The biggest news yesterday was the finalisation of the New Zealand Government. Labour’s Jacinda Arden will now be the next Prime Minister following NZ First’s deal to form a coalition government. The Kiwi moved sharply on the news and is now down 2% since I marked prices 24 hours ago. Other market moves were more contained: equities were slightly weaker (S&P500 flat, EuroStoxx -0.5%), Bond Yields nudged slightly lower (10-year USTs -2bps), and there was slight US dollar weakness (DXY -0.2%). As I go to print, Powell is shaping up to be the next Fed chair according to Politico.
To mark my 1450th 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. 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 87 points yesterday and is now ahead by 384 points for October, having made 447 points in September, 1560 in August, 1096 in July, 1023 in June, 1076 in May, 1375 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
First to NZ politics. After 26 days of waiting, NZ First’s Winston Peters finally announced that he would be forming a coalition government with Labour and the Greens will provide confidence and supply. Ms Arden will now by NZ’s youngest prime minister at 37 years. A formal coalition agreement will be signed today and publically released early next week. NZ First is set to get four cabinet ministers and a junior secretary outside of cabinet. Despite the Greens not being in the government, the Greens will get 3 ministerial positions outside of Cabinet and also an under-secretary role.
With little policy detail to go on, it was no surprise the market took its cue from the pre-election policies of both parties and sold on the news. The NZ dollar fell sharply and is down 2% to 0.7027, where it now appears to be now finding a floor (the low was 0.7009). With US dollar weakness, the Kiwi fell more sharply against the Euro (2.3%) and the Aussie (2.2%).
As for other FX moves, it was a story of slight US Dollar weakness with the DXY down 0.2%. Correspondingly the Euro was higher (+0.4%) along with the Yen (+0.3%). The Aussie had some intra-day volatility, initially up 0.4% on the better than expected jobs figures yesterday, while retracing on slightly lower than expected Chinese data. Overall it has finished up 0.2% and is currently trading at 0.7880.
Also potentially weighing was China’s Central Bank Governor who warned of the build-up in corporate and household debt and that a sharp correction could occur. That is likely to see the Chinese government attempt to implement further reforms, despite keeping the economic growth target largely unchanged.
In Interest Rates, US 10-year Treasury yields fell 2.0 bps to 2.33%. There was no clear catalyst for the moves and moves within Treasuries were mostly contained in a narrow band.
Data yesterday was mostly second-tier but were very strong. US Jobless Claims fell to their lowest levels since 1973 at 222k and well below the consensus of 240k. It is clear from these stats that Texas and Florida have largely run through their hurricane distortion and that sets up Non-Farm Payrolls for a strong bounce in the months ahead. Mapping Jobless Claims to payrolls suggests growth of 200k a month, which would be more than enough to put downward pressure on the Unemployment rate. The Philly Fed was also out and it rose to 27.9 from 23.8 and was also well above the consensus of 22.0; the employment sub-index was also very strong.
Strong labour market data should continue to give the Fed confidence in wages and inflation picking up and argues towards the Fed continuing along its dot point path. Despite that the market still only prices two rate hikes by 2018 against the Fed’s dot points of four. As I go to print, Politico reports Trump is leaning towards Powell for the next Fed-chair. Powell is known to be favoured by Treasury Secretary Mnuchin. Powell is seen to be willing to accommodate the financial de-regulation agenda and is also seen as relatively dovish against other contenders. However, your scribe also notes that while that may be the case, he is also likely to be slightly more hawkish than current Fed Chair Janet Yellen. Just as I go to print the US Senate passes the 2018 Budget Blueprint which sets the stage for Tax Reform. This is propelling US equity markets to yet another new high.
This morning on the Economic Front we have German CPI at 7.00 am and this is followed by Euro-Zone Current Account at 9.00 am. Next we have UK Public Finances (PSNCR) at 9.30 am, followed by Canadian CPI and Retail Sales at 1.30 pm. Finally we have US Existing Home Sales at 3.00 pm.
The international highlight will be a speech by Fed chair Yellen, who is giving a lecture on ‘Monetary Policy Since the Financial Crisis’ (11.30 pm after the US Markets close). Also speaking from the Fed is Mester (non-voter, hawk) at 7.00 pm.
