Wednesday’s US Fed meeting continues to reverberate across financial markets, driving US Treasury yields and the US Dollar higher. Equities also joined in to the moves yesterday with investors seemingly reassured of the prospects of stronger US economic growth even if interest rates are moving higher. While I wrote about the FOMC yesterday, there are two points worth emphasising here. The first is that the Fed’s forecast track for rates points to three rate hikes in 2017 where previously it was only two. And second, only ‘some’ members had incorporated a change in fiscal policy settings to their projections. That means the Fed has not really incorporated much of the anticipated Trump Administration’s infrastructure and tax policies into its forecasts – this is important as these policies are seen as inflationary given the US is close to full employment.
To mark my 1225th 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 email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it ended the day flat yesterday and is still ahead by 981 points for December, having made 1971 points in November and 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.
Reinforcing this notion, Fed Chair Yellen in her press conference on Wednesday noted that “fiscal policy…could potentially affect the economic outlook” and that “fiscal policy is not obviously needed to provide stimulus to help us get back to full employment”.
Given broad US Dollar strength (the US dollar was up 1.0% yesterday), all G10 currency pairs ended the day lower. The Australian Dollar outperfomed, down only 0.6%. Some of that outperformance relates to the headline Aussie jobs figures yesterday which rose 39.1k m/m against expectations of a 17.5k increase. Other currency moves were broadly in line with the US Dollar with Euro down 1.1%, Pound down 1.0% and the Kiwi also down 1.1%.
US Treasury yields were broadly unchanged, but have surged 15 basis points since the FOMC meeting yesterday to be at 2.59% (note they did reach a recent high of 2.64%). Most Government Bond markets took their lead from the moves in US Treasurys yesterday, with German Bunds up 6.4 bps to 0.37%, UK Gilts up 10.2 bps to 1.49%, and Australian CGS also up 7.9 bps to 2.87%.
While you would have thought equities would have sold off in the event, equities were also higher. The S&P500 rose 0.4%, while equity markets in Europe were also positive with the DAX up 1.1% and the FTSE up 0.7%. Financial stocks continue to outperform in the US, with the financial sub-index up 1.2% helped by the background of less financial regulation under a Trump Presidency.
Strong economic data likely helped reinforce the view of prospects of stronger US growth. Regional manufacturing indices were very positive with the Philly Fed at 21.5 from 7.6 – a considerable lift and also evidence of momentum building in manufacturing. Homebuilder sentiment also was very strong, recording its strongest reading since July 2005. Low levels of US Jobless Claims reinforced the view of the US being close to full employment, while on target US CPI will mean inflation will likely pick-up to the Fed’s target (core CPI was 0.2% m/m as expected with the core measure running at an annual pace of 2.1%). Not to be outdone, the Euro flash PMIS were as expected, with better numbers coming in from France, while UK core Retail Sales outperformed -up 0.5% against expectations of a flat read.
Finally the Bank of England and Norway’s Central Bank met yesterday, both holding rates steady as expected. The BoE noted that the recent rally in the Pound, up some 6% since the start of November, would “point to less of an overshoot in inflation relative to the target in the medium term”. While Norway’s Central Bank continues to note that there is a slightly higher probability of a cut than a hike in the year ahead.
This morning on the economic front we have Euro-Zone Trade Balance, Labour Costs and CPI at 10.00 am, and this is followed at 11.00 am by UK CBI Trends Total Orders/Selling Prices. Finally we have US Housing Starts at 1.30 pm.
Meanwhile the Fed’s Lacker and the Bank of America’s Moynihan are speaking at an Economic Conference in Charlotte at 5.30 pm.
March S&P 500
I am not having much luck in getting filled with my S&P calls over the past 48 hours as yet again the market just missed 2245 buy level with a 2247 low print before rallying strongly into the close. At least we were not short especially ahead of the December Futures and Options Contracts which expire today at 2.35 pm and 9.00 pm respectively. The Fear and Greed Index for the S&P has surged to 90% over the past few days which is another example of how this 240 Handle up-move off the 2028 low print following the Trump victory is not sustainable. If this was not the month of December which is traditionally one of the strongest trading months of the year I would be looking to put on a macro short position. These Quarterly Expiration trading days can sometimes be the most difficult sessions to get an edge with lots of up and down moves occurring for no significant reason. Today I will move my buy level in the S&P higher to 2245/2251 with a 2239 stop. Despite the market being overbought I do not want to be short ahead of the Expiration later today.
