Well it might be too early to call the recent rout in equity markets over, but price action over the past 24hrs suggests calmness has returned with European equities rebounding while US equities were relatively steady until the last 30 minutes of trading when the Dow fell 300 points to close flat on the day while the S&P and NASDAQ both closed 0.5% and 1.0% lower. US Treasury yields are higher with the move led by the back end of the curve and the US Dollar is stronger amid news of US Senate bipartisan agreement to avoid a government shutdown. A stronger USD and price declines in the commodity complex have not helped the AUD.
To mark my 1500th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day This offer is open to both new and existing members and if anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 18 points yesterday and is now ahead by 407 points for February having made 879 points in January, 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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Just before the US Markets closed the RBNZ has left the cash rate unchanged as widely expected and notably the interest rate track has been left unchanged, suggesting a first hike is pencilled in for Q1-2020. So a tightening bias remains, but it is still way out there in the long distant future. The Bank does not see inflation reaching 2% until Q3-2020 and the unchanged final paragraph notes that ‘’Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly’’. .
Asia’s reaction to Tuesday’s solid US equities close was mixed with Chinese stocks in particular closing in negative territory. Europe on the other hand was happy to follow the lead from the US and all major regional indices closed in the high 1%, so not quite fully reversing all the losses from the previous days, but a good outcome nonetheless. After a solid start, US equities have crumbled in the afternoon session, to end the day in negative territory. Meanwhile after Tuesday’s roller-coaster ride, the VIX has steadily declined over the course of the NY session, it is now at 28, after opening the day at 31.38.
News of a US Senate bipartisan agreement to avert a government shutdown (see more below) appears to have been the driver for the rise in UST yields and rebound in the USD. 10y UST yields traded to an intraday low of 2.76%, but following the US Congress news a sell-off has ensued with 10y UST yields now trading at 2.84%. The move has been led by longer dated yields, bear steeping the curve. The 2y rate now trades at 2.13%, up 2.6 bps on the day.
The USD is stronger across the board with the yen the only G10 currency managing to edge small gains against the big dollar. In index terms, DXY is +0.73% and currently trades at 90.24 while BBDX is +0.49%. USD/JPY is essentially unchanged at 109.50 and although the rise in 10y UST yields, on their own, suggest USD/JPY should be trading higher, the lack of a rebound in Japanese equities (NIKKEI +1.13%) is probably the missing ingredient. After trading to an intraday high of 1.2406, the Euro now trades at 1.2280, in addition to the USD rebound, news that Merkel’s CDU and the SPD had reached a coalition agreement seemingly did not help the EUR. The agreement now needs to be put to +400k SPD members for a vote and a positive outcome is unclear at this stage.
AUD is amongst the biggest underperformers, down 1.05% with the rise in the USD as well as soft commodities performance the likely hindering factors. Copper (-2.8%) and oil prices have led the move lower in the commodities complex (Brent -2.2% and WTI -2.8%) with iron ore once again bucking the trend, up 1% to $75.2. Yesterday the AUD was unable to hold above the 0.79 mark and the steady decline seen during yesterday’s trading session, coinciding with the rebound in the USD and UST yields. AUD now trades at 0.7830, a few pips above the overnight lows.
With today’s deadline approaching fast, US Senate leaders announced a bipartisan two-year budget agreement that provides nearly $315bn in additional funding. The plan includes the Republican’s wish for an increase in defence spending and gives more funding for domestic programmes sought by Democrats. In theory the plan also includes a suspension of the Debt ceiling, but the time period has not yet been agreed. All that said, while the deal appears to have bipartisan supports in the Senate, support from the House is mixed. House conservatives are not happy to support an increase in spending while some Democrats said that they will oppose the deal unless there is a guarantee of a vote on immigration legislation.
In other news, speaking at a conference yesterday, the Fed’s Dudley said that the recent equity rout is not ‘’a big story at all for central bankers.” Adding that that the only way the swoon would hurt the economy is if the market went down and stayed down. At the moment, at least, it’s looking like that might not be the case. Fed Evans was also on speaking duties and said that he sees a ‘’hint’’ of inflation pressures picking up but, in his view, it is prudent to wait until mid-year for the next rate rise. Evans, however, who is a non-voter this year and a renowned dove on the committee, cautioned that if ‘’inflation picks up more assuredly, as many expect then we still could easily raise rates another three or even four times in 2018 if that were necessary’’. A March hike is about 90% priced and for 2018 the market is pricing about 2 more Fed hikes.
This morning on the Economic Front we already had the release of German Trade Balance which came in at Euro 18.2 billion versus 21.0 billion expected. At 9.00 pm the ECB publishes its latest Economic Bulletin and this is followed at 12.00 pm by the Bank of England Rate decision, Asset Purchase Target and the Inflation Report. At 1.30 pm we have US Weekly Jobless Claims. Finally at 2.45 pm we have the Bloomberg Consumer Comfort Index.
