Looking across markets this morning, the standout feature on what was the last day of a fairly tumultuous month, is the relatively sharp fall in all things Sterling. This following the 120 page presentation by the EU chief Brexit negotiator Michel Barnier, in which he suggests a ‘’fall back’’ positon whereby Northern Ireland would remain in the EU’s Customs Union post Brexit in order to avoid a hard border with the Republic of Ireland. UK PM Theresa May’s immediate response has been to condemn the proposal as completely unacceptable to the United Kingdom. Monsieur Barnier’s related suggestion that we are far from agreement to a Brexit transition arrangement has similarly alarmed UK markets (recall that the key issues to resolve here relate to the status of the Irish border, the financial ‘’divorce’’ settlement and the willingness of the UK to subject itself to the strictures of the European Court of Justice to settle any disputes arising during the transition period).
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For anyone following my Platinum Service it made 87 points yesterday to close February with a gain of 2256 points, 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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The clock is now ticking loudly counting us down to the March 22 EU Summit. If a transition deal cannot be agreed by then, Sterling is vulnerable to a further and sharper turn for the worse, bringing with it as it would the increased prospect of a ‘’hard Brexit’’ in March 2019. This really all just goes to show that in the last 18 months, the UK government has simply been negotiating (or as Billy Idol sang, dancing) with itself, due to the seemingly intractable differences between the hard and soft Brexiteers.
At the other end of the FX spectrum, USD/JPY is 0.6% lower, building on the rally seen during our time zone after the Bank of Japan reduced its purchases of 25-40 year bonds, not that this means anything at all regarding prospects for the BoJ backing of its +/-0% 10-year JGB YCC policy anytime soon.
Elsewhere across markets there has been little by way of a second wave reaction to Fed chair Jay Powell’s testimony on Tuesday (he repeats the affair in front of the Senate Banking Committee this afternoon). Month-end considerations are probably standing in the way of more macro-fundamental impulses just at the moment after what has been a big month for markets that sees US stocks ending with loses of about 3.0% for the S&P 500 and 3.7% for the Dow (The NASDAQ in contrast is currently down just 1.2% on the month).
US bond yields have eased back a touch in ‘’bull flattening’’ moves (2s -0.2bp, 10s -2.4bps to 2.87%). Despite lower yields, the US dollar looks to have been the beneficiary of month end demand (e.g. some non-US asset managers buying back US dollars in order to preserve existing hedge ratios given the fall in stocks in February). There might possibly be more of that come during today’s sessions, if so a potential small weight on AUD/USD. AUD is currently lower than where we left it last night, at 0.7720, having achieved an intra-day high near 0.7820.
In commodities, oil had a bad day with both WTI and Brent crudes off more than 2% (Brent -$1.75 to 64.78 – its lowest since mid-February). EIA data showing revised November US crude production above 10 million barrels to its highest on record (10.057m b/d) and inventory data showing a 3.02m barrels build in crude stocks is responsible for the fall. Elsewhere hard commodities are narrowly mixed while softs are all higher, led by 3.8% jump for wheat.
US data has not been market moving, with the second estimate of US Q4 GDP revised to 2.5% from 2.6% as expected. Earlier in the day, Euro-Zone February CPI came in at 1.2% from 1.3%, also as expected.
This morning on the Economic Front we have German, Euro-Zone and UK Manufacturing PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed at 10.00 am by Euro-Zone Unemployment. At 1.30 pm we have US Weekly Jobless Claims, Personal Income and the PCE data for January where both the headline and core deflators are seen unchanged at 1.7% and 1.5% respectively. Next we have US Manufacturing PMI at 2.45 pm followed by Construction Output and the ISM Manufacturing at 3.00 pm. Also at 3.00 pm US Fed Chair Powell gives his second testimony, to the Senate banking Committee.
March S&P 500
My S&P plan worked well yesterday as no matter where you bought the S&P in my buy range the market had a nice rally before subsequently getting slammed for the second consecutive trading session into the close. I bought the market at my revised 2734 buy level before covering this position at 2739. I did not expect the S&P to break and close below 2720 which is bearish as it opens up the possibility of a move lower to 2640 over the coming days. Overnight the S&P traded to a low of 2703.50 before rebounding back to the 2720 area this morning. For the S&P to re-gain its mojo we need to break and close over 2750. With Powell speaking at 3.00 pm I would expect volatility to increase again especially with the VIX closing 7% higher yesterday to be back at the 20 level. Today I will be a small seller on any further rally to 2746/2756 with a 2762 stop. The S&P has support at 2690 and today I will be a buyer on any dip lower to 2687/2697 with a 2681 stop.
EUR/USD
I am still flat the Euro as the market again closed below the key 1.2300 resistance level. I have to respect the price action and today I will be a seller on any rally higher to 1.2270/1.2310 with a tight 1.2335 stop. I will also lower my buy level slightly to 1.2105/1.2145 with a 1.2070 stop.
March Dollar Index
I am still flat the Dollar which continues to rally as expected. Today I will now raise my buy level to 89.80/90.20 with a 89.45 stop.
March DAX
It took a while but finally the DAX traded lower to my revised 12320 buy level before rallying to my 12355 T/P level and I am now flat. The weakness in the Euro is preventing the DAX from falling further at this time with the next important support level at 12250. Today I will again look to buy the market on any dip lower to 12210/12270 with a 12160 stop. Despite the weakness in the market I am still not comfortable in being short the DAX especially as this is the beginning of a new month which traditionally sees new monies put to work in the stock market.
March FTSE
Late in yesterday’s trading session the FTSE traded lower to my 7200 buy level. As I wanted to be flat overnight I emailed my Platinum Members to exit any long position at 7212 and I am now flat. With Sterling falling hard it is difficult to see a more sustained sell-off in the FTSE at this time and today I will again look to buy the market on any dip lower to 7125/7165 with a 7095 stop.
Dow Rolling Contract
My initial Dow plan did not work well as after the Dow traded lower to my average buy level at 25210 I was quickly stopped out of this position at 25095. Subsequently the Dow traded lower to my second more aggressive buy level at 25025 before rallying 90 points and I used this rally to cover this position at my revised 25080 T/P level and I am now flat. Overnight the Dow traded lower to test the key 24950 support level which must hold or else we will see a more aggressive sell-off. Not helping the Dow at this time is the McClellan Oscillator which closed last night in negative territory with a -29 print. The Dow must break back above 25200 for the market for the up-move to continue. Today I will be a small buyer on any dip lower to 24850/24930 with a 24770 tight stop. Given the fact that we are at the start of a new month I do not want to be short the market at this time.
March NASDAQ
My NASDAQ plan worked well with the market finally trading lower to my 6845 buy level overnight before rallying to my 6875 T/P level and I am now flat. Today I will again look to buy the NASDAQ on any dip lower to 6770/6820 with a tight 6740 stop.
March BUND
Unfortunately the Bund just missed my 159.05 buy level before rallying and I am still flat. Today I will now raise my buy level to 158.80/159.25 with a 158.45 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Thankfully Gold rallied to a rebound high at 1323 after I posted yesterday morning and this rally enabled me to cover my long 1317 position at 1318 and I am now flat. Today I will be a buyer on any dip lower to 1292/1302 with a 1285 stop. I still expect any test of the 1290/1300 support level to be followed by a decent rally before the market again sells off to lower prices.
Silver Rolling Contract
No change as I am still long at 16.55 with a now lower 16.60 T/P level. If my second buy level at 16.25 is filled I will then lower my T/P level to 16.45. If this happens I will be back with a new update for my Platinum Members. Meanwhile I will leave my stop unchanged at 15.90.
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