Risk sentiment took a beaten late in the New York session after President Trump confirmed that he plans to impose import tariffs on steel and aluminium next week. US equities were struggling earlier in the session, but the announcement triggered a sell-off across the board with steel and aluminium companies the notable exceptions. US Treasury yields are lower with the move led by the 5y part of the curve and after initially holding its ground, the US Dollar sold off into the close. The Dow closed 420 points lower or 1.68% while the S&P fell 1.33%. Meanwhile the Nikkei got hit hard overnight closing 2.51% lower at 21,181.
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For anyone following my Platinum Service it made 198 points yesterday on the first trading day of March, having closed February with a gain of 2256 points, 879 points in January, 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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After a mixed Asian session and a soft European close, US equities opened under pressure, but then settled into a sideway pattern. This all changed in the afternoon session after President Trump confirmed his plan to impose new tariffs on steel and aluminium next week. Trade war fears and potential impact on inflation sparked a sell off in risk assets and a bid for US Treasuries. The Dow, S&P and NASDAQ ended a third day in a row with negative returns and after five days of trading with a 1 in front of it, the VIX index currently trades around 24.
Risk aversion rather than concerns over additional inflationary pressures has seen US Treasury yields move lower along the curve with the 5y tenor leading the way, down 5.4bps to 2.587%. Earlier in the session, UST yields moved a little bit lower following slightly dovish comments from Fed Chair Powell before his Senate appearance. The Fed Chair said that he sees no signs the US economy is overheating even as the outlook for growth strengthens and the labour market tightens, he then added that he did not see ‘’any strong evidence yet of a decisive move up in wages’’. The move lower in yields was then reversed after Fed Dudley said that he was ‘even more confident’ in pursuing rate rises adding that ‘’four rate rises in 2018 would still be gradual’’.
Meanwhile on another day, the unexpected jump in the ISM manufacturing (60.8 vs 58.7 exp.) to its highest level since May 2004 would have been a catalyst for a bid in risk assets and higher UST yields, in the end however Trade threats trumped the strong data. Notably too, all the key subcomponents of the survey were strong with the ‘’prices paid’’ Index rising to its highest level since 2011 and, encouragingly ahead of payrolls, the Employment index also rose to near mutli-year highs. US PCE data was also out, core PCE prices were +0.3% m/m in January, matching consensus, leaving the yoy number unchanged at 1.5%.
For most of yesterday the Euro was weak and the US Dollar strong across the board. That all changed in the last hour of the New York session , the USD appears to have succumbed to the move lower in UST yields and now the greenback is softer across the board. Early in the session DXY was threatening to make a break above 91 and now the index is at 90.30,over half percent lower.
I remain cautious on the broad USD sell-off, if Trump’s decision to impose tariffs triggers a retaliation by the US main trading partners, a trade war is not just a negative for risk assets, it is also a negative for small and open economies such as Australia. Thus, I would not be surprise to see the big dollar regaining its poise against currencies such as the AUD, CAD and NZD. Meanwhile safe haven currencies such as JPY and CHF are likely to be the winners with the Euro not too far behind.
As for commodities oil prices are softer, although they have settled a bit while both Gold and Silver rallied into the New York close having been weak for most of yesterday. Copper and nickel are also a bit lower and iron is unchanged.
This morning on the Economic Front we already had the release of German Retail Sales which were expected to rise 0.7%, but instead came in weak with a 0.7% fall. At 9.30 am we have UK Construction PMI and this is followed at 10.00 am by Euro-Zone PPI. Finally we have the US University of Michigan Consumer Sentiment Index at 3.00 pm.
Meanwhile the UK Prime Minister May is due to deliver her Brexit speech later at 1.30 pm.
