The US Senate on Friday failed to muster the 60 votes necessary to pass a stop-gap funding measure that would have averted the partial government shutdown that instead went into effect at one minute past midnight on Friday. It was not just Democrat opposition that produced the failure as several Republican Senators also crossed the floor to oppose the motion. So even if President Trump decides to adopt the ‘’nuclear option’’ allowing for a simple majority in the Senate to approve a spending bill, there is no guarantee this will yield a positive outcome. Attempts by Democrats to link Deferred Action for Childhood Arrivals (‘’DACA’’) into the spending bill, while the President insists spending and immigration issues should be kept separate, continues to be the obstacle in terms of a bipartisan deal to keep or now rather re-open the government.
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For anyone following my Platinum Service it made 70 points on Friday and is ahead by 209 points for the month of January, having made 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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At time of writing, a fresh vote has been scheduled for 12.00 pm Washington time Monday afternoon (that is 5pm this evening London time) so those of us watching screens are going to be subjected to a minute by minute barrage of red headlines out of Washington throughout the day.
Markets had been travelling last week with an expectation that a shutdown would be avoided. Now that it has not it is hard not to believe this will accentuate the weaker US dollar theme that has been prevalent so far in 2018 and is the main reason the Aussie dollar has poked it’s hat back above 80-cents having fallen as low as 75 cents last December. The caveat here would be if risk sentiment suffered a material and sustained knock. Back in October 2013 during the last shut-down, the VIX did jump from around 15 to above 20.
As far as economic impact is concerned, the October 2013 shutdown lasted 16 days and was reckoned to have knocked about a quarter of a percent of US growth (much of which was subsequently recouped). Markets are likely to hold the view this will latest shut-down will again be a short-lived affair, though I would warn than second guessing US ( indeed global) politics has been a losing strategy ever since the June 2016 Brexit referendum.
The other main development since we went home on Friday has been the weekend vote by Germany’s Social Democrat Party (SPD), by 362-269, in favour for a new Grand Coalition government with Angela Merkel’s Christian Democrats (CDU). This will ultimately have to be ratified by the entire party, but should be a formality. The Euro has jumped by half a cent or 0.4% at the market re-open, but has since been reversed as we wait for the vote in Washington later today.
The British pound is also stating the week firmer, supported by some fairly friendly comments from French President Macron (in the UK) about a Brexit deal for Britain that would definitely border on the ‘’soft’’ side of the spectrum of possibilities (while insisting that any deal could not be such that other countries could feel incentivized to follow Britain down the EU exit road). Latest UK Unemployment data and Q4 GDP – latter seen at 0.4% – are both due this week and will have some bearing on the near term course for Sterling.
In other markets, US equities were unfazed on Friday at the looming prospect of a government shutdown, nor too by US bond yields at 10 years finally breaking up through the 2.63% range tops that have been in place since late 2014. Again though, US dollar support from a rising US yields environment is still lacking. Both the S&P500 and NADAQ closed at new record highs. In commodities, oil and precious metals both fell back while industrial metals were mixed. Iron ore added 50 cents but at $76.68 is still a just over a dollar back from its 11th January high of $77.72.
This morning on the Economic front we have no data of note on either side of the Atlantic. As long as the US Government is shut-down we will have no US releases during this shut-down. This afternoon in Brussels there is a Euro-Group Meeting where both Dragi and Coeure are attending and due to speak.
March S&P 500
My S&P plan worked well on Friday but again you had to be quick to cover any short position as yet again the market closed at another new all-time high. After the S&P traded higher to my 2807 sell level we fell 7 Handles and I used this sell-off to cover my short position at my revised 2805.50 T/P level and I am now flat. As I mentioned last week I am looking for at least a temporary top in the market in the 2800/2825 resistance area and with the VIX spiking to a 20 high during the last Government shut-down in 2013 we should see a repeat of this increased volatility especially if the Senate cannot agree to re-open the Government in this evening’s second vote. With sentiment at such extreme levels a reversal can happen at any time. Today I will again look to sell the S&P on any rally higher to 2812/2822 with a 2828 stop. Remember I am trading in small size with a wider stop. My only interest in buying the market is still on a dip lower to 2755/2763 with a 2749 stop.
EUR/USD
Three times the Euro just miss my 1.2210 buy level before rallying strongly and I am still flat. Today I will lower my buy range slightly to 1.2140/1.2195 with a 1.2095 stop. I still do not want to be short the Euro at this time.
March Dollar Index
Finally the Dollar rallied late on Friday and this move higher enabled me to cover my long 90.25 position at my 90.35 T/P level and I am now flat. Given how oversold the Dollar is trading I will again look to buy the market on any dip lower to 89.70/90.10 with a 89.35 stop.
March DAX
The DAX exploded to the upside shortly after I posted on Friday helped by speculation that Merkel would finally after four months be able to form a Government. Yesterday’s vote by the SPD to form a coalition with the CDU sees the DAX up higher this morning. I am still flat as thankfully we have had no sell levels in the DAX for many weeks. The main challenge from here is the all-time high at 13530 and given the significance of this resistance level I will be a small seller from 13535/13595 with a 13640 stop. I will also raise my buy level to 13280/13345 with a 13230 stop.
March FTSE
No change as I am still a small buyer on any dip lower to 7580/7625 with the same 7545 stop. Despite the strength of Sterling I still do not want to be short the market at this time.
Dow Rolling Contract
It took a long time but finally just before the close on Friday the Dow traded higher to my 26090 sell level before having a quick move lower to my 26045 T/P level and I am now flat. The Dow did not match the new all-time high for both the S&P and NASDAQ continuing to trade below its all-time high at 26153. Today I will again look to sell the Dow on any rally higher to 26120/26220 with a 26280 stop. I will continue to be an aggressive buyer on any dip lower to 25420/25520 with a 25350 stop.
March NASDAQ
I am still flat the market and today I will now raise my buy level to 6695/6745 with a 6660 stop. I still do not want to be short the NASDAQ at this time.
March BUND
The Bund traded in a narrow range on Friday and that theme is continuing so far in this morning’s early trading. Today I will now raise my buy level to 159.70/160.15 with a 159.40 stop. The Bund is oversold but a break and close below 160.00 will be an added sell signal.
Gold Rolling Contract
Gold continues to struggle to move higher which is understandable with the Daily Sentiment Index reading at over 88% bulls. I am still flat and today I will leave my buy level unchanged from 1306/1316 with a 1298 stop.
Silver Rolling Contract
Silver is also struggling to rally this year with a narrow trading range and low volume. I am still flat and today I will also leave mu buy level unchanged from 16.40/16.75 with a 16.10 stop.
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