Markets continue to digest Fed Chair Janet Yellen’s speech yesterday which was seen as mildly more hawkish while yesterday’s positive US economic data played into that view. The ECB also met yesterday with ECB President Draghi coming off as slightly dovish in his press conference, playing down the recent uptick in inflation and remaining committed to the Asset Purchase Programme. Following the ECB meeting, President Draghi reinforced notions that the ECB remains committed to its recently calibrated Asset Purchase Programme amid “no signs yet of a convincing upward trend in underlying inflation”. That comes despite the pace of headline inflation picking up – which Draghi attributed to the oil price and a further pick in headline inflation was expected in the near term. With Germany’s inflation rate at 1.7%, and close to the ECB’s 2% target, there is some debate amongst ECB Council members – some tentative evidence for that was seen in last week’s Minutes where it was revealed “a few members” did not support an extension to the Asset Purchase Programme – I would expect that to continue in the following months.
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 100 points yesterday and is now ahead by 1211 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.
While Draghi’s press conference captured headlines, most of the market reaction was in relation to Yellen’s speech on Wednesday night. The two main takeaways for your scribe here was that Yellen sees the economy as being “near maximum employment” and that she expects to increase rates “a few times a year until, by the end of 2019, it is close to…its long-run neutral rate of 3%”. That suggests she is aligned with the three rate hike camp for 2017 and the OIS market now prices a 46% chance of a Fed rate hike by March and is pricing in 2.2 rate hikes for 2017.
With that background, Bond yields were mostly higher again yesterdsay following on from Wednesday’s late rally. US Treasuries rose 5.5 bps to 2.48%, UK Gilts were up 7.2 bps to 1.41%, while German Bunds rose 2.4 bps to 0.38%.
The US Dollar generally reflected the move in rates, with the US dollar up 0.14% yesterday, and 0.5% higher since Yellen’s speech (note it did rise by as much as 0.8% on the back of dovish comment by Draghi – see above). The Yen fell 0.6% along with the CAD which was down 0.5%. The Euro was unchanged, while the Kiwi and Aussie outperformed, both up around 0.4-0.5%. The Australian Employment data yesterday had little enduring impact on the currency.
Meanwhile, US economic data reinforced notions that the economy is near full employment levels. Weekly Jobless Claims fell to 234k, well below the consensus of 252k while the Philly Fed Manufacturing Index rose to 23.6 in Jan, the highest level since Nov 2014. Interestingly, the prices component of the survey rose to 26.8 from 8.0 – the highest since July 2008 and so perhaps indicative of inflationary pressures starting to build. That now sees the US economic surprise index at its highest levels since Jan 2014.
Finally in regards to Brexit, UK PM May played into the view that she may not be as hard as a ”Brexiter” as everyone thought, noting that “I want to ensure that we can keep financial services in the City of London…I believe that we will do just that”. As for other major markets, global equities closed mostly lower yesterday. The S&P500 fell 0.5%, along with the Dow. European equities were also lower with the EuroStoxx down 0.1% .
In commodities, the oil price rose 0.6% with WTI at $51.38 and Brent at $54.27. For Australia’s main export commodities,Iron ore fell 1.3% to $81.0, thermal coal also fell down 0.8% to 83.90 while coking coal was unchanged at $190 a tonne.
This morning on the economic front we already had the release of German PPI which came in as expected with a 0.4% rise. At 9.00 am we have the latest ECB Survey of Professional Forecasters and this is followed at 9.30 am by UK Retail Sales. Yet again we have no US economic data.
At 4.30 pm Donald Trump will be inaugurated as the 45th US president.. While policy detail is unexpected in his inauguration speech which is due at 5.00 pm, the focus of his speech will be closely watched. If Trump emphases protectionist trade policies then that could see some unwinding of the Trump rally. On the other hand, if he focuses on making ‘America great again’ through infrastructure spending then it is likely the market will react positively.
