Prospects of greater US fiscal spending (infrastructure and tax cuts) under a Trump Presidency continue to buoy equity markets, while US Bond markets are sold on the prospects that such policies are inflationary. Markets are paying very close attention to what Trump rhetoric becomes possible, and then probable. Yesterday his transition team said they will be working to dismantle the Dodd-Frank Act (a major piece of financial regulation post GFC) and replace it with “new policies to encourage economic growth and job growth”. We also found out that Trump was not seeking Fed chair Yellen’s resignation, but were also not nominating her for a second term. In summary it seems markets are buying the positives of an upcoming Trump administration.
To mark my 1200th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 155 points yesterday and is now ahead by 825 points for November having made 1582 points in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
US equities continue to surge, with the Dow hitting a record high overnight up 1.3%, and the S&P500 up 0.4%. Helping to drive that were financial stocks which were up an astounding 3.9% following indications that Trump was going to dismantle the Dodd-Frank act. Asian equities followed the US lead over the previous day, while European equities were unchanged to mostly lower with the DAX down 0.1% and the FTSE down 1.2%.
The Fed’s Bullard (voter) was out yesterday emphasising that the election does not change the chance of a December rate hike, noting “we are basically on track the same way we were before the election”. That sees the OIS markets pricing an 84% chance of a December hike. As a hint to the Fed in 2017, Bullard also said the election “certainly breaks gridlock in Washington, which has been a key compliant of how the economy has operated”. To me that suggests the possibility of a more hawkish Fed in 2017 then what we saw in 2016 (also note Trump will need to fill two vacant governor positions on the board with most of his economic advisors on a hawkish tilt).
Bond Yields continue to be on the march. US Treasuries were up 3.7 basis points to be 2.09%. It’s worth noting that much of the rise in US bond yields is coming from higher inflation expectations. While nominal bond yields are up around 23bps since Trump’s victory, around 17bps is coming from a rise in 10-year breakeven inflation rates which are now hovering around 1.90%. US investors are pricing in the prospects of higher inflation. Other major sovereign bond markets followed the lead in Treasuries the previous day which saw Australia CGS up 27.7bps to 2.5%. European bond yields rose less, with Bunds up 7.1bps to 0.27% and UK Gilts up 8.5bps to 1.34%.
In the FX space it was again a story of US Dollar strength up 0.2% yesterday, which is 3% higher since its low point following Trump’s election victory. Most currencies were lower against the Dollar except the British Pound which was up 1.2%. There hopes that greater US-UK trade may eventuate. At the bottom of the board is the Kiwi (- 0.9%) and the Yen (-1.1%). The RBNZ cut rates yesterday and while most saw the cut as a “hawkish cut”, the usual concern around the currency was repeated: “A decline in the exchange rate is needed”.
In commodities, Iron ore rose 4.4% to be $US74.1 a tonne – its highest level since late 2014. Yesterday, iron ore futures in China surged by their 9% limit, with some attributing the increase to traders moving onto iron ore following the higher fees imposed on coking coal futures by the Dalian Commodity Exchange. For Australia’s other main commodities, coking coal was up 3.9% to be $US295 a tonne and thermal coal was down 0.6% to be $US111.4 a tonne. Positive sentiment globally also helped lift most other metals higher with copper up 3.5% and zinc up 1.4%.
Oil was the underperformer down 1% with WTI at $US44.8 a barrel. The International Energy Agency noted that for the oil market to re-balance in 2017 OPEC will need to move ahead with its mooted production cap (of between 32.5- 333.0 mb/d). OPEC meets on 30 November and if no agreement is reached than the oil market will remain in surplus with the risk that oil prices will fall back.
This morning on the economic front we already had the release of German CPI which came in as expected with a 0.2% rise. At 9.30 am we have UK Construction Output. Finally with the US banks closed today for the Veterans Day Holiday, the only US data is the University of Michigan Consumer Sentiment at 3.00 pm.
December S&P 500
The S&P plan worked very well with the market trading lower to my average buy level at 2154 before thankfully bottoming in front of my 2147 stop with a 2147.50 low print before incredibly rallying back above 2170. After I bought the S&P I emailed my Platinum Members to exit this position at 2159 and then to re-buy on any further dip to 2150 which subsequently occurred before the market again rallied to my second T/P level again at 2159 and I am now flat. However both the S&P and NASDAQ are struggling in comparison to the Dow which surged to a new high with a 1.25% gain while the S&P remains over 20 Handles below its August all-time high at 2193. The announcement by the Trump Administration that it is doing away with the Dodd-Frank Act is extremely positive for the Financial sector as shown by the 4% rally in most bank stocks yesterday. As I mentioned in my commentary on Wednesday a Trump victory is the best thing to happen for the markets in many years as we will now see plenty of two-way trading over the coming months. The fact that Fed Chair Yellen will not have her position extended is another positive for the markets. Despite the Dow rallying 1.25% the McClellan Oscillator which closed at +3 on Wednesday closed with negative -4 reading last night as the internals of the stock market continue to struggle. The S&P which has fallen for nine consecutive trading session’s for the first time in 36 years to last Friday’s close has now closed higher for the last four trading sessions. If the S&P can follow the Dow higher to break and close over 2200 it will very positive. Today I will again look to buy the S&P on any dip lower to 2152/2158 with a 2146 stop. If I am taken long and subsequently stopped out of this position I will use my ”5 Handle Rule to re-buy with a stop below whatever new low is printed. Despite the S&P trading heavy in comparison to the Dow my only interest in selling this market is on rally higher to 2190/2196 with a 2202 stop.
