Walking on a Dream was the inaugural 2008 hit song by Aussie electropop outfit Empire of the Sun. That seems an apt description of how markets have been since the election of Trump with a dream run for equities and the US Dollar all premised on the idea of a Trump fiscal stimulus boosting growth and inflation. Now with inauguration just a week away (20 Jan), markets are asking “is it real”? Some hint of that was gleaned in Trump’s press conference on Wednesday where he provided little in the way of policy detail besides making remarks on the Drug industry, Defence contracts, and tweets on US car manufacturers. That saw a rally in US Treasuries and a fall in the US Dollar which continued yesterday. The US Dollar has fallen by around 1.5% since Trump’s press confidence and was down by around 0.5% overnight against all major currencies except the Pound. The Kiwi, Yen and Aussie all outperformed, up by around 0.8-9%, while the Euro rose by 0.4%.
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 104 points yesterday and is now ahead by 745 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.
The Pound fell 0.5% late yesterday moved by continued Brexit jitters with EU officials reiterating the UK cannot “cherry pick” and that any Brexit agreement is necessarily worse off for the UK than EU membership. Adding to those notions, a UK finance lobby group (TheCityUK) has seemingly pulled back their request for passporting with banks now pushing for “mutual access” – some acknowledgement that full passporting may not be available if PM May does not accept the free movement of people – PM May is scheduled to give a speech on Tuesday on Brexit.
US Treasury yields fell 2.2 bps to be at 2.35%, erasing all of December’s moves but still noticeably higher than the 1.83% level they were prior to the US election. German Bunds fell 1.2 bps to 0.32%, while UK Gilts continue to outperform down 4.8 bps to 1.30% with likely Brexit jitters weighing.
Four Fed speakers did little then add to the consensus of three rate hikes for 2017. Harker (voter) made the most interesting comments. He sees “three modest rate hikes as appropriate” and the timing for the first rate hike will of course depend on a “little more data”. In terms of incorporating Trump’s fiscal stimulus into his forecast, he said he would need to see a solid bill that “looks like it has the support of Congress and the President” and that would have to be balanced against those policies on trade which can also “have a negative effect”.
Harker also made comment on the Fed’s balance sheet and said it should start to be reined in once the Fed Funds rate hits 100bps by stopping reinvestment – note that’s only one to two rate hikes away so expect some debate on this issue in 2017. The US OIS market now prices around a 36% chance of a rate hike by March and prices 2.1 rate hikes for 2017 compared to the Fed’s median dot points of 3.
Also in central bank news, the ECB Minutes revealed some debate around the length of the extension of the Bond Buying Programme (two options were presented: 6 months at €80bn or 9 months at €60bn), while a minority of members – termed “a few members” – did not support an extension. That suggests an ongoing debate about the degree of monetary accommodation needed in the Euro area – no doubt to be enhanced with tentative signs of inflation picking up.
Equities ended yesterday mostly lower in what turned how to be quite a volatile trading session. The S&P500 fell 0.2%, with Financials underperforming down 0.8%. The Dow’s magic 20,000 mark is gradually getting further away with the Dow also down 0.4%. European equities were also lower with EuroStoxx down 0.7%.
In commodities, the oil price rose by 1.5-1.7% with the WTI measure at $53.07 a barrel and Brent at $56.07. As for Australia’s major commodities, Iron ore was up 0.7% to $81.0, thermal coal was also up 0.8% to $82.2 a barrel, while coking coal was unchanged at $195 a tonne. The moves lower in the coking coal price over recent weeks should see the Q2 contract price fall from the lofty $285 a tonne it is currently at now.
This morning on the economic front we have no data from either the Euro-Zone or the UK. At 1.30 pm we have US PPI and Retail Sales. Finally we have Business Inventories and the University of Michigan Consumer Sentiment at 3.00 pm.
Fed Chair Yellen is speaking this afternoon. The Chair’s remarks will be closely watched, but it is also hard to see what more she will add given the plethora of Fed speakers this week.
The US Quarterly reporting season kicks off for the financials today with JPMorgan Chase, BofA, Wells Fargo and Blackrock all reporting. Financial stocks have rallied hard following Trump’s victory and it will be very interesting to see how these results come in.
