In a redux of the previous Friday, slumping oil prices were the primary catalyst for the latest pressure on Commodity and Emerging market currencies and global risk assets, alongside safe-haven support for Treasuries. The difference relative to 8 January is that the latter was accompanied by a pretty stellar US Employment report, whereas Friday’s gloom was compounded by a series of US economic ‘misses’ including all core Retail Sales measures, Industrial Production and the Empire manufacturing survey. Only the University of Michigan’s consumer sentiment index beat forecasts, but since this is so sensitive to equity market performance, current strength is surely ephemeral.
To mark my 1000th issue of tradernoble Daily Market Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Service which includes all my my Premium Daily Commentaries and 1/5 updated emails throughout the trading session. This offer is open to existing and new members and if anyone is interested please emails on bryan@tradernoble.com for details.
For anybody following my new Platinum Service it made 135 points on Friday and is now ahead by 2275 points for January. Since I started my Platinum Service in June it is now ahead by over 17,000 points.
The ‘good’ news for those inclined to look for it in Friday’s markets is that in contrast to the previous Friday when US stocks closed on the lows, this Friday the nadir came early afternoon and the S&P 500 closed some 1.2% off the lows. That said, with Middle-Eastern bourses losing 6-7% on Sunday – prior to a very mild recovery – the stage already looks set for fresh downward pressure across APAC equity markets today. The chatter late in our session on Friday was that sanctions on Iran would be lifted this weekend. Oil and the CAD were both under pressure with Oil trading 3% lower overnight before rebound to just below $30. On Saturday, the International Atomic Energy Agency (IAEA) confirmed that Iran had done what was necessary in order for sanctions to be rescinded. Iran claims it can increase production and exports by 500,000 barrels a day immediately and reach its pre-sanctions production level of 3.4 million barrels a day within seven months (FT reports). That may be highly ambitious, but the immediate threat to global prices is the overhang of already-produced and stored Iranian oil. The FT notes that satellite tracking and industry sources say there are between 19 and 24 Very Large Crude Carriers (VLCCs) – capable of holding some 2 million barrels each – fully loaded and either already at sea or waiting to set sail.
Currencies of commodity producing EM countries were hardest hit with RUB, MXN and ZAR all off more than 2%. In G10, AUD dramatically underperformed NZD where the NZD is already showing some signs of ‘catch-up’ with Friday’s AUD (-1.73%) and CAD (-1.22%) falls. The JPY and EUR again exhibited their safe-haven/funding currency status, rallying by 0.9% and 0.5% respectively.
In equities, after Shanghai ended -3.55% and most European indices were off a little over 2%, the S&P500 finished -2.16%, bringing the YTD loss to 8% from 6% the previous Friday. The Dow ended -2.39% (-8.2% YTD) and the NASDAQ – 2.74% (-10.4% YTD). The German DAX has fared worse YTD, -11%. The VIX added 3 points to 27. 10 year Treasuries finished 5bp down at 2.04%, having been as low as 1.98%.
Commodities saw both Brent and WTI settle below $30, WTI -$1.50 to $29.70 and Brent -$1.90 to $29.11. The LMEX index lost 1.6% while Iron ore actually improved by 90 cents to $41.12 a tonne. Gold added $10 to $1,089.
US corporate earnings saw Citigroup report $1.06 against a $1.05 street consensus, though the market didn’t like the extent to which earnings were boosted by asset sales and other one-time events. The share price fell 7%. Wells Fargo reports $1.03 a share against $1.02 expected, with a 6% uplift in revenue but some asset values also hit from lower oil prices. Its stock lost 3.6%.
As for the US data, headline Retail Sales fell 0.1% as expected but ex-autos they were -0.1% (0.2% expected), ex-autos and gas 0.0% (0.4% expected). Industrial Production fell 0.4% (-0.2% expected) and the Empire (NY State) survey fell to a fresh post-GFC low of -19.37 from a revised -6.21 and -4.0 expected. The Atlanta Fed’s latest ‘GDPNow’ forecast for Q4 GDP is down to 0.6% from 0.8% earlier in the week.
This morning markets are rebounding despite the 1.3% fall in the Nikkei to 16955. If you look at the Monthly chart a break and close below 16900 is very bearish. The Shanghai closed positive which as mentioned above is helping Oil to rebound from overnight lows.
Today we have no data of note on the economic front with the US Markets closed for the Martin Luther King Holiday. At 6.30 pm the Bank of England’s Gerjan will speak on Monetary Policy in London.
