Global equities were mostly lower yesterday, dragged lower by the oil price. That added to an already uncertain tone following indications that the UK may be hurtling towards a harder Brexit than first thought. UK PM Theresa May stated on the Weekend that the upcoming Brexit negotiations will be about “getting the right relationship, not about keeping bits of membership”. Running counter to the EU’s free movement of people, PM May also reinforced her commitment to border control: “we will have control of our borders, control of our laws”. German Chancellor Angela Merkel put the kybosh to such thoughts stating that “access to the single market can only be possible on the condition of respecting the four basic freedoms. Otherwise one has to talk about limits”. This implies the UK cannot cheery pick without concessions. In this round of high stakes poker it seems May lost the first hand.
To mark my 1250th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 123 points yesterday and is now ahead by 327 points for January having made 1351 points in December, 1971 in November and 1582 in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
Against those headlines it is no surprise to see the Pound at the bottom of the G10 leader board – down over 1.0% to 1.2140 and close to the October closing low of 1.2123. The US Dollar was also lower, closing down 0.2% alongside the fall in global bond yields and that fall has continued this morning with the Dollar Index now trading at 101.75 following last week’s Downside Key Week Reversal. Correspondingly the Euro was up 0.4% to 1.0589. The Aussie and the Kiwi outperformed with both closing up 0.9% and the Yen was also 0.8% higher. While the clear underperformer was the pound, the Norwegian Krone was also lower, down 0.1% – likely due to the moves in the oil price.
In Interest rates, 10-year Bond Yields were mostly lower over the past 24 hours. US Treasuries fell 5.10bps to 2.37% and German Bunds were down 2 bps to 0.28%. UK Gilts fell similarly, down 4.8 bps to 1.34% and likely partly in reaction to PM May’s comments which would imply an easier BoE policy rate for longer (see above). Movements in Aussie CGS yields followed the move in Treasuries yesterday and were up 8.20bps to 2.76%.
More Fed speak did little to add to the debate around the Fed which mostly reiterated the views of three rate hikes for 2017 being reasonable and that fiscal stimulus was not needed. The Fed’s Williams (non-voter) repeated remarks given last week in an FT Interview that three rate hikes for 2017 was “very reasonable”, and Rosenregn (non-voter) also said that he was looking for a “a still gradual but somewhat more regular increase in the Federal Funds Rate”. The OIS market now prices a 41% chance of a rate hike by March and 2.2 rate hikes in 2017, still a bit little less than the FOMC’s median dot point of three hikes.
The oil price fell around 3% yesterday with the WTI measure at $52.37 a barrel. The fall comes amid signs that US producers are set to ramp up production in response to the higher oil price with the Baker Hughs Rig Count rising to 665 rigs – the highest since the beginning of 2016. Higher US production could offset some of the cuts committed to by OPEC and non-OPEC countries which were designed to move the oil price into a $55-60 a barrel range – note breakeven costs for US shale producers are estimated to be in the $40-50 a barrel range.
Global equities were mostly lower, driven lower by the oil price. The S&P500 fell 0.3% with energy stocks down 1.4% on the day. The Dow looks less likely to make the magic 20,000 level soon despite coming close in recent days, with this also down 0.3% to 19,896. European equities were also lower with the DAX down 0.3% and the CAC40 down 0.5%.
In commodities, Coking coal continued its downward run, down 3.3% to $206 a tonne. Thermal coal also declined, down 2.6% to $83.50 a tonne. Iron ore bucked the trend, up 1.9% to $77.7 a tonne. Gold was higher overnight, up 0.9% given the mixed tone and some notion of Chinese New Year demand.
This morning we have no economic data due from the Euro-Zone. At 1.30 pm we have Canadian Building Permits. Finally at 3.00 pm we have US Building Permits, IBD/TIPP Economic Optimism and the JOLTS Job Openings. This JOLTS is very important as is one indicator that Fed Chair Yellen pays very close attention to.
