In the face of increasingly shrill protestation from the US President but with support from the Wall Street Journal and a few prominent hedge fund managers, the Fed delivered on pre-meeting consensus expectations and lifted its Fed Funds rate target by 25bps to a range of 2.25-2.50%. The interest rate it pays on excess reserves (IOER) rises by just 20bps, also as expected and in an effort to steer the effective Fed Funds rate back to nearer the middle than the top of the target band. The widely watched ‘’Dots’’ signifying the expectations of individual FOMC members based on their own forecasts for how they see the economy evolving in the years ahead, sees the median dot lowered by 25bps for each of 2019, 2020, 2021 and also in the ‘’longer run’’ (the latter representing estimates of the so called ‘’neutral’’ rate). No real surprises here either. What was a bit surprising is that the post meting statement says that ‘’some further gradual increases (my emphasis) in the target range for the Federal Fund rate will be consistent’’. The expectation here was that all reference to ‘’gradual’’ could be dropped, significantly a formal end to the Fed being on ‘’auto-pilot’’ with respect to its rate rise cycle to date, as long as the economy and inflation were broadly performing as expected.
To mark my 1725th 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 To demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. 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 35 points yesterday and is now ahead by 2405 points for December, having made 1541 points in November, 2094 points in October, 1279 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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I would nevertheless judge that the Fed has now moved into fairly full-blown data dependency mode. Indeed, Fed Chair Powell has said as much in his press conference in noting that the Funds rate has reached what the committee regards as the lower edge of the range of estimates of the neutral rate. The Fed can be more patient going forward, Powell says, in part because of an acknowledgement that inflation is slightly undershooting Fed projections. Here, for 2019 the Fed now has PCE inflation at 1.9% down from 2% in September (the 2019 GDP growth forecast is lowered to 2.3% from 2.5%).
Also of note in the statement was the sentence that the Fed ‘’will continue to monitor global economic and financial developments’’ a clear sop to recent equity market weakness (and, as Powell notes, tighter financial conditions) and signs of slower growth abroad. So ‘’data dependency’’ clearly has a somewhat broader definition than just the hard incoming domestic economic prints.
Equities
US equities had rallied into the Fed seemingly in anticipation of a ‘’dovish hike’’ from the Fed, or perhaps even a ‘’no hike’’ Fed, so on the basis this was not quite as dovish an outcome as markets were primed for stocks fully reversed their gains and then some. A 0.75% gain in the S&P into the Fed ended with a loss of 1.75%. The S&P traded in a 93 Handle range which is the largest since March. Earlier, European stocks markets closed higher across the board, the Eurostoxx 50 +0.4%.
Currencies
The US dollar was softer into the Fed and stronger out of it, DXY at 96.56 beforehand and 97.0 now, so roughly half a percent higher. EUR/USD has given back all the European session gains, and which were helped not just by broader US dollar slippage but Italy and the EC formally settling their differences on the stance of fiscal policy next year. This saw Italian 10 year bond yields some 17bps lower and testing 2.75%. At the start of December they were close to 3.25%.
AUD/USD is currently the weakest G10 currency of the last 24 hours. Having failed to break back above 0.72 pre Fed, we saw some pressure on the Aussie on news that the US had lifted sanctions on Russian aluminium producer Rusal. This saw aluminium prices drop quite sharply. Aluminium has since recovered but the AUD has not, now trading below 0.7100 and to its lowest since November 1st.
Bonds
US Treasury yields were lower into the Fed, higher immediately out of it but now smartly lower in the slipstream of sharply falling US stocks. 10 year Treasuries have been pressing 2.75% from 2.825% pre-Fed and 2s a low of 2.62% from 2.66% Italy was the earlier star turn in Europe (see FX above)
Commodities
Oil has enjoyed a small bounce seemingly on optimistic soundings from Saudi Arabia on the oil supply/demand balance next year, though positioning is probably also a factor as too a softer USD into the Fed.
Aluminium had fallen back on the Rusal news (see FX above) but since recovered to be 0.1% higher on the day with the LMEX index also a touch firmer with most hard commodities – including iron ore and coking coal – currently showing gains on the day.
Economics
UK: CPI (y/y%), Nov: 2.3 vs. 2.3 exp.
UK: CPI core (y/y%), Nov: 1.8 vs. 1.8 exp.
CA: CPI (y/y%), Nov: 1.7 vs. 1.8 exp.
US: Existing Home Sales (m), Nov: 5.32 vs. 5.20 exp.
This morning on the Economic Front we have UK Retail Sales at 9.30 am. This is followed at 12.00 pm by the Bank of England Rate decision where no change is confidently expected. Finally at 1.30 pm we have the US Weekly Jobless Claims and the Philly Fed Index.
