A particularly good day for US stocks on Friday, the S&P500 gaining 1.6% with all sectors in the green and meaning that the Index has now recouped more than 50% of its early February (10.1%) fall to be only 4.4% off from its 26th January record high (and the Nasdaq a mere 2.2%). The VIX has also retraced more than half its January-early February jump from 9.25 to 37.3, now -56% off the latter at 16.5. In contrast bond volatility, which rose by 31% between mid-January and early February, is back only 7% from its recent highs and FX volatility only 10% lower after rising by 56% between 9th January and 6th February. My own view is we have now entered a period of permanently higher asset class volatility versus post Global Financial Crisis, central bank liquidity driven, norms.
To mark my 1525th 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 12 points on Friday and is now ahead by 1941 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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US Treasury yields were under downward pressure almost from the time I posted on Friday and continued falling throughout the European and North American sessions. 10s ended in NY over 5bps lower at 2.87%, in turn a supportive influence, it would seem, on US equities. The Fed delivered its Monetary Policy Report <http://www.federalreserve.gov/monetarypolicy/2018-02-mpr-summary.htm > to Congress on Friday, a head of new chair Jay Powell’s testimonies to both House and Senate committees on tomorrow and Wednesday, and there was evidently nothing in here to frighten the bond or equity horses. While noting that the labour market appears to be at or ‘’ little beyond’’ full employment, there was no sign of elevated concerns about wages growth or inflation or ‘’at this stage’’ the likely path of Fed policy.
One passage that may or may be significant said that ‘’with inflation having persistently run below the 2 percent longer-run objective the Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal’’. The first part of this sentence has not appeared in the post-FOMC statements to date, even though ‘’symmetric’’ has been there since March last year.
Also notable in Friday’s statement was a fresh warning about asset prices:
‘’Valuation pressures continue to be elevated across a range of asset classes even after taking into account the current level of Treasury yields and the expectation that the reduction in corporate tax rates should generate an increase in after-tax earnings. Leverage in the nonfinancial business sector has remained high, and net issuance of risky debt has climbed in recent months’’.
Monetary Policy report aside, the only Fed-speak on Friday came from San Francisco Fed President Williams who said ‘’three to four’’ rate increases was the ‘’right path’’. The US money market is not yet ready to flirt with the idea of more than three.
News late in the NY day Friday that President Trump was disposed towards imposing 24% tariffs on steel imports and 10% on aluminium came too late to have much impact on markets though it looks like AK steel, Alcoa and other US metals producers jumped after the 4pm official stock market close. Nor too did the news that Rick Gates, right-hand man to Trump’s election campaign manager Paul Manafort, had pleaded guilty on conspiracy (to defraud) charge as part of a plea bargain.
While an announcement from the White House on tariffs does not have to come until April 11 (steel) or April 19 (aluminium), there is an election for a vacant Congressional seat in the Pennsylvania 18th district on March 13. The election is being viewed as a bellwether for the November mid-terms. Many steel workers who voted for Trump because they believed he would be a boon for the industry are reportedly feeling abandoned by the president. Watch this space.
In FX, Friday’s big ‘’winning trade’’ would have been long CAD/SEK (+1.3%). This was from a hit to SEK on Minutes from the last Riksbank meeting indicating no tolerance of sub-target inflation and which saw expectations for the first rate rise pushed back, and a boost to CAD after Canada’s January CPI came in 0.2% above expectations (0.7% for 1.7% y/y against 1.5% expected).
There looks to be a broader story here, namely that while inflation may be stirring in North America it has not (yet) in Europe or the rest of the world. While Friday’s FX price action suggest the right FX strategy should be to buy currencies in countries where inflation is rising and sell the rest, this likely only applies in the case of the US dollar if markets become convinced the Fed is not going to tolerate inflation poking its head much above 2%.
After CAD, Sterling was the second best performing currency on Friday, for no obvious reason, though may well draw some support at the start of the week from weekend press comments from new BoE deputy governor Sir Dave Ramsden, writing in the Sunday Times that ‘’relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later’’. Ramsden was one of only two MPC members who dissented against last November’s BoE rate rise. This will consolidate believe the BoE is gearing up to lift rates in May unless something bad happens in the interim. If open reason for Sterling strength was the reports of an outbreak of peace among a hitherto divided UK cabinet on Brexit, then note European Council President Donald Tusk has quickly rubbished the reported UK stance as ‘’pure illusion’’. More detail on the government’s planned approach should be revealed on Friday when May gives a long awaited speech on Brexit. Ahead of that, Labour leader Jeremy Corbyn will set out his party’s planned approach to Brexit this afternoon, which will indicate their intention to remain within the customs union (by way of a new treaty).
