European equities closed Friday sharply lower, but US equities ended mostly higher amid an increase in trade tension rhetoric by president Trump. The US Dollar continued to drift lower on Friday and the US Treasury curve bear steepened, likely reflecting inflationary concerns from trade tariff impositions. In a Tweet on Friday morning President Trump said ‘’trade wars are good, and easy to win’’, increasing trade tensions and concern by the market. His tweet sparked further rebukes by trading partners and international bodies. Over the weekend Fed Member Kashkari also weighed in on the debate saying that ‘’I am sympathetic to the desire for fair trade but I am nervous that there will be economic cost to the US economy in trying to show that the threat is credible’’.
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 229 points on Friday and is now ahead by 427 points for March, having made 2256 points in February, 879 points in January, 946 points in December, and 823 points in November. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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A full-scale trade war is not good for global growth and risk sentiment, the imposition of trade tariffs is also likely to be inflationary for the US as domestic consumer will have to pay more for steel and aluminium and the risk of retaliations suggest that other sectors in the economy could end up getting hurt too. All that said we are not there yet and the response from China and other trading partners to an official US trade tariffs announcement will be important in this regard. China’s excess steel capacity is a known story and putting aside President Trump’s colourful language, the President does have a point; by many measures the US is less protectionists than China, Japan and Europe so a good outcome would be for everyone to yield a little bit.
For currencies the initial reaction to US led trade tensions is a negative for the US Dollar, but I think that an escalation of these tensions will result in a differentiation between safe haven currencies and currencies from small open economies. AUD, CAD and NZ as well as EM currencies are unlikely to be winners under such scenario.
The US Dollar closed Friday weaker in Index term and softer against most G10 with the CAD (-0.35%) and NZD (-0.18%) the only G10 currencies weaker than the greenback. Canada is the US biggest steel importer, so the Canadian Dollar’s underperformance is not surprising. Canada’s Q4 GDP also disappointed on Friday (1.7% vs 2% exp.), meanwhile after a decent run in the previous day, NZD weakness/profit taking looked overdue. NOK was the big winner on Friday, up 0.72%, after the Finance Ministry announced its decision to lower the Central Bank’s inflation target to 2% from 2.5%. JPY also gained on Friday ( 0.46% at 105.54) aided by comments from Governor Kuroda acknowledging for the first time that a tightening in policy was likely in FY19 (Apr-19 to Mar-20) given the Bank of Japan’s expectations for inflation to climb above 2% by then.
The AUD range traded on Friday, it reached an intraday low of 0.7738 and closed the week at 0.7756 (the pair now trades at 0.7740). Sterling was also pretty stable on Friday, closing the week at 1.38 and showing little reaction to PM May’s Brexit speech. The PM warned, “no-one will get everything they want” out of Brexit negotiations but she is confident a deal can be done.
Last night, Members of Germany’s Social Democrats (SPD) voted in favour of a coalition with Merkel’s conservatives, eliminating a tail risk for EU markets and opening the way to a new Government for Europe’s largest economy. The Euro is little changed this morning at 1.2306 having traded to an overnight high at 1.2365. Meanwhile voting is underway in Italy for a new government with a hung Parliament likely after Berlusconi’s party won most seats but is short an overall majority as the 5-star movement gaining the most seats but unable to form a majority government. This sort of political gridlock is par for the course for the country.
US Treasury yields moved higher on Friday with the move led by the back end of the curve. The 10y tenor ended Friday at 2.86%, essentially unchanged on the week and the 2y note closed at 2.243%, also little changed.
Commodities had a mixed Friday, risk aversion supported gold (1.39%), oil prices were marginally higher, but Met coal and iron ore were the big losers down 1.2% and 2.6% respectively. The story for the week, however, was for weakness across the board with met. coal and oil leading the way.
This morning on the Economic Front we have Euro-Zone and UK Composite/Services PMI at 8.50 am and 9.30 am respectively. Also at 9.30 am we have Euro-Zone Sentix Investor Confidence and this is followed at 10.00 am by Retail Sales. Finally we have US Market Services PMI and the ISM Non –manufacturing PMI at 2.45 pm and 3.00 pm respectively.