EUR/USD
My Euro plan worked well with the market hitting my 1.0870 buy level before rallying to a high print at 1.0924. As I want to continue with my theme of banking points when available I covered my long Euro position too early at 1.0890 as I wanted to make up for my Dollar Index loss and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.0820/1.0860 with a 1.0785 stop. Today I will lower my sell level in the Euro to 1.0990/1.1030 with a tight 1.1055 stop.
December Dollar Index
As expected I was stopped out of my 98.35 short position at 98.75 and I am now flat. The Dollar is very overbought at these levels and today I will again look to sell the market on any rally higher to 99.10/99.40 with a 99.70 stop. If I am taken short and subsequently stopped out of this position I will be an aggressive seller on any further rally to 100.30/100.70 with a 101.05 stop.
December DAX
The DAX traded lower to my 10600 buy level before rallying 100 points. As I was long the S&P at the time I covered my long DAX position at my revised 10630 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 10530/10585 with a 10475 stop. Keep an eye on the resistance level at 10800/10850, as a break and close over this level this evening will be a breakout similar to what happened to the Dow yesterday targeting a move higher to 11160.
December FTSE
Unfortunately the FTSE missed my sell-off before selling off aggressively with the market not helped by the move higher in Sterling which as I mentioned at my IG lecture on Wednesday was a ”Buy”. The FTSE having hit a high at 6990 then fell 180 points which must be some sort of record when you consider the Dow closed 1.25% higher. The next support for the FTSE is from 6720/6760 and I will be a buyer in this area with a 6685 tight stop. Despite the aggressive sell-off yesterday I do not want to chase the FTSE lower from here.
Dow Rolling Contract
The break above the previous 18663 high in the Dow led to an acceleration in the market with the Dow trading higher to 18890 before having a small sell-off into the close. The speed with which the Dow has moved up from its post Trump victory low below 17500 is incredible as the market has now rallied over 1400 points. There is no doubt that the Dow is overbought, trading at the top of its Williams Index and outside the Top of its now wide Daily Bollinger Band. Yesterday after the market hit my initial sell level at 18810, I emailed my Platinum Members to exit this position at 18795 and I am still flat. Thankfully for anyone who did short the market in the middle/higher points of my sell range the Dow traded back below 18800 overnight which gave everyone a good exit level on any short position. Today my only interest in selling the Dow is on a further rally higher to 18995/19050 with a 19110 stop. Given the fact that the Dow broke the previous high so easily I will now look to buy the market on any dip lower to 18630/18700 with a 18575 stop.
December BUND
The sell-off in the Bond markets since Trump’s election win is astonishing with the US 30 Year Bond which traded at 167 after the equity market sold off on early Wednesday morning to a price of 155.20 this morning. This is the biggest move lower that I have seen in my 30 years of trading. All these Hedge and Pension Funds who hold all these European Bonds with a negative interest rate are now sitting on massive losses. My Bund plan therefore did not work out yesterday as soon after I posted the Bund traded lower to my 160.90 average buy level before quickly stopping me out of this position at 160.45 and I am now flat. This morning the Bund is trading at 159.90. The next major support is not until 158.65/159.15 and today I will be a buyer in this area with a 158.30 stop. Given how oversold the Bund is trading I do not want to be short the market at this time.
Gold Rolling Contract
Gold has now fallen $90 since its 1340 post Trump Victory high while Silver trades basically unchanged thus showing why it is much safer to be long Silver. Remember Silver peaked over $50 in May 2011 and is cheap especially if Trump moves ahead with his inflationary policies. Thankfully after Gold hit my 1277 buy level yesterday I emailed my platinum Members to exit this position at 1282.50 as I was already long Silver from yesterday morning. With Gold trading at 1255 this morning my only interest in buying Gold will be in small size against the October low of 1242 with a 1236/1243 buy range and a 1229 stop.
Silver Rolling Contract
No change as I am still long Silver at 18.70 with the same 18.25 tight stop. If I am stopped out of this position I will be a more aggressive buyer on any further dip lower to 17.60/18.10 with a 17.15 stop.
Following the success of the NFP Live Trading Day and Education Session in London on September 2, Paul Wallace and I are bringing this event to Dublin for the December NFP day on Friday December 2nd. If anyone is interested in attending this event the details are on the following link:
https://www.eventbrite.com/e/live-nfp-trading-day-dublin-tickets-28159689389
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