Commodity prices were mostly lower Friday and also on the week, perhaps helped by a the firmer USD. Oil prices in contrast gained on Friday, building on a now two-week old rally, on news of a shutdown at a major Libyan oil field from a wages dispute (600k barrels) and after Thursday’s EIA inventory data showed a 1.6mn.barrels draw on crude stocks.
This morning on the Economic Front we have UK Finance Loans For Housing at 9.30 am. This is followed at 1.30 pm by the Chicago Fed National Activity Index. Finally we have New Home Sales and the Dallas Fed Manufacturing Activity Index at 3.00 pm and 3.30 pm respectively.
March S&P 500
It has been difficult in trying to get a long position on board with the S&P again just missing my buy level before rallying strongly. As mentioned on Friday a break and close over 2735 is bullish which certainly proved to be the case with the S&P rallying over 20 Handles in the last hour of trading. I cannot emphasise enough about the importance of my Platinum Service as the updated emails are key to saving and making points especially as circumstances change during a trading session. Late Friday the S&P traded higher to my 2738 sell level and given the improvement in the Breath of the market I emailed my Platinum Members to cover any short position which I had done for a breakeven. I also moved my buy level higher which unfortunately just missed before we got the late rally that has carried through overnight. As long as the S&P stays over 2725 then we could eventually see new all-time highs for the market especially with the McClellan Oscillator improving from Thursday’s +10 print to close on Friday with a +101 reading. Today I will now move my buy level higher to 2736/2746 with a wider 2724 stop. My only interest in selling the S&P is on a rally over the coming days to 2810/2825 with a 2835 stop. After the S&P hits my raised sell range, I am looking for another sell-off in the market before we rally to new all-time highs.
EUR/USD
I am still flat the Euro and today I will now raise my buy level to 1.2235/1.2270 with a 1.2195 stop. I still do not want to be short the Euro at this time.
March Dollar Index
Earlier this morning the Dollar traded lower to my 89.50 buy level. As I want to book some points for Friday’s trading session I have now cut this position here at 89.62 and I am now flat. Today I will again look to buy the Dollar on any dip lower to 88.85/89.30 with a 88.45 stop.
March DAX
The fact that the DAX is trading over its key resistance level at 12500 is bullish. I am still flat as yet again the market just missed my buy level before rallying strongly. Today I will now raise my buy level to 12400/12470 with a 12345 stop. I still do not want to be short the DAX at this time.
March FTSE
I am still flat the FTSE which again just missed my buy level after I posted on Friday before rallying as expected. Thankfully we had no sell levels in either the DAX or FTSE over the past few days. Today I will now raise my buy level to 7200/7230 with a 7170 stop.
Dow Rolling Contract
There is no stopping this Dow as anytime the market sells off it is met by strong buying. I am still flat and today I will now raise my buy level to 25180/25280 with a 25090 stop. The Dow has strong resistance from 25650/25750 and today I will be a seller in this area with 25840 stop.
March NASDAQ
The NASDAQ has now nearly recouped all its losses from late January with the market less than 2% from all- time highs. I am still flat and today I will now raise my buy level to 6780/6830 with a 6740 stop. I still do not want to be short the NASDAQ at this time.
March BUND
This is a frustrating market as I have had the correct view over the last week but I have been unable to get a long position on board. After I posted on Friday the Bund rallied strongly as yet again any short position has got slammed. The break and close over 159 is significant and today I will now raise my buy level to 158.75/159.15 with a 158.45 stop.
Gold Rolling Contract
I am still flat Gold and today I will now raise my buy level to 1315/1325 with a 1308 stop. This has been a frustrating market especially given the lack of volatility so far in 2018.
Silver Rolling Contract
Silver again missed my 16.25 buy level before rallying and I am still flat. Today I will now raise my buy level to 16.25/16.60 with a 15.90 stop.
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