Equity Markets went out of control yesterday after President Trump announced new import tariffs and investment restrictions on China fuelling fears of an imminent trade war. Although US equities were already under pressure, the news accelerated the sell-off. UST yields are lower and the USD has recovered some of its post FOMC losses. US equities opened lower following news that John Dowd had resigned as President Trump’s lead attorney in the Mueller Russian probe while further declines in Facebook also weighed on the Technology sector. Then later in the day the trade tariff announcement compounded the sell-off with the S&P500 closing at -2.52%, DJ -2.93% and NASDAQ -2.43%. Yesterday’s drop in US equities was the largest since the equity rout at the start of February. The VIX index jumped 5 points, closing the day at 23.3
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For anyone following my Platinum Service it made 17 points yesterday and is now ahead by 1258 points for March, having made 2256 points in February, 879 points in January, 946 points in December, and 823 points in November Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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President Trump said that that although he views China as a friend, ‘’We have one particular problem’’ noting that it was necessary to take action on the largest trade deficit in the history of the world, ‘’It’s out of control!’’. The administration announcement suggested the plan was to levy tariffs on $50bn of imports from China, but President Trump later noted that tariffs ‘’could be about $60bn’’.The $50bn number is about 10% of US imports from China and according to US officials the figure equates to the annual lost earnings by US companies from China’s unfair practices. The announcement also included plans to restrict technology transfers and acquisitions by Beijing.
US officials also noted that previous White House Administrations have not been tough enough with China and obviously the President believes his provocative approach is likely to yield a better outcome for the US. The markets, equities in particular, at this stage appear more concerned over the increasing prospects of a trade war and implications for global growth. We now await China’s response.
US Treasury yields where trending lower over the course of the day and the acceleration in the selloff in US equities weighed on yields into the close. That said the move in yields has not been as dramatic as what we have seen in equities. 10y UST yields traded to an intraday low of 2.80% and now the sit at 2.826%, 6.0bps lower on the day.
The USD has recovered about half of the Fed induced losses yesterday. A bit of safe haven demand might be a factor at play, amid the risk off session, but a reassessment of the Fed could also be at play. In my view the Fed was prudently hawkish, noting a bias for further rate hikes this year while also increasing the prospects for more hikes than previously expected in 2019 and 2020. DXY is unchanged now over the past 24hrs, after been down 0.40% yesterday and BBDXY is +0.23%.
Looking at G10 currencies, the Japanese Yen is the USD outperformer, reliably displaying its safe haven attributes. USD/JPY is down 0.45% and currently trades at 104.90. In contrast EUR and CHF are down 0.23% and 0.14% respectively. European currencies were not helped by softer than expected Euro-Zone PMIs. The suite of series shows a clear downward shift in growth momentum from a very high level. This was backed by Germany’s IFO business indicators.
Sterling is down 0.20% to 1.41, after trading to an intra-day high of1.4219. The big news for the pound was the Bank of England rate decision. The Bank left its policy rate unchanged at 0.5% in a 7-2 vote, with the two dissenters arguing for an immediate rate hike. The MPC maintained it’s tightening bias and all members agreed that any future increases in the policy rate would likely be at a gradual pace and limited extent. The minutes of the meeting acknowledged that the market-implied probability of a 25bp hike in May had increased to 90% and no push-back to that view was provided. The market seemed to pay more attention to the ‘’gradual and limited’’ comment than the likelihood a May rate hike, seeing Sterling slightly softer against both the USD and EUR post the announcement, excluding the algo-driven spike up in Sterling immediately after the release.
Meanwhile the Australian Dollar has remained under pressure following yesterday’s softer than expected labour market report. I think the market has rightly focused on the up-tick in the unemployment rate to 5.6% (5.555%) from 5.5% and while the RBA wants to see spare capacity in labour market reduced, the increase in the participation rate, despite solid job creation, means the Bank is comfortably on hold for now. AUD is now back below the 77c mark, currently trading at 76.94c, after trading to an intraday high of 77.8c.
This morning on the Economic Front we have no data from either the UK or the Euro-Zone. At 12.30 pm we have Canadian CPI and Retail Sales. The only US data are Duarable Goods Orders which will also to be released at 12.30 pm and New Home Sales at 2.00 pm.
Earlier at 12.10 pm the Fed’s Bostic will speak on Economic Outlook.