March S&P 500
The S&P had a wild trading session with the market getting hit hard shortly after the open to a low at 2248 before having a late come back which left the S&P unchanged at 2265. My own view is that the market will hold in until the inauguration next week and then we will see if Trump follows through with his fiscal promises. If he does not then we are going to see a series sell-off in the market. Remember the ”fair value” for the S&P is at 1635 and one standard deviation above this level is at 2135 so we are certainly trading at very lofty levels which in my opinion is not sustainable. Unfortunately with so many of my positions getting hit at the same time plus in anticipation of my DAX buy level getting filled (which did not happen) I emailed my Platinum Members to cover my long 2253 buy level for a breakeven and I am still flat. As we had a nice profitable trading session up to that point I did not want to risk loosing these gains and this was another reason why I exited this long position. For anyone who held on to their long S&P position then you had an even better day of gains. Today I will again look to buy the S&P on any dip lower to 2251/2257 with a 2246 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2235/2242 with a wider 2227 stop which is just below the low made on December 30th. My only interest in selling the S&P is still on a rally higher to 2285/2291 with the same 2296 stop.
EUR/USD
Unfortunately the Euro just missed my 1.0600 buy level with a 1.0603 low print overnight before rallying strongly and I am still flat. Today I will again look to buy the Euro on any dip lower to 1.0550/1.0590 with a 1.0515 tight stop. Remember a weekly close this evening over 1.0670 in New York will be positive, opening up a move higher to the December high at 1.0874.
March Dollar Index
My Dollar plan eventually worked with the Dollar re-opening last night at my 101.55 sell level with a 101.63 high print before trading to a low of 101.23 so far. In keeping with my strategy of banking points when available I emailed my Platinum Members to cut this position at my revised 101.35 T/P level and I am now flat. The Dollar is still a sell on rallies especially after last week’s downside Key Week Reversal and Wednesday’s downside Key Day Reversal. We need to break and close over the January high at 103.85 for the market to resume its uptrend which seems unlikely at this time. Today I will again look to sell the Dollar on any rally higher to 101.60/102.00 with a 102.35 stop.
March DAX
Frustratingly the DAX just missed my 11475 buy level with a 11485 low print before rallying over 100 points and I am still flat. The fact that the DAX closed below 11580 is negative plus the market still needs a sell-off to correct its overbought condition. Today I will lower my sell level slightly to 11650/11710 with a 11750 stop. My only interest in buying the DAX is on a dip lower to 11410/11465 with a 11370 stop which is just below the two week low at 11403 which should support the market initially.
March FTSE
My FTSE plan also worked well with the market hitting my 7235 sell level before trading lower. With so many of my calls getting hit at the same time I emailed my Platinum Members to exit this short position for a small gain at 7215 and I am now flat. The FTSE is making new all-time highs again as I write this commentary this morning with the next target and strong resistance from 7295/7325. Given how overbought the FTSE is trading I will be a seller in this area with a 7355 stop. Despite the market being severely overbought I will move my buy level higher to 7165/7195 with a 7125 stop which is just below the 10 year trendline at 7140.
Dow Rolling Contract
My Dow plan worked well with the Dow hitting my 19785 buy level with a 19765 low print before rallying strongly into the close with the market trading at 17895 this morning. Unfortunately as so many of positions hit at the same time, I emailed my Platinum Members to reduce their risk and I cut my long position for a small gain at 19805. The only good part of this exit was the fact that the Dow spiked higher just as I sent the email which hopefully gave everyone a better fill. I have to respect yesterday’s turn around plus the fact that I still believe the Dow will finally break the 20K level sooner rather than later, so today I will move my buy level higher to 19770/19840 with a 19720 stop. My only interest in selling the Dow is still on a rally higher to 20040/20100 with the same 20150 stop.
March BUND
My Bund plan also worked well with the Bund trading lower to my 163.60 buy level before rallying back above 163.90 and this rally enabled me to cover this position at my revised T/P level at 163.77 and I am now flat. Today I will again look to buy the Bund on any dip lower to 163.15/163.45 with a 162.80 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Unfortunately Gold just missed my 1188 buy level with a 1190.50 low print overnight and I am still flat. There is no doubt that Gold has strong resistance at the 1200/1220 area and today because I am back long Silver again I will now lower my Gold buy level slightly to 1175/1183 with a 1168 stop. A break and close below 1180 this evening will be short-term bearish for Gold after its huge $90 rally over the past few weeks.
Silver Rolling Contract
Silver missed my 17.05 T/P level with a 16.99 high print. However given the fact that Silver was trading at the top of its Daily Bollinger Band I emailed my Platinum Members to exit this position at 16.92 with a re-buy level at 16.65 which got filled overnight. I will leave my stop unchanged at 16.05 and I will add to my long position on any test of the 16.30/16.50 area.
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