It is a busy day for Central Bank speakers with ECB’S Villeroy, Mersch and Praet speaking at 10.15 am, 10.30 am and 10.45 am respectively. This afternoon it is the turn of the Fed’s Harker and Kashkari.
March S&P 500
My S&P plan worked well for anyone who left their order in overnight with the S&P trading the whole of my 2648/2658 buy range for an average long position at 2653 before rallying 20 handles this morning. However given the aggressive late sell-off I emailed my Platinum Members to cancel this order as I would not be up watching the markets overnight and I am still flat. If you did buy the S&P then it worked nicely and I would take my gain here at 2673 and go flat. The CBOE Volatility Index spiked to 50 on Tuesday and the XIV which is the Exchange Traded Note designed to move opposite the VIX, is going away. The XIV rose from $6 to $144 over the past 6 1/2 years and then lost 96% of its value in just 17 trading days. It will be 100% on February 21, when Credit Suisse, the issuer of the ETN, shuts down the fund. Mom and Pop invested heavily in the XIV, which had assets of $1.5 billion. Just last Wednesday, $500 million flowed into the fund. The New York Times published a story on Tuesday that included a profile of an XIV investor who quit his job at the retailer Target so he could trade the instrument full-time. The same speculative urges of a crowd that propel people to buy crypto-currencies they know nothing about, push investors to think that the road to wealth is day-trading volatility derivatives. We know from experience how tough a taskmaster Mr. Market is which is why I wanted to share this story with you. These people have lost all their money in this XIV and have no come back against Credit Suisse. This equity decline is not going to end on a dime and over the coming weeks we will hear more and more of these stories as remember there is never just one cockroach. Today I will again look to buy the S&P on any dip lower to 2651/2661 with a 2641 stop. Yesterday the S&P came close to my 2745 sell level with a 2729 high and today I wll now lower my sell level slightly to 2735/2745 with a 2755 stop. If I am stopped out of any long position I will still be an aggressive buyer on any dip lower to 2607/2617 with a 2598 stop.
EUR/USD
Yesterday the rebound in the US Dollar saw the Euro trade the whole of my buy range and I am now long at an average rate of 1.2300. Yesterday the low was 1.2246 and today I will leave my stop unchanged at 1.2245 with a now lower 1.2320 T/P level. If any of these scenarios play out I will be back with a new update for my Platinum Members.
March Dollar Index
The Dollar rallied as expected with unfortunately the market missing my buy level and I am still flat. Today I will now raise my buy level to 89.25/89.65 with a 88.90 stop.
March DAX
I am still flat the DAX which was firm for most is yesterday’s trading session. I am reluctant to chase this market higher and today I will only raise my buy level slightly to 12360/12420 with a 12310 stop. Despite the negative price action I still do not want to be short the market at this time.
March FTSE
Unfortunately after I posted yesterday morning the FTSE was selling off but the low was 7102 just shy of my 7080 buy level before we rallied and I am still flat. Today I will now raise my buy level to 7085/7125 with a 7050 stop. Just like the DAX above I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow was all over the map yesterday in what turned out to be another volatile trading session. The Dow needs to break and close over 25270 for me to luck to buy the market but given the late sell-off which continued after the re-open of the futures market that saw the Dow some 740 points lower than where we were yesterday afternoon before a late recovery early this morning. I am still flat the Dow and today I will raise my buy level slightly to 24470/24620 with a 24410 stop. The McClellan Oscillator did improve slightly for the second consecutive trading session to close with a -204 print while the Fear & Greed Index weakened to 16 which is an Extreme Fear reading.
March NASDAQ
The NASDAQ traded lower to my 6530 buy level shortly after the US Futures Market re-open last night but unfortunately I emailed my Platinum Members to cancel this trade. However if you did buy the market I would take your gain here this morning at 6590 and go flat. Today I will be a buyer of the market on any dip lower to 6450/6500 with a 6415 tight stop.
March BUND
My Bund plan worked well with the market trading lower to my 158.15 buy level before having a nice rally and I used this rally to cover this position at my revised 158.43 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 157.35/157.75 with a 157.05 stop.
Gold Rolling Contract
I am glad we have stayed on the sidelines in Gold over the past few days with the market trading lower as flagged by the extreme bullish sentiment readings. Gold has good support from 1285/1295 and today I will be a buyer in this area with a 1278 stop.
Silver Rolling Contract
Silver traded lower to my second buy level at 16.30 for a now average long position at 16.47. I will leave my stop unchanged at 15.95 while my T/P level is now lower to 16.60.
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