March S&P 500
I have now rolled to the March Contract which trades at a small 1.5 Handle premium to the December Contract and Cash S&P. Yesterday in the December Contract I was flat going into the FOMC Statement and again into the Powell press conference . Volatility increased dramatically with the S&P falling over 60 Handles on the FOMC Statement release before rallying ahead of Powell. Subsequently the S&P fell hard on his ‘’no help’’ to the stock market with the market hitting my 2525 buy level before stopping me out of this position one minute later at 2514. My second buy level of 2499 was then triggered with a 2490 low print before thankfully we had a small rally into the close which enabled me to cover this position at my revised 2515 T/P level and I am now flat. The S&P is now severely oversold having fallen nearly 470 Handles since the end of September. The 9 Day Moving Average has held the decline since we broke the 2710 level. However this morning the 9 Day MA comes in at 2602 which is 110 Handles away from the current price. Normally 30 Handles difference sees a reversal. The Daily Sentiment Index closed in single digits at just 8% bulls and the last time we had a single digit reading the market rallied for seven straight sessions. The only worry is that the McClellan Oscillator did not close above my -250 aggressive buy level for the S&P with a -215 print last night. The S&P also closed at its lowest level since September 26, 2017. The S&P has strong support from 2462/2478 and today I will be a buyer on nay dip to this area with a wider 2449 stop. The S&P should have strong resistance at the 2532 area which is the February low but given how oversold the market is trading I do not want to be short the S&P at this time. We also forget that we are in one of the seasonally strongest period of the year, but not this year with the S&P on course to having its worst December’s since 1931 in percentage terms.
EUR/USD
I am still flat the Euro with the market this morning trading at my key 1.1425 possible breakout level. Today I will now raise my buy level to 1.1320/1.1360 with a 1.1275 higher stop. Remember a break and close over 1.1425 is bullish for 1.1505, 1.1580 and possibly 1.1670. The 1.1100/1.1300 is key support as a break and close below here opens up the possibility of a move lower to 1.05 over the coming months.
March Dollar Index
I am still flat the Dollar and today I will now lower my sell range to 96.70/97.10 with a 97.45 stop.
March DAX
I have now rolled to the March Contract. The March Contract trades at a 10 point discount to the Cash DAX. Yesterday in the December Contract my DAX plan worked well with the market trading lower to my 10630 buy level before rallying to my revised 10670 T/P level and I am now flat. The DAX continues to outperform the US Indices over the past month. It is still weak but the pattern has changed. Today I will again look to buy the market on any dip lower to 10450/10520 with a 10390 stop.
March FTSE
I have now rolled to the March Contract which trades at a discount of 68 points to the Cash FTSE. Yesterday my FTSE plan worked well with the market trading lower to my 6660 buy level before rallying overnight to my 6690 T/P level and I am still flat. It is incredible that despite the 1.75% fall in the S&P yesterday that the FTSE is unchanged from where I marked prices 24 hours ago. FTSE stocks are now yielding over 4.5% which is the highest yield in over 30 years and is supporting the market. Today I will be a buyer of the March Contract on any dip lower to 6515/6555 with a 6480 stop.
Dow Rolling Contract
My Dow plan did not work well. Thankfully I was flat going into the Powell press conference and having already bought the S&P I waited to buy the Dow which I did at a price of 23350 before getting stopped out of this position straight away at 23210 which was near the low of the day. It is hard to believe that the Dow traded over 24050 post the FOMC Statement before getting slammed. The Dow is now nearly 4000 points lower since its October 3 high of 26951. The Dow has strong resistance from 23950/24150 and I will be a seller on any rally to this area with a tight 24230 stop. The Dow has strong support from 22920/23080 and this area must hold or else we are going to crash further. I will be a buyer on any dip to this key support with a tight 22750 stop.
March NASDAQ
I have now rolled to the March Contract which trades at a 15 point premium to the Cash NASDAQ. Yesterday the plan worked well with the market trading lower to my 6430 buy level before rallying to my revised 6470 T/P level ahead of the FOMC Statement and I am still flat. The NASDAQ has major support from 6060/6130 and I will be an aggressive buyer on any dip to this area with a 5990 wider stop. I will also be a small seller on any rally higher to 6500/6560 with a 6605 stop.
March BUND
This morning the BUND has traded higher to my 163.95 sell level. I am still short and I will now lower my stop on this position to 164.40. I will also raise my T/P level on this trade to 163.65.
Gold Rolling Contract
No Change as I am still a buyer on any dip lower to 1227/1235 with the same 1218 stop. If I am taken long I will have a T/P level at 1241.
Silver Rolling Contract
Finally Silver traded higher to my 14.75 T/P level on my 14.60 long position. Subsequently I emailed my Platinum Members to re-buy Silver again at 14.60. I am still long and I will again look to T/P on this position at 14.75 with a now higher 14.30 stop.
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