ECB talk of further easing in the future boosted risk assets yesterday. Equities posted solid gains in Europe and in the US where the Dow and S&P closed 0.75% and 0.5% higher respectively. This theme has continued overnight with the incredible 940 point rise in the Nikkei for a 6% rise to close back over the key 16900 resistance level. Safe haven Currencies have underperformed while Commodity G10 currencies have gained some ground against the USD. Comments from ECB Draghi president at it post council meeting press conference was the catalyst for the rally in risk assets. That said, equities did wobble an hour or so later, but the steady rise in the oil price from $28 to just under $31, provided a second uplift to risk assets.
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The ECB made no changes to its expansionary policy however President Draghi opened the door for further easing at their next meeting in March, when new staff macroeconomic projections will become available. True to form, Draghi was once again flamboyant on his choice of words, noting that “we have the power, determination and willingness to act… there are no limits to our action – within our mandate of course,”. …and then adding the caveat “if things don’t improve or deteriorate from here”. Draghi also noted that given the changed circumstances for oil, the (4% higher) trade-weighted EUR, inflation expectations and geopolitics, the ECB was “committed” to reaching its price stability mandate and is “not surrendering” here… Andiamo Mario!!
So as we have seen before, the talking from President Draghi has uplifted risk sentiment, however time will tell whether it has a lasting effect. In a similar act of reassurance, last night in Davos, China’s Vice president Li aimed to boost investors’ confidence by noting that China would address the recent slowdown in its economy. He also said that China wants a healthy stock market that benefits most people and that China has “no intention to devalue the Yuan”.
Looking at markets in numbers, equities in Europe ended the day up around 2% on average and after briefly trading above $30, Oil initially sold off back to $29.35 before rallying strongly to $31 this morning for a 15% rally since the lows of Wednesday afternoon.
In Currencies, we have seen a text book risk on reaction with the CAD, AUD and NZD sitting at the top of the G10 leader board while safe haven currencies are at the bottom. The CHF is the biggest loser followed by the JPY and the EUR. Core Global Bond yields had a mixed 24 hours. The risk on sentiment pushed 10y UK Gilts 4.8bps higher to 1.67% while prospects of further easing dragged 10y Bunds 3.1bps lower to 0.451%. In the US, the treasury curve is steeper led by the move higher in longer dated yields. 10y UST are at 2.01% (+1.2bps) and 30y UST are at 2.79% (+1.9bps). In commodities, Iron ore has lost a bit of ground, down 0.7% at $41.29 and gold is basically unchanged at $1101.
Finally, in terms of data releases, the January US Philly Fed index rose to -3.5 from -10.2, beating market expectations (- 5.9) and it suggest a possible upside to the ISM due for release early in February. Jobless Claims rose to a six-month high of 293k vs the 278k expected with seasonal adjustments blamed for the disappointing number.
This morning markets are getting a boost from the IMF’s Largarde who said there is no reason why the economic recovery should be derailed. Yesterday shows why I hate been short the Equity markets as yes you may get a few good days trading profit but as shown by the incredible moves over the past 24/48 hours unless you book your profits it quickly evaporates as the Central Banks will step in to protect the stock markets at all costs.
This morning on the economic front we already had the release of French PMI which came in weaker than expected at 50 versus 51 last month. Next we have German and Euro-Zone Manufacturing PMI at 8.30 am and 9.00 am respectively. At 9.30 am we have UK Retail Sales and Public Sector Net Borrowing. This is followed at 1.30 pm by the Chicago Fed National Activity Index and Canadian CPI. Finally we have US PMI and Existing Home Sales at 2.45 pm and 3.00 pm respectively.
March S&P 500
Yet again the McClellan Oscillator proved what a fantastic trading tool it is when it posts a negative reading of -250 or higher as over the past two days this signal has produced another 80+ Handle rally in the S&P. Yes you have to be patient and brave but the great thing about this signal is it tells when not to be short the market. Yesterday after I posted the S&P traded lower to my 1838 buy level and after a nice rally I covered this position ahead of the ECB Meeting and Dragi press conference at my 1848 T/P level and I am still flat. The S&P closed at 1856 last night and this morning is currently trading over 25 Handles higher. I just cannot see the US traders leave such a huge potential Gap when they hit their desks. The S&P also has strong resistance from 1885/1900 and for these reasons today I will look to go short from 1891/1898 with a 1904 stop. My only interest in buying the market is on a close of this Gap from 1854/1862 with a 1848 stop.
EUR/USD
My idea that the Euro would sell-off post Dragi certainly worked well with the Euro trading lower to my 1.0790 buy level before eventually having a nice rally to 1.09 which enabled me to cover this position at my 1.0820 T/P level and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.0730/1.0770 with a 1.0695 stop. Despite the negative price action I do not want to be short the Euro at this time.
March Dollar Index
My Dollar plan also worked well yesterday with the Dollar trading higher to my 99.85 sell level before having a nice sell-off to 99.00 which enabled me to cover this position at my 99.60 T/P level and I am now flat. Today I will again look to sell the Dollar on any rally higher to 99.90/100.40 with a 100.70 stop.
March DAX
Unfortunately the DAX just missed my 9330 buy level after I posted yesterday which is frustrating when you see the market trading 400 points higher as yet again the key 9250/9300 support level has held this market. This is key as a break and close below here will be very bearish. On the top side the DAX has very strong resistance at its recent double top at 10100/10200 from where we recently had two 400/500 point Key Day Reversals off this resistance level in four trading sessions. Today I will look to go short on any further rally higher to 9850/9920 with a 9970 stop. Given the huge move higher since yesterday morning I do not want to be long the DAX at this time.
March FTSE
My long 5605 FTSE position taken just before I posted yesterday morning worked well with the FTSE trading at 5810 this morning. Unfortunately as I wanted to be flat ahead of the ECB Meeting I covered this position at 5645 and I am now flat. Today I will again look to buy the FTSE on any dip lower to 5730/5770 with a 5695 stop.
Dow Rolling Contract
The Dow is now trading 600 points higher since its Wednesday afternoon’s low print. It is not as impressive as the Nikkei which jumped an incredible 900 points overnight but again shows why I hate to be short the market especially when the Central Banks are so active in trying to prevent a crash. I have no doubt the Fed will be forced to do QE4 at some stage if this continues and if they had not intervened on Wednesday to defend the October 2014 low at 15400 then the market could have gone into free-fall. What people forget is the Dow has rallied from its 2008 low point at 6400 to its 2015 high over 18200 which to me is not justified when we see GDP has averaged just 2% despite all the QE. Today I will look to sell the Dow in small size on any further rally higher to 16140/16200 with a 16250 stop. Given the huge move higher I do not want to be long the Dow at this time as I want to see what happens when the US traders hit their desks at lunch time.
March BUND
I broke my own rule of going short the BUND at 161.30 ahead of the ECB Meeting yesterday and as soon as Dragi spoke I was stopped out of this position for a small loss at 161.65 and I am now flat. Today I will again look to go short from 161.55/161.85 with a 162.10 stop as in my opinion these low German Bond Yields are insane and will not last.
Gold Rolling Contract
No change as I still a buyer on any dip lower to 1073/1080 with a 1065 stop.
Silver Rolling Contract
No change as I am still long at 14.19 with the same 13.65 stop on what has been a very boring past few weeks for Silver trading.
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