Earlier this morning the Bank of Japan at its Monthly Meeting surprised markets by announcing a negative Interest Rate policy by charging interest for excess reserves that financial institutions park with the BOJ. The interest rate charged for these reserves will be a negative 0.1%. The BOJ decision on negative rates was made by a 5-4 vote. In other measures they have announced that they will ease rates further if inflation does not pick up and they will maintain their pledge to increase its monetary base, its main policy target by 80 trillion yen and the decision on the monetary base was carried by a 8-1 vote. The Nikkei surged on this news closing 2.8% higher at 17500 and now well above the key 16900 major support level which was briefly broken last week, while the Yen got hit hard with USD/YEN rising 300 points to 121.40 before settling back and is currently trading at 120.70.
To mark my 1000th issue of 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 day. This offer is open to both existing and new members and if anyone is interested please email me on bryan@tradernoble.com for details.
For anybody following my Platinum Service it made 85 points yesterday and is now ahead by 3300 points for January. Since I started this Platinum Service last June it has generated a return of over 17500 points.
Yesterday markets fluctuated in many directions as oil is back on the headlines and still driving markets. Oil prices spiked higher as Russia’s Energy Minister Novac was quoted saying that OPEC was trying to organise a meeting with OPEC and non-Opec countries in February to discuss a 5% output cut. However, later we had other headlines from OPEC delegates saying that there were no plans to hold talks, followed by another headline noting OPEC is willing to cooperate for any action to stabilise the oil market.
So mixed oil messages were the main source of market volatility over the past 24 hours, and for now the hope of production cuts has boosted oil prices and it has also helped commodity related equities and currencies perform. That said, I would note that history tells us that when it comes to oil producing countries, is best to watch what they do rather than what they say.
European equities ended the day in negative territory despite an uplift from oil prices. The market was dragged lower by a weaker than expected Consumer Confidence reading (105vs 106.4 exp) with losses concentrated in the Banking and Healthcare sector. In the US, mixed data releases dragged equity markets lower, but a strong rebound in energy stocks (DJ energy index +2.47%) in the later part of the session helped equity indices move back into positive territory with the Dow and S&P closing 0.8 and 0.6% higher respectively.
US weekly jobless claims printed at 278k, 16k lower than the previous week, however Durable Goods Orders were a big miss (-5.1% vs -0.7% exp.) and Pending Home Sales were softer too (0.1% vs 0.9% exp.).
In currencies, the USD is weaker against all G10 Countries. Sterling is at the top of the leader board boosted by a solid Q4 GDP print (0.5%qoq in line with exp.) and tailed by commodity currencies. The AUD is currently trading at 0.7125, after trading as high as 0.7145 following the spike higher in oil prices and the BOJ negative Interest Rate policy.
In Bonds, softer US data has overruled the oil led risk on sentiment in US equities. US Treasury Yields are lower and the curve is flatter led by longer dated maturities. Relative to yesterday morning, 10y UST are 3bps lower and currently trading at 1.98% and 30y UST are at 2.79%, 1.7bps lower. In Europe, 10y Bunds and 10y UK Gilts closed 4bps lower and ended the day 0.402% and 1.98% respectively.
In Commodities, WTI and Brent oil are up over 4% at $34.05 and $34.70 respectively. Gold is unchanged at $1115.6 and Iron ore is at $41.9, down 1.2% .
In other news, ECB Weidman warned that there is a significant risk of a long period of headline inflation undershooting the price stability target posing a challenge to the Bank’s credibility.
This morning European markets are opening 1/1.5% higher on the back of the surprise move from the BOJ while the 3% rally in the Shanghai is also helping sentiment.
On the economic front we already had the release of German Retail Sales which again disappointed with a negative 0.2% print versus +0.4% expected. The Euro-Zone will release it latest Money Supply and CPI data at 9.00 am and 10.00 am respectively. This is followed at 1.30 pm by US GDP and the Employment Cost Index. At 2.00 pm we have the ISM from Milwaukee. Finally we have the Chicago Purchasing Manager Survey and the University of Michigan Consumer Confidence at 2.45 pm and 3.00 pm respectively.