June S&P 500
The Bear has certainly returned with a vengeance with the S&P falling over 125 handles from Wednesday’s post FOMC Statement high at 2744 to the overnight low at 2617. Yesterday after the S&P traded the whole of my initial 2684/2694 buy range the market rallied back to a rebound high at 2699 which gave me a chance to cover my 2692 long position at 2696. I made one mistake yesterday by overtrading as I went long the S&P again at a price of 2675 before getting stopped out of this position at 2666 which was near an initial low at 2663.50 before the market rebounded 30 Handles which was very frustrating. If any member used my 5 handle rule they could have got long off this initial 2663.50 low at or near a price of 2669 before we rallied back to a high at 2692 before aggressive selling took over. The increased volatility makes it harder to garnish points as you need to have a wide stop or else you will lose money. The S&P has strong support at its 15 month trend line and 200 Day Moving Average which both come in at 2590/2580. If we do break and close below this key support we could well see another sell-off to the tune of 230/240 points in panic selling… almost 10% which would take the whole correction to 500 points or 17%. Today I will be a small seller on any rally higher to 2670/2690 with a 2702 stop. I will also look to buy the S&P on any dip lower to 2595/2615 with a 2575 wider stop.
EUR/USD
My short 1.2365 Euro position worked well with the market trading lower to my 1.2345 T/P level shortly after I posted yesterday morning. Today I will again look to sell the Euro on any rally higher to 1.2390/1.2430 with a 1.2465 stop. My only interest in buying the Euro is on a dip lower to 1.2225/1.2260 with a 1.2195 stop.
June Dollar Index
No change as I am still a buyer on any dip lower to 88.40/88.80 with a 88.10 tight stop.
June DAX
Yesterday the DAX broke its sideways trend to confirm a bear market. Shortly after lunch the DAX traded lower to my initial 12160 buy level before having a small rally and I emailed my Platinum Members to exit any long position at 12177 and I am now flat as thankfully we had no second buy levels in the market yesterday. This morning the DAX opened below 11900 before having a small rall and if this rally continues I will be a small seller from 12090/12150 with a 12190 tight stop. The key support for the DAX is the June Contract low at 11765 and today I will be a buyer from 11760/11820 with a 11710 stop. If the DAX breaks and closes below this support level it will be another important sell signal.
June FTSE
My FTSE plan did not work well with the market trading lower to my average buy level at 6885 before stopping me out late in the New York session at 6830 and I am still flat. Overnight the FTSE traded to a low of 6753 before bouncing in what is a severely oversold market as we trade outside the bottom of the Daily Bollinger Band. The FTSE has fallen over 350 points this week with the strong pound adding pressure. We have mega Fibonacci Support long-term support at 6740. Today I will be an aggressive buyer on any further dip to 6720/6765 with a 6685 tight stop. Given how oversold the FTSE is trading I do not want to be short the market at this time.
Dow Rolling Contract
My Dow plan worked well with the Dow trading lower to my revised average buy level at 24395 as outlined to my Platinum Members before bouncing over 100 points and I used this rally to cover my aggressive long position at 24445 and I am still flat as thankfully we had no second buy level in the market. The Dow closed over 725 points lower yesterday in what was one of the largest daily point movements in the history of the Dow. The break late in the day of the 16 month trend line at 24350/24440 saw an acceleration lower with the Dow trading to an overnight low at 23700. This 23700/23800 is key support. If the Dow can build value in this area and start to rally I will look to buy the market for a re-test of the 16 month trend line at 24350. Given this key support range I will be a small buyer on any dip lower to 23620/23760 with a 23550 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer into the early February low with a buy range of 23100/23250 with a 23090 stop. Given how oversold the Dow is trading after falling over 1250 points since 6.05 pm on Wednesday I do not want to be short the Dow at this time.
June NASDAQ
My NASDAQ plan worked well but you had to be quick. After the market traded lower to my initial 6790 buy level we had a quick bounce. As so many of my markets hit at the same time I covered my long position at my revised 6805 T/P level and I am still flat. The break and close below 6820 is bearish. Today my only interest in buying the market is on a move lower to 6470/6530 with a 6425 stop.
June BUND
The renewed weakness in equity saw the Bund trade higher and I am still flat. The Bund has good support at 158.40 and today I will move my buy level higher to 158.05/158.45 with a tight 157.80 stop.
Gold Rolling Contract
Unfortunately Gold just missed my 1318 buy level before rallying above 1340 overnight helped by the weakness in equity markets. Today I will move my buy level higher to 1316/1325 with a 1309 stop.
Silver Rolling Contract
My Silver plan worked well with the market trading lower to my 16.35 buy level before rallying to my 16.55 T/P level overnight. Today I will again look to buy Silver on any dip lower to 16.10/16.40 with a 15.80 stop and a 16.60 T/P level if executed.
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