March S&P 500
My S&P plan worked really well on Friday with the S&P trading the whole of my 2653/2663 buy range for an average long position at 2658 before rallying to a high over 2690 into the close. This rally higher enabled me to cover my large long position at my revised 2665 T/P level and I am now flat. This morning the S&P is trading lower as it follows the Nikkei which closed 0.66% lower at 21,042. The S&P has good support at Friday’s 2647.50 low print and strong resistance from 2712/2725 where I will be a seller with a 2735 stop. I will also look to buy the S&P again on any dip lower to 2648/2658 with a 2642 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2625/2635 with a 2618 stop.
EUR/USD
My Euro plan worked well with the market trading higher to my 1.2315 sell level before selling off to my revised 1.2295 revised T/P level as emailed to my Platinum Members and I am now flat. Today I will now raise my buy level slightly to 1.2200/1.2240 with a 1.2160 stop. My only interest in selling the Euro is on a rally higher to 1.2370/1.2410 with a 1.2450 stop.
June Dollar Index
I have now rolled to the June Contract which trades at a small 40 point premium to the March Contract. The June Contract currently trades at 90.00 and today I will be a buyer on any dip lower to 89.40/89.80 with a 89.10 stop. I still do not want to be short the Dollar at this time.
March DAX
My DAX plan worked well with the market trading lower to my 11900 buy level before rallying 100 points and I used this move higher to exit my long position at my revised 11928 T/P level as so many of my Indices hit at the same time and I am now flat. Today I will again look to buy the DAX on any dip lower to 11680/11745 with a 11630 stop. A break and close below 11700 will be bearish and could well see a further acceleration to the downside.
March FTSE
My FTSE plan also worked well with the market trading lower to my 7075 buy level before rallying to my revised 7095 T/P level and I am now flat. Today I will again look to buy the FTSE on any dip lower to 7000/7040 with a 6960 stop. Given how oversold the FTSE is trading I do not want to be short the market at this time.
Dow Rolling Contract
The Dow had another wild trading session on Friday with the market trading lower to my initial 24380 buy level before rallying to my revised 24415 T/P level. Subsequently the Dow sold off to my second buy level as emailed to my Platinum Members at 24350 before subsequently rallying to my 24380 T/P level and I am now flat. The Dow has now fallen over 1300 points in the last three trading days for a 6% move lower which is a bearish development. Given the increased volatility I am trading the Dow in smaller size with a wider stop. The Dow has huge resistance from 24750/24950 and today I will be a seller in this area with a wider 25120 stop. As mentioned on Friday the Dow has strong support at 24200 and today I will again look to buy the Dow on any dip lower to 24160/24270 with a 24050 wider stop.
March NASDAQ
Late on Friday the NASDAQ traded higher to my 6800 sell level with a 6823 high print. Probably most of you did not take the trade as it happened so late on Friday evening. Last night after the Futures re-opened I emailed my Platinum Members to say that I had exited this short position at 6788 and I am now flat. This morning the NASDAQ is trading lower at 6755 and today I will again look to sell the market on any rally higher to 6820/6860 with a tight 6890 stop.
June BUND
I have now rolled to the June Contract which trades at a large 268 point discount to the March Contract. On Friday the March Contract traded lower to my 159.60 buy level before rallying this morning to currently trade at 160.20. As I did not want a long position over the weekend I covered my position at 159.68 and I am now flat. If you are still long please get out now before the March Contract expires. This morning the June Contract is trading at 157.52 and I will be a buyer on any dip lower to 156.90/157.30 with a 156.50 wider stop. I still do not want to be short the market at this time.
Gold Rolling Contract
I am still flat Gold and I will now raise my buy level slightly to 1302/1312 with a 1295 stop.
Silver Rolling Contract
I am still flat Silver and today I will now raise my buy level to 16.10/16.40 with a 15.70 stop.
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