Just before the close at 8.30 pm the Fed’s Williams will speak on Economic Forecasts at a seminar in San Francisco.
March S&P
These markets are not easy to trade but one point which I will continue to make is that you cannot be short these markets for more than a few hours/days as you run the risk of Central Bank intervention with the Bank of Japan the latest to join the negative interest rate policy regime. This move by the BOJ will not work in my opinion as every other move that they have tried has failed to get the economy or inflation moving higher. Remember the Nikkei topped at the insane level of over 39000 on December 31 1989 and here we are nearly 27 years later with the Nikkei trading at 17500.
Yesterday after I posted the markets nose dived with the S&P trading lower to my 1877 buy level. As I was hit on the buy side of all my Indices that I cover unfortunately I covered my position at my revised T/P level at 1882 as outlined to my Platinum Members before the S&P spiked higher to 1902 and then falling 35 Handles before spending the rest of day trading higher. This morning on the back of the BOJ decision the S&P has printed a high so far at 1903. Today I will look to sell the market on any further rally to 1910/1916 with a 1922 stop. The main resistance level runs from 1940/1950 and I will be an aggressive seller on any move higher to this level over the coming days with a 1956 stop. Given that we have the potential to leave another Gap this morning I will look to buy the S&P on any dip lower to 1877/1883 with a 1872 stop. Again if I am taken long I will use my 5 Handle Rule to go long again with a stop below whatever new low is printed.
EUR/USD
No change as I am still a buyer on any dip lower to 1.0810/10850 with a 1.0770 stop as I do not want to chase the Euro higher from here at this time even though I am still bearish the US Dollar.
March Dollar Index
No change as I am still a seller on any rally higher to 99.50/99.80 with the same 100.10 stop.
March DAX
Unfortunately I was totally wrong with my assessment of the DAX yesterday which literally went into freefall after I posted despite the upside Key Day Reversal on Tuesday. After the DAX traded lower to my 9770 buy level I was stopped out of this position right at the 9690 low before the market spiked higher to 9820 on the back of the S&P move. However the market did not stay long over 9800 and subsequently fell 200 points into the close. Even this morning the DAX rally that ensued after the BOJ announcement has failed again at 9800 and today I will be a small seller on any rally higher to 9830/9890 with a 9940 stop. The price action is telling me not to be long the DAX at this time.
March FTSE
The FTSE plan worked well with the market trading lower to my 5895 buy level before having a nice rally which enabled me to cover this position at my revised 5935 T/P level as outlined to my Platinum Members and I am now flat. Today I will again look to buy the FTSE on any dip lower to 5860/5890 with a 5835 stop.
Dow Rolling Contract
After I had got hit on all my other Indices I waited to buy the Dow at my 15920 buy level. Unfortunately I covered this position too early at 15970 and I am now flat. This morning on the back of the BOJ the Dow has already printed a high of 16238 which is 800 points higher than the low made on Wednesday of last week again proving my point of how difficult it is to be short the market for any period of time. The McClellan Oscillator is now nicely in positive territory closing at +59. Today I will again look to buy the Dow on any dip lower to 16010/16080 with a 15960 stop. I still do not want to be short the Dow at this time especially with Month End today.
March BUND
My BUND plan worked well yesterday with the BUND trading higher to my 162.55 sell level. Subsequently the BUND traded lower to 162.01 which just missed my T/P level at 162.00. Subsequently I emailed all my Platinum Members to cover this position at 162.30 and I am now flat. This morning the BUND is opening higher on the back of the BOJ policy decision and the weaker than expected German Retail Sales data. This is the next bubble to burst as Germany now has negative interest rates out to seven years which is insane. I will keep with my strategy of selling rallies with a tight stop as this plan has worked very well over the past 18 months. Today I will look to sell the BUND from 163.00/163.30 with a 163.50 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1095/1103 with a 1089 stop.
Silver Rolling Contract
No change as I am still long at 14.30 with the same 13.95 stop.
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