December S&P 500
My S&P plan worked well with the market trading the whole of my buy range from 2545/2551 with a 2543 low print. This had me long at an average rate of 2548 and as I wanted to hang on to my decent gains already made in the FTSE and DAX, I covered this position too early at my revised 2549 T/P level as I wanted to make up for my Dow loss on Wednesday and I am now flat. The key level that I am watching is 2545 as a break and close below here will see a decent sell-off over the coming days that this market needs. Today, given how strong the market rallied off the 2543 initial low print, will see me look to buy the S&P on any dip lower to 2542/2548 with a 2537 stop. Meanwhile I will now raise my sell level in the S&P to 25leave my sell level unchanged from 2573/2580 with a 2585 stop. Despite the VIX spiking to an early afternoon high over 11, the VIX sold off for the rest of the day to close in New York at 10.05, while the CNN Greed & Fear Index closed still at Extreme Greed with an 83 print. Internally this market is weak and yesterday as just the first warning sign that a more substantial sell-off is not far away and this move lower could extend to at least 80/100 Handles. Incredibly the McClellan weakened to close with a – 32 print.
EUR/USD
The Euro which initially hit my 1.1840 sell level before having a small 15 point sell-off. As I wanted to finish yesterday on a positive note, I emailed my Platinum Members to exit any short position at my revised 1.1833 T/P level or lower and I am now flat. With the Euro trading at or near 1.1800 over the past few weeks,. the High Volume Price has now moved higher which is bullish. Although we may see a retracement my overall view is the Euro will trade higher over the coming months. Today I will now move my buy level higher to 1.1720/1.1765 with a 1.1695 stop. I do not want to be short the Euro at this time.
December Dollar Index
The Dollar just missed my 92.75 buy level before trading higher and I am still flat. I am overall still bearish the Dollar but given how much we have sold off over the past few weeks we may see a rally first to correct this oversold condition before the Dollar sells off again. Today I will now lower my buy level slightly to 92.15/92.60 with a 91.70 stop. The 91.70/92.10 area is good support and I would expect a decent rally on any initial test of this support level, before the US Dollar subsequently moves lower.
December DAX
My DAX plan worked well yesterday with the DAX finally selling off to my 12920 buy level before rallying to my 12965 T/P level and I am now flat. Yesterday the DAX bottomed at last week’s 12900 low before rallying nearly 100 points. Today I will again look to buy the DAX on any move lower to 12865/12915 with a 12825 stop. The DAX will have resistance at this week’s 13089 new all-time high ahead of strong resistance at 13165/13210 where I will be a seller with a 13255 stop.
December FTSE
My FTSE plan also worked well with the market eventually trading lower to my 7460 buy level before rallying to my 7485 T/P level and I am now flat. Today I will again look to buy the market on nay dip lower to 7420/7455 with the same 7395 stop. Even though the FTSE is severely overbought I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow had a nice 170 point sell-off yesterday morning before reversing those loses once the US Markets opened. I am still flat as I watch the 22950 support level closely as a break and close below here will see me look to put on a more macro short position. Today I will raise my buy level slightly to 22820/22885 with a 22770 stop. On the back of the Senate passing the 2018 Budget the Dow has rallied strongly t the top of my sell range at 23290 and I have now gone short in small size here at 23280. I will only add to this position on any further move higher to 23370 with a 23410 stop tight stop.
December NASDAQ
The NASDAQ just missed my 6035 buy level with a 6049 low print before rallying over 60 points into the close and I am still flat. Today I will lower my buy level slightly to 5975/6010 with a 5940 stop. I no longer want to be short the NASDAQ at this time.
Gold Rolling Contract
Gold rallied strongly yesterday helped by a weaker stock market and a weaker US Dollar. I am still flat Gold and today I will now raise my buy level to 1267/1274 with a 1261 stop.
Silver Rolling Contract
Unfortunately Silver just missed my 16.80 buy level before rallying back above 17.30 and I am still flat. Today I will now raise my buy level to 16.75/17.05 with a 16.45 stop.
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