD/Asia where the ADXY is 1.49% lower. On Friday alone the DXY was +0.1%, BBDXY +0.3% and ADXY -0.3%.
In G10, AUD was Friday’s biggest loser, (-0.84% to 0.6953) closely followed by NZD (-0.82% to 0.6545) and GBP (- 0.69% to 1.4517). We’ve seen some attempt at a rally in both the Aussie and Kiwi so far Monday morning. Year to date, AUD is the biggest loser in G10, -4.35% followed by NZD (-4.11%). The VIX was up another two points on Friday to 27 and versus 19 on New Year’s Eve (+42%). We should probably be more focused on this than intraday commodity price moves in explaining day-to-day commodity currency under performance.
In equities, an early US-session rally attempt quickly petered out and Indices finished Friday on the lows of the day: S&P500 -1.08% to 1,922, the Dow -1.02% and the NASDAQ -0.98%. Overall global equity market performance in the first week of the year is reckoned to be the worst in two decades.
Treasury yields fell across the curve in conjunction with equity market weakness, led by the belly where the 5yr lost 4.0bps to 1.56% and 10s -3bps to 2.12%. Year to date, the 10year note has now fallen by 15bps to 2.12%.
In commodities, both WTI and Brent lost another 30-40 cents, to $32.92 and $33.34 respectively and both are down just over $4 or 11%+ YTD. LMEX traded flat but is still -4% YTD, iron ore -50 cents or 1.2% to $42.13 and copper another 0.9% Gold lost $5 on the day to $1104 but is still 4% or $43 up on the week.
As for the data, on Saturday, China December CPI rose to 1.6% from 1.5% as expected, while PPI deflation remained at 5.9% (-5.8% expected). Both pretty irrelevant in terms of the various concerns/policy speculations surrounding all things China – confirming the absence of any inflation constraint to easier monetary (including FX) policy.
US Non-Farm Payrolls jumped by 292k (200k expected) with November revised up to 252k from 211k and October up by 9k to 307k (the second upward revision to a number originally reported at +271k). The unemployment rate held at 5% as expected but only because the participation rate rose to 62.6% from 62.5% (a second successive rise). The U6 underemployment measure held steady at 9.9%.
Average hourly earnings were unchanged on the month, though may have been depressed by a statistical quirk whereby those paid twice-monthly will not have had their second pay check of the month counted in the total. This should reverse next month, though the rise in annual average earnings of 2.5% from 2.3% was all on favourable base effects from January 2015 and so is not necessarily indicative of a firming trend.
The Atlanta Fed’s latest ‘GDPNow’ estimate came down to 0.8% on Friday from 1.0% on Wednesday, following the wholesale trade report which showed sales down 1% on the month and inventories contracting by 0.3%. The average of the bottom 10 market forecasts for Q4 GDP, in contrast, currently sits at +1.5%.
This morning on the economic front we have Euro-Zone Sentix Investor Confidence at 9.30 am. At 1.15 pm we have Canadian Housing Starts. Finally on what is a very quiet day for data we have US Labour Market Conditions Index Change.
The Fed’s Lockhart is due to speak on Monetary Policy and Economic Outlook in Atlanta at 6.40 pm.
March S&P 500
The US Stock markets have had their worse start to a trading year since records began. Friday was another wild trading session when ended up with a huge reversal to the downside but not a Key Day Reversal as the S&P did not make a higher high than Thursday do it id did come close with a 1964 post NFP print before falling an incredible 50 Handles into the close. This sell-off continued overnight following another 4% fall in the Shanghai although the S&P is now trading 20 Handles higher from its overnight lows. My S&P plan worked well on Friday as shortly after I posted the S&P traded lower to my 1941 buy level before enabling me to cover this position at 1949 before we got the NFP release as I wanted to be flat ahead of this release. For anyone who stayed long into the data they would have had a better result. For anyone who waited until the release of the NFP data the S&P subsequently traded lower to my 1941 buy level before having a 10 Handle bounce ahead of the final hour capitulation. The next big support for the S&P is at 1880/1890 while the real support comes in at the August 24 mini crash bottom at 1861. The McClellan Oscillator closed on Friday with a reading of -210 which is not yet at oversold levels unfortunately while the S&P is trading outside its Bollinger Band and Williams Index. My own view is the S&P is coming to close to a tradeable low where I will look to put on a more Macro long term bullish position. I cannot see the Fed allow the S&P to break this key 1860 support as a break and close below here opens up the chance of a quick move lower to at least 1770. Today I will look to buy the S&P on any move lower to 1893/1903 with a 1885 stop. I have to use wider levels given the volatility and again if I am taken long and subsequently stopped out of this position I will use my 5 Handle Rule to go long again with a stop below whatever new low is printed.