March S&P 500
The S&P had another wild trading session with the market making a new post August 24th low at 1849 before rebounding into the close. However the S&P still closed over 2% lower on the day and in the process has left another large ‘Open Gap’ from last Thursday’s close at 1923 to Chicago’s day session high at 1883. This is the third large ‘Open Gap’ of the year so far which to me is a very rare event and gives an idea of what trouble the stock markets are in. One level of comfort is the weakness of the McClellan Oscillator which closed with a very negative reading of -250. Given the fact that my three criteria as outlined in my Daily Commentary last Thursday are again in play with the MO again closing at -250 or lower. For these reasons I would not chase this market lower. Every main newspaper and Financial Magazine are talking about the crisis in Oil and that it is only a matter of time before we trade lower. When I see this happen I tend to believe that the worst is over for the moment and that it will be only a matter of time before Oil rallies. I am sticking with my forecast that Oil can rally by 20/30% from here over the coming weeks. If Oil can stabilise then the Equity markets should follow. Today I will again look to buy the S&P on any dip lower to 1869/1876 with a 1863 stop. For the record on Friday initially my S&P plan did not work out as shortly after I posted the S&P was free-fall with the market trading lower to my 1880 buy level before stopping me out of this trade at 1870. Subsequently the S&P traded lower after lunch to my aggressive buy level at 1862 with a 1859 low before having a nice straight up rally to 1883 which enabled me to cover this position at 1874. Given the fact that my three criteria are in play I bought the S&P this morning at 1878 with a 1871 stop. Remember the Futures markets will close at 4.30 pm today for the US Holiday.
As an aside I am speaking in IG Index’s offices in Dublin tomorrow evening at 6.00 pm. This event is free to attend and in my speech I will explain in detail how the MO can be such a great buy signal for a tradeable low in the market as we witnessed on Thursday. The link to register is here on www.ig.com/uk/whats-driving-the-markets-today
EUR/USD
No change as I am still a buyer on any dip lower to 1.0810/1.0850 with the same 1.0780 stop.
March Dollar Index
My short 99.25 Dollar position finally worked out as shortly after I posted the Dollar traded lower to my 98.95 T/P level as outlined to everyone in last Friday’s Commentary and I am now flat. Today I will again look to sell the Dollar on any rally higher to 99.60/99.90 with a 100.15 stop.
March DAX
I was lucky with my DAX call on Friday as shortly after I posted the DAX traded lower to my 9640 buy level before having a quick rally over 9700 which enabled me to T/P on this position at 9695 as outlined earlier to my Platinum Members and I am now flat. Incredibly after exiting this position the DAX fell nearly 300 points before rebounding strongly this morning on the bounce in oil. Today I will again look to buy the DAX on any dip lower to 9470/9530 with a 9435 stop. I still do not want to be short the DAX at this time.
March FTSE
My FTSE plan did not work out on Friday as shortly after I posted the FTSE traded lower to my 5780 buy level before very quickly stopping me out of this position for a small loss at 5740 and I am now flat. I still like the FTSE at these levels given how oversold the market is trading plus it is not as volatile in points terms to trade in comparison to both the Dow and the DAX. For these reasons I will again look to buy the market on any dip lower to 5720/5760 with a wider 5685 stop.
Dow Rolling Contract
Again the volatility in the Dow is just incredible. Just like the DAX above I was lucky with the Dow as after the market traded lower to my 16055 buy level the market had a nice rebound which enabled me to T/P on this position at 16110 as outlined earlier to my Platinum Members and I am now flat. The one piece of positive news/divergence that occurred on Friday was the fact that the Dow did not break its August 24th low while the S&P did. The Dow is extremely oversold and due a large correction before we head lower. This is the worse start to the Dow and S&P since records began and given the extent of the carnage there is no chance of the Fed hiking Interest Rates in this climate. As I mentioned earlier this month if this carnage continues it will only be a matter of time before we see QE 4 as the Fed already have too much money invested in their QE policy to just let the markets crash. Today I will again look to buy the Dow on any dip lower to 15960/16030 with a 15920 stop.
March BUND
The BUND traded higher to my 160.50 sell level on Friday afternoon before selling off with the rally in the equity markets. Unfortunately I covered my short position too early at 160.35 as I had too many open positions at the time and I am now flat. If you are still short I would cover my position here and look to go short again on any rally higher to 160.55/160.85 with a 161.05 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1067/1075 with a 1059 stop.
Silver Rolling Contract
No change as I am still long at 14.19 with the same 13.65 stop.
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