March S&P 500
My S&P plan worked well yesterday with the market trading lower to my average buy level at 2265 before rallying to 2270. As I was disappointed with the price action in the S&P, I emailed my Platinum Members to cover this position at 2269 and I am still flat. Yesterday the S&P traded in a very narrow range. Worryingly the internals of the market continue to be weak with the McClellan Oscillator closing with just a positive reading of 5 which is incredible when all US Markets are close to new all-time highs. One market that I am closely watching is the US Dollar because if the Dollar cannot sustain its recent advance then we may see the stock market roll over to the downside. Remember we still have a series of confirmed Hindenburg Omen’s on the clock and we have had only one major sell-off in the stock market in the last 20 years without a confirmed HO. My own view is the market will hang in for another two weeks to see what Trump does when he takes up the Presidency. Today I will again look to buy the S&P on any dip lower to 2251/2257 with a 2246 tight stop. My only interest in selling the S&P is still on a rally higher to 2285/2291 with a 2296 stop.
EUR/USD
My Euro plan worked well with the Euro trading lower to my 1.0515 buy level before trading to a 1.0627 high print overnight. In keeping with my strategy of banking points when available I covered my long Euro position at 1.0540 and I am now flat. As I have been saying for the past week all the economic research coming across my desk is Euro bearish and Dollar bullish but the game changer for me was the German inflation data for December. For one, the Bundesbank will not be happy with the level of the Euro and they will soon start to push for higher interest rates in Europe. Today I will again look to buy the Euro on any dip lower to 1.0510/1.0555 with a 1.0470 stop. I still do not want to be short the Euro at this time.
March Dollar Index
My Dollar plan also worked well with the Dollar trading higher to my 102.45 sell level before trading 100 points lower overnight. As I was already long both the Euro and Silver I covered my short Dollar position for a small gain at 102.32 and I am still flat. The game changer for the Dollar was last week’s downside Key Week Reversal which in itself is a rare event and in my opinion as long as we stay below last Tuesday’s 103.85 fourteen year high then all rallies are to be sold. Today I will again look to sell the Dollar on any rally higher to 102.00/102.40 with a 102.75 stop.
March DAX
I am still flat the DAX which continues to trade in a narrow range in an overbought condition. Today I will raise my buy level slightly to 11470/11520 with a 11425 stop. Despite the DAX trading overbought, I do not want to be short the market at this time.
March FTSE
The FTSE which just like the DAX has traded in a narrow range over the past few days finally hit my 7195 sell level in the last 20 minutes. With the weakness in Sterling showing no signs of stopping plus the fact that the market again closed over its 10 year trendline at 7140.7150 I have now covered my short FTSE for a small gain at 7185 and I am now flat. The next target level for the FTSE is at 7230 and today I will again look to sell the market on any rally higher to 7230/7260 with a 7290 stop. I will also raise my buy level to 7115/7150 with a 7075 stop.
Dow Rolling Contract
Finally my Dow plan worked well with the market hitting my 19860 buy level earlier this morning before rallying back above 19900. I used this rally to cut my long position at my revised 19895 T/P level and I am now flat. Today I will again look to buy the Dow on any dip lower to 19760/19820 with a 19710 stop. I still believe that the Dow 20K will be broken over the coming days and today I will leave my sell level unchanged at 20040/20100 with a 20150 stop.
March BUND
Unfortunately the BUND missed my 162.60 buy level before following the US Bond markets higher for the rest of yesterday’s trading session and I am still flat. Today I will leave my buy level unchanged at 162.20/162.55 with a 161.90 stop. I still do not want to be short the BUND at this time.
Gold Rolling Contract
Unfortunately Gold missed my 1165 buy level with a 1171 low print before spending the rest of the trading session trading higher. Today I will move my buy level higher to 1162/1170 with a 1155 stop.
Silver Rolling Contract
No change as I am still long Silver from last week at 16.55 with the same 16.05 stop.
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