EUR/USD
The Euro plan worked very well as shortly after the NFP was released the Euro traded to a low print of 1.08 which enabled me to buy the market at my 1.0810 buy level. Unfortunately I emailed all my Platinum Members to T/P on this position at 1.0840 before the Euro went on to have another 100 point rally and I am still flat. Today I will raise my buy level to 1.0825/1.0855 with a 1.0790 stop which is just below last Friday’s low.
March Dollar Index
The Dollar also rallied higher to my 99.30 sell level short after the Payrolls were released on Friday. Following a nice sell-off I was able to cover this position at 99.00 and I am now flat. Today I will again look to go short on any rally higher to 98.95/99.25 with a 99.45 stop.
March DAX
The move in the DAX on Friday was just incredible. Unlike both the S&P and the Dow the DAX had a significant Key Day Reversal as the DAX traded to a 10120 post NFP high which was just above the 10100 key resistance area mentioned in Friday’s commentary before falling 400 points into the close. The margin calls going out for the DAX today must be huge. The DAX is now only 300 points above its August 24 lows. However the DAX plan worked well as shortly after I posted the DAX traded lower to my 9960 buy level before having a nice rally which enabled me to cover this position at my 10010 T/P level as I wanted to be flat into the NFP data. I am still flat and today given how oversold the DAX is trading I will again look to buy the market on any dip lower to 9690/9750 with a 9645 stop. Despite the Key Day Reversal on Friday I do not want to be short the DAX at this time.
March FTSE
The FTSE plan also worked well on Friday as shortly after I posted the FTSE traded lower to my 5910 buy level. Subsequently the FTSE traded to a 5960 high print before selling off. As I wanted to be flat ahead of the Payroll data I covered this position at 5930 as outlined earlier to my Platinum Members and I am still flat. Today given how oversold the FTSE is trading I will again look to buy the market on any move lower to 5770/5815 with a 5745 stop.
Dow Rolling Contract.
The volatility in the Dow was one of the largest in the past few years with the market trading as high at 17760 post the NFP data only to fall nearly 600 points to today’s overnight low print. So far with Friday’s late aggressive sell-off seen both the Russell 2000 and the Transport Sector break their August 24th lows. However the Dow is still over 1000 points form breaking its 15250 low print which could be seen as positive divergence at this point in time. As I am writing this commentary the US markets are rebounding strongly but I am not going to chase this market higher as we still have the margin calls to contend with later plus we are now in the process of leaving a large Open Gap from Friday’s close. Today I will again look to buy the market on any dip lower to 17200/17270 with a 17150 stop.
March BUND
Last Friday’s Equity sell-off saw the BUND trade higher to my 159.70 sell level. With the BUND trading lower at 159.35 as I write this commentary I would look to cover this position here and go flat. Unfortunately after going short myself I covered this position too early at 159.65 and I am now flat. Today I will again look to sell the BUND on any rally higher to 159.85/160.15 with a 160.35 stop.
Gold Rolling Contract.
Gold is trying to break the key 1100 resistance level. However with Gold trading outside the top of its Bollinger Band I find it very difficult to chase this market higher. Today I will only raise my buy level slightly to 1075/1084 with a 1069 stop.
Silver Rolling Contract.
No change as I am still long at 14.19 with the same 13.80 stop.
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