March S&P 500
The S&P had another wild ride in yesterday’s trading session leading to incredible volatility. Initially the S&P just missed my 2697 buy level after I posted yesterday morning before rallying to a rebound high at 2730. Subsequently the S&P did sell off to my 2697 buy level before rallying to my 2704 T/P Level with a 2707 rebound high before getting hit hard on the Trade Tariffs to a low of 2660. Given the volatility it is difficult to take your eyes off the screen. Wednesday’s close below 2720 was key to this move lower and today I will now lower my sell level to 2710/2725 with a 2735 stop. I am surprised that the McClellan Oscillator only fell slightly yesterday to close at -54 especially as the Dow fell over 400 points. Today I will again look to buy the S&P on any dip lower to 2653/2663 with a 2647 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2632/2642 with a 2624 stop.
EUR/USD
Unfortunately the Euro just missed my 1.2145 buy level with a 1.2154 low print before rallying to my 1.2270 sell level late in the New York session. As I did not want to have a Euro position overnight I emailed my Platinum Members to exit any short position at 1.2263 and I am now flat. The Euro has strong resistance from 1.2310/1.2340 and today I will be a seller in this area with a 1.2365 tight stop. I will also move my buy level higher to 1.2170/1.2210 with a 1.2140 stop.
March Dollar Index
The Dollar is testing my initial buy range this morning and I will now lower this buy level 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
The DAX got hit hard after I posted yesterday morning with the market trading the whole of my buy range for an average buy level at 12240. AS so many of my Indices were close to getting hit I emailed my Platinum Members to exit any long position at 12248 and I am now flat. For any member who was long at least the DAX rallied to a rebound high at 12290 before subsequently falling nearly 300 points. The rebound in the Euro is not helping the DAX this morning. However despite the negative price action I am still not comfortable in going short the market. The DAX has strong support from 11840/11910 and today I will be a buyer in this area with a 11780 stop.
March FTSE
The FTSE also traded lower to my 7160 buy level and just like the DAX above I covered this long position at my revised 7168 T/P level and I am now flat. Thankfully the FTSE did rally after I covered my position on the back of the strong initial rebound in the Dow. Today we should see increased volatility especially with Bank of England Governor Carney speaking this morning ahead of PM May’s speech on Brexit at 1.30 pm. Today my only interest in buying the FTSE is on a dip lower to 7040/7080 with a 7005 stop.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 24930 buy level before rallying to my 25000 T/P level and I am now flat. Incredibly after the US Market opened the Dow rallied to a rebound high at 25188 before falling 750 points to a low at 24438 before subsequently having a small rally into the close. Thankfully we had no second buy levels across any of the Indices yesterday. The Dow has strong support from 24230/24380 and today I will be a buyer in this area with a 24130 stop. Ahead of the weekend I am not comfortable in setting up a short position especially as I have a sell level above in the S&P.
March NASDAQ
My NASDAQ plan also worked well with the market trading lower to my 6820 buy level before rallying to my 6850 T/P level and I am now flat. The NASDAQ is the strongest of the US Indices at this time only closing 0.75% lower yesterday. However we did break big support as we closed below 6780 and this has to be respected. Today I will be a small seller on any rally higher to 6790/6840 with a 6880 stop. A break and close over 6880 is bullish. I do not want to be long the NASDAQ at this time.
March BUND
I have had the correct view in this market over the past 10 days but so far have not been able to get a long position on board. Yesterday the Bund just missed my 159.25 buy level and is now trading over 160. This is my last day trading the March Contract as I will move to the June Contract on Monday. Today I will move my buy level higher to 159.20/159.60 with a 158.85 stop.
Gold Rolling Contract
Gold just missed my 1302 buy level with a 1303.50 low print before rallying $20 and I am still flat. Today I will move my buy level higher to 1296/1306 with a 1288 stop.
Silver Rolling Contract
Silver traded lower to my second buy level at 16.25 for an average long position at 16.40. Subsequently Silver rallied to a rebound high at 16.56 and this move higher enabled me to cover this position at my 16.45 T/P level as outlined in yesterday’s commentary. Today I will again look to buy Silver on any dip lower to 16.05/16.35 with a 15.75 stop. If I am taken long I will have a T/P level at 16.60.
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