EUR/USD
Unfortunately my Euro plan did not work out as after the market traded lower to my 1.0440 average buy level I was stopped out of this trade on the spike lower to 1.0367 at 1.0395 and I am now flat. The only good part of this trade was I said to trade in smaller size. The Euro quickly rebounded off this low as the market is severely oversold after its near 10 cent move off the 1.1320 high following the Trump victory with the Euro trading outside the bottom of its Daily Bollinger Band and at the bottom of the Williams Index. However I have to respect that we finally broke the March 23, 2015 low print at 1.0462 and if we do close below this level in New York this evening then we could well see a test of parity over the coming weeks. Given how oversold the Euro is trading I cannot bring myself to selling the market and today I will now look to buy the Euro again on any dip lower to 1.0370/1.0410 with a 1.0330 stop.
March Dollar Index
I have now rolled to the March Contract which currently trades at a small 8 point discount to the December Contract. Yesterday the December Contract traded higher to my 103.20 sell level but as I was already long both the Euro and Gold I covered this position for a breakeven and I am still flat. Today I will again look to sell the March Contract on any rally higher to 103.20/103.55 with a tight 103.85 stop.
March DAX
Unfortunately the DAX also just missed my 11240 buy level with a 11275 low print after I posted yesterday morning before again rallying strongly. The softer Euro is helping the DAX and as I have been saying for the past two weeks that despite the overbought condition of the market there is no point in going short as you will just loose money. Today I will move my buy level higher to 11240/11290 with a tight 11185 stop.
March FTSE
Finally the FTSE Cash Market broke the key 7000 resistance level before selling off and as I write this commentary is trying to push back above this level. I am still flat the FTSE which just like my other Indices also missed my buy level. Today I will move my buy level in the March Contract higher to 6870/6910 with a 6845 stop. I still do not want to be short the FTSE at this time especially as the next key resistance is not until the 7080/7130 area for the March Contract.
Dow Rolling Contract
The Dow just missed my 19990 sell level with a 19950 high print before falling over 100 points and I am still flat. Despite Wednesday’s downside Key Day Reversal off the 19966 high, in my opinion it is only a matter of time before the 20000 level is broken as the markets love to attack round numbers especially as this is such a key number which if broken will generate a lot of publicity in the media. I will still look to sell the Dow on any rally higher to 20250/20400 with a 20520 stop over the coming days. For today I will move my sell level slightly higher to 20020/20090 with a 20150 stop. Just to note we did get another Hindenburg Omen on Wednesday as expected and this HO is now valid until the end of March 2017. Apart from one crash, every crash of the US stock market in the past 20 years has had a confirmed HO on the clock. The McClellan Oscillator closed with a negative – 1 print last night which probably generated another HO.
March BUND
My long 161.30 Bund position taken yesterday morning worked well with the market hitting my 161.75 T/P level and I am now flat. With the Daily Sentiment reading’s so low for the US Bond market it is pointless in being short the markets at this time and today I will again look to buy the Bund on any dip lower to 161.45/161.75 with a 161.10 tight stop. My only interest in selling the Bund will be on a rally higher to 163.30/163.75 over the coming days with a 164.15 stop.
Gold Rolling Contract
My Gold plan worked well with the market hitting my 1127 average buy level before finally rallying to a 1135.40 high print overnight. This rally enabled me to cover my long position at my revised 1133 T/P level and I am now flat. Silver finally broke its 16.15 low from November and so the negative divergence with Gold is finally broken as Gold made yet another new low despite the triple 6% digit reading for the DSI. Gold has now fallen $220 since Trump got elected which is an incredible move in just five weeks and shows how oversold Gold is trading. Today I will again look to buy Gold on any dip lower to 1115/1125 with a 1107 stop.
Silver Rolling Contract.
Much to my annoyance my latest long 16.66 Silver position was exited at 16.05 and I am now flat. Yesterday’s move lower below 16.00 saw me put some pension money to work in Silver especially given the fact that the new growth polices for Trump will need Silver as a major component. Remember in May 2011 Silver was trading over $50 so there is plenty of scope for a move higher. The DSI reading this evening for both Gold and Silver will be very interesting. Today I will again look to buy Silver on any dip lower to 15.50/15.90 with a 15.15 tight stop.
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