Market predictably quite with voting in the US mid-terms still underway as we wait for the first polls to emerge. The US Indices closed higher buoyed by reports that the Republican party where going keep control of both the House and the Senate. In FX GBP (up) and CAD (down) showing some life with AUD and NZD both a little firmer. In commodities both Gold and Silver closed lower along with oil and US bond yields a smidge higher. As I post this commentary the Democrats have a net gain of nine seats in the House and are on course to achieve the 23 seats needed for an overall majority. Meanwhile the Republicans as expected hold the majority in the Senate.
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For anyone following my Platinum Service it made 27 points yesterday and is now ahead by 285 points for November, having made 2094 points in October,1276 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Currencies
It seems we have now graduated from an obsession with President Trump’s Twitter feed to interpreting the hand signals coming out of 10 Downing Street as a source of inspiration for market volatility. Thus a ‘’thumbs up’’ from UK Brexit Secretary Dominic Raab out of a Cabinet meeting yesterday saw Sterling immediately jump to its best levels in two weeks. This was on the view that progress is being made towards a UK Brexit position with regards to the Irish backstop that could suffice to have EU Brexit Commissioner Michel Barnier being prepared to call an EU Summit for later this month. According to the Guardian newspaper, ‘’Cabinet sources saying that Ministers, led by Geoffrey Cox and Dominic Raab, are now working up a mechanism to review the backstop which will make sure that it won’t go on forever.” A little later in the day, Barnier himself was quoted saying that without an operation backstop, there is no deal and so no transition period, but that ‘’if we can get a deal on a backstop and I see decisive progress, I will recommend a (November) Summit’’.
Just before the New York close, the BBC has reported that on November 19th the Withdrawal Agreement and future framework will be put to parliament by way of a statement by Brexit minister Raab, citing a Brexit document it has been but which a government spokesman has just said ‘’does not represent the government’s thinking’’.
So all to play for still, but with the smoke surrounding a possible Brexit deal thickening, the trading market looks justified in taking the view there must be a fire somewhere, bearing in mind that there is easily another 5-6 cents of upside for the GBP/USD rate on confirmation a deal.
On the negative side of the European ledger there are signs Italy’s coalition may be fraying. The populist government called a parliamentary vote of confidence amid internecine tensions over immigration and spending priorities, Bloomberg reports. Deputy PM and League head Matteo Salvini is pushing for restrictions on the rights of asylum-seekers, opposed by some Five Star senators who risk expulsion from the party if they vote against the administration. 10 year Italian government bonds are 7bp higher while EUR/USD sits little changed on this time yesterday, unable to benefit in the slipstream of the stronger Pound, as has been the case of late.
One other development to note is further slippage in oil, with Both Brent and WTI crudes off close to $1. This is allegedly on reports that Iraq plans to boost its output and capacity in 2019; this comes on top of realisation that a lot of Iranian oil is going to continue to flow as a result of the sanctions waivers granted to eight countries by the US (as well as Russia’s declared intent to help Iran circumvent oil export restrictions).
The relevance of this for currencies is that the Canadian Dollar continue to suffer much more than the Aussie dollar on lower oil even though it represents a negative terms of trade shock for both of them. CAD was the worse performing G10 currency yesterday.
Bonds
US bond yields are just under 1bp higher at 10 years and the more Fed policy sensitive 2-year note yield up 1.6bps to a new cycle high of 2.925%. 10 years yields are back from their intra-day highs after a good 10-year note auction, while of some note US break-even inflation rates have risen by 1bps or so despite the further decline in oil prices (meaning real yields have actually eased back a touch). As mentioned above, 10 year Italian bonds (BTPs) are 7bp higher while German 10 year bonds closed 0.8bp up. On Italy, PM Conte is now out saying that pension reform and citizen’s income will commence early in 2019 that might not play too well later today.
Equities
Into the close, the S&P 500 is up about 0.70% with industrials and materials leading with gains of +/-1% and communications the one sub-sector in the red but only just. The NASDAQ is finishing 0.5% up and the Dow about 0.80%
Commodities
Platinum and wheat are the only two commodities across the entire spectrum of energy, base and precious metals, and agri. to be showing green on my screen at the moment, with oil extending loses into the NY close (Brent -$1.15, WTI -$1.0). Aluminium is the biggest faller among the base metals (-1.25%) while iron ore futures are almost matching (-1.2%). In agri., last night dairy auction saw the GDT Index clearance price down 2%. So prices continue to track lower, broadly in line with expectations on the day. The GDT Price Index is 12.3% below a year ago. Price declines this season have been orderly but persistent.
Economic Data
German manufacturing order rose by 0.3% in September against expectations for a 0.5% fall, so some signs that the impact of retooling in the auto sector may be completing, though orders are still 2.2% down on a year ago.
Euro-Zone final services PMI printed 53.7 against a preliminary 53.3.
US Jolts job openings for Sep eased to 7009mn (saar) from a revised 7136, but not surprising in this volatile series and given the surge so far this year. Hiring’s also eased to 5744 from 5906 (by more than openings, thus extending potential wage rises). The quit rate also eased slightly.
This morning on the Economic Front we have German Industrial Production at 7.00 am followed by the UK Halifax House Price Index at 9.30 am. Next we have the Euro-Zone PPI at 10.00 am. We have no US data as all eyes will on the afternoon reaction in Equity Markets to yesterday’s Mid-Term Elections.
December S&P 500
The S&P closed firm as the markets speculated on the Republicans holding both the House and the Senate to close near last Friday’s highs. I am still flat the S&P and today I will now raise my buy level to 2718/2730 with a 2710 stop. My only interest in selling the S&P is on a rally higher to 2825/2840 with a 2852 stop.
EUR/USD
No Change as I am still a small buyer on any dip lower to 1.1270/1.1315 with the same 1.1235 stop.
December Dollar Index
No Change as I am still a seller on any rally higher to 96.90/97.30 with a 97.70 lower stop.
December DAX
The DAX closed firm with the market finally able to close over the next resistance level at 11500. The 11340/11410 area should now act as strong support and today I will be a buyer on any dip to this area with a 11290 stop.
December FTSE
On the back of the stronger Pound the FTSE struggled all day with the market trading lower to my 7015 buy level before rallying to my revised 7032 T/P level with a 7056 high print and I am now flat. Today I will again look to buy the market on any dip lower to 6950/6990 with a 6910 stop.
Dow Rolling Contract
The rally in the Dow continued yesterday as yet again anyone trying to short this market gets slammed. The close over 25300 is positive with the market now within site of its 50 Day Moving Average which comes in at 25866. Today I will now raise my buy level to 25280/25450 with a 25190 stop. I still do not want to be short the market at this time.
December NASDAQ
The NASDAQ just missed my 6860 buy level before having a strong rally into the close. I am going to stay flat the NASDAQ for now as I want to see how the market reacts to the Election results later.
December BUND
No Change as I am still a seller on any rally higher to 160.50.160.90 with the same 161.25 stop.
Gold Rolling Contract
Both Gold and Silver are struggling to rally which is surprising considering the fact that the US Dollar has weakened over the past few days. I am still flat Gold and today I will leave my buy level unchanged from 1205/1214 with the same 1198 stop. Remember a break and close below 1200 is bearish.
Silver Rolling Contract
Thankfully Silver rallied to my 14.70 T/P level on my latest 14.60 long position and I am still flat. Silver had a weak finish which is a concern. Today my only interest in buying the market is on a dip lower to 13.85/14.25 with a 13.55 stop which is just below the December 2015 low of 13.62.
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