March S&P 500
It has been the longest 20 days but finally this afternoon Donald Trump will be sworn in as President. This should see a pickup in volatility for the US stock market which has seen volatility fall to its lowest level in many years. Yesterday after the S&P hit my 2260 buy level the market rallied to a high at 2265 and I used this rally to cover my position at my revised 2262 T/P level and I am now flat. I am concerned about this market especially with the McClellan Oscillator closing with a negative 66 print yesterday. This should not be happening with the stock market so close to all-time highs. Today I will lower my sell level to 2278/2284 with a 2289 stop. My only interest in buying the S&P is on a dip lower to 2238/2244 with a 2233 stop. I know you will have a lot of analysts impressed by the late come back in the S&P off the 2253 low but the weakening MO is a concern. Remember we still have the series of confirmed Hindenburg Omen’s on the clock which are valid until mid-April. Yesterday the Dow broke its December 30 low at 19718 while the S&P is still trading 35 Handles above it equivalent low that day at 2227.75. A break and close below the December 30 low in the S&P will be at least short-term bearish opening up a move lower to at least 2180.
EUR/USD
Twice after Dragi finished his press conference the Euro sold off only to miss my 1.0580 buy level with a 1.0588 low print before rallying strongly overnight. Today is all about the Inauguration and Trump’s acceptance speech which follows at 5.00 pm. The Dollar could be in for a nasty sell-off if Trump mentions the fact that the US Dollar is ”killing us” as he said in his interview with the Wall Street Journalist after the US markets closed last Friday. I am still flat the Euro and today I will now raise my buy level to 1.0590/1.0630 with a 1.0555 stop. I still do not want to be short the Euro at this time.
March Dollar Index
Frustratingly the US Dollar missed my 101.75 sell level with a 101.73 high print before selling off to a low at 100.83 overnight and I am still flat. Today I will leave my buy level unchanged at 99.30/99.70 with a 98.85 stop. I will also lower my sell level to 101.55/101.95 with a 102.30 stop.
March DAX
I have never seen such little volatility in the DAX in my many years of trading this market. Since Christmas the DAX has traded in a 300 point range when normally we would see a Daily range of 130/200 points. I am still flat the DAX and given the importance of Trump’s speech later where literally anything can happen I will leave my buy level unchanged at 11425/11475 with the same wider 11360 stop. The DAX will have strong resistance at the July 2015 high at 11810 and today I will continue to look to sell the market on any rally higher to 11730/11790 with a 11840 stop. A break and close over 11810 will be very bullish.
March FTSE
My FTSE plan worked well with the FTSE trading lower to my 7135 buy level before having a nice rally which enabled me to cover this position at my revised 7162 T/P level and I am now flat. Today the FTSE has good short-term support at 7075/7110 and I will be a buyer in this area with a 7040 stop. I am still not comfortable in going short the market ahead of Trump’s Inauguration speech this evening.
Dow Rolling Contract
I am surprised how weak the Dow is trading and the fact that we did break its December 30 low at 19718 before having a late comeback. After the S&P hit my initial 19745 buy level I was not comfortable in being long especially as I wanted to protect the excellent points that we already had made and I emailed my Platinum Members to exit this position for a small gain at 19760 and I am now flat. Today my only interest in buying the Dow is on a dip lower to 19590/19660 with a 19540 stop. I still do not want to be short the Dow ahead of today’s Inauguration.
March BUND
My Bund plan worked well with the Bund trading lower to my 162.70 buy level before having a nice rally. This move higher enabled me to cover this long position at my 163.05 T/P level and I am now flat. The Bund should have good support at last week’s 162.47 low and below that very strong support at 162.15. Today I will again look to buy the market on any dip lower to 162.25/162.65 with a 161.95 stop. Despite the US Treasuries selling off I do not want to be short the Bund at this time.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1178/1186 with the same 1172 stop.
Silver Rolling Contract
I am still long Silver at an average rate of 17.04 with the same tight 16.60 stop. Yesterday afternoon Silver made a low at 16.73 before bouncing into the close. Today I will leave my T/P level unchanged at 17.25.
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