Bonds , the Japanese Yen and Gold al rose in Asia overnight, while stock markets slipped as investors ran to safe-haven assets after the United States launched cruise missile attacks against an air base in Syria. This attack on Syria raises the risk of confrontation with Syrian backers Russia and Iran.
Previously we had not seen a whole lot of market price action in the past 24 hours, with the US Dollar marginally higher, as are US Bond Yields but by less than one basis point. US equities meanwhile have had a better day than Wednesday, the main Indices up by between 0.07% (Dow) and 0.25% (NASDAQ). This follows what I regarded at the time as a bit of an overreaction to the March FOMC minutes released late in the New York afternoon on Wednesday. The suggestion that the Fed was minded to start the process of balance sheet shrinkage before the end of the year elicited a quite pronounced sell-off in US equities, lower Bond Yields (ironically and seemingly on the view that the Fed might now do less with the Fed Funds rate target) and a weaker US Dollar. This was despite ‘before year-end’ being a date many Fed officials have already referenced in recent commentaries.
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For anyone following my Platinum Service it made 95 points yesterday and is now ahead by 389 points for April, having made 1335 points in March, 1481 in February and 1734 in February. The previous seven months saw gains of 1351, 1971, 1582, 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 2550 points.
San Francisco Fed’s President John Williams spoke yesterday afternoon, and suggested it’ll be “something like 5 years” to complete the process of balance sheet shrinkage and this process would likely be met with a slower pace of rate hikes. Of course, the Fed’s prevailing ‘dot’ forecasts presumably already takes into account the likelihood of balance sheet shrinkage, so once the process does start we shouldn’t be expecting the FOMC member dots to suddenly ratchet lower. Indeed, if the Fed is intent on starting this process by ceasing full re-investment of maturing bonds on its balance sheet before year end, this actually plays in favour of the Fed delivering on its expected further two Fed Funds rate increased in 2017 before that process starts (e.g. in June and September).
The marginally stronger US Dollar owes something to a sell-off in the Euro right at the start of European trading yesterday morning after ECB President Draghi said there was no need to deviate from previous wording on forward guidance, that a reassessment of the monetary stance was unwarranted and that there was scant evidence of inflation stabilising around the ECBs goal (‘close to, but below, 2%’.). This message was repeated in the ECB’s March Meeting Minutes published yesterday afternoon, though Bundesbank President Jens Weidmann was out later saying that it was legitimate to discuss when to normalize policy. Clearly there are splits on the Council.
Meanwhile, the AUD has stabilised just below 0.7550 after yesterday falling to its lowest level since March 13. This was in conjunction with a more ‘risk-off’ tone in APAC markets and where geopolitical stresses related to North Korea and Syria are becoming elevated, plus some relative soft China data (the Caixin services PMI). Note coking coal has surged another 10% to $260 overnight.
This morning on the economic front we already had the release of German February Trade Balance which came in higher than the EUR 17.7 bn expected with a 19.96 bn print. At 9.30 am we have UK Industrial Production, Manufacturing Production, Trade Balance and Construction Output, followed by the UK NIESR GDP Estimate at 1.00 pm. Next we have the key economic event of the week namely the US Non-Farm Payrolls. Here, the uncertainty quotient is even higher than usual given the conflicting signals from some of the popular survey-based and other lead indicators. The current market consensus is for a gain in non-farm payrolls of some 180,000. In truth, I suspect the market focus will – or certainly should be – as much on the earnings components of the data, in particular whether annual average earnings growth has picked up from February’s 2.8% rate. It’s not expected to as the consensus is for a 2.7% print. Finally at 3.00 pm we have US Wholesale Inventories and Consumer Credit.
June S&P 500
The S&P which traded in a narrow range for most of yesterday got slammed overnight to a low of 2336.25 on the US cruise missile strikes in Syria before quickly recovering as we await the NFP data later this afternoon. I am still flat the S&P and today I will move my buy level slightly higher to 2333/2339 with a 2328 stop. If I am taken long and subsequently stopped out of this position, or if I manage to T/P on any dip to my initial buy range I will again look to be a more aggressive buyer on any subsequent move lower to 2313/2319 with a 2307 stop. My only interest in selling the S&P is on a move higher to 2364/2370 with a 2375 tight stop. Remember the key to the NFP data is the Average Earnings component and if this is weak then the S&P will sell-off no matter what the headline print is.
No change as I am still a buyer on any dip lower to 1.0580/1.0610 with the same 1.0560 stop. I was surprised that the Euro did not trade lower overnight on the back of the US military action. However this 1.0600/1.0630 is key support after the market retraced nearly 300 points from its recent 1.0906 high print. I still do not want to be short the Euro at this time.
June Dollar Index
No change as I am still a seller on any rally higher to 100.95/101.25 with the same 101.50 stop. Again I am very surprised that the Dollar did not follow Gold higher following the overnight strike. Remember a market that does not do what is expected is to be respected and to me it is still only a matter of time before the Dollar sell-off.
I am still flat the DAX which was closed when the US military action took place. Remember the DAX only trades from 7.00 am until 9.00 pm and is closed overnight on the EUREX Exchange where it trades. Today I will leave my buy level unchanged from 12045/12095 with the same 11995 stop. This buy range is strong support and I would expect a decent rally initially on any test of this level. I still do not want to be short the DAX at this time.
Thankfully the FTSE was trading near the low of the day when I posted yesterday morning giving everyone who wanted to buy the market a better entry level than my 7215 long position. Subsequently the FTSE rallied strongly and this move higher enabled me to cover this position at my 7235 T/P level and I am now flat. Given the importance of this 7180 pivot point I will again look to buy the FTSE on any dip lower to 7175/7205 with a tight 7155 stop. Remember a break and close below the Head and Shoulders Neckline at 7180 has a target price of 7040.
Dow Rolling Contract
It took the US air strike on Syria overnight for the Dow to hit my 20530 buy level before the market rallied 100 points and this move higher enabled me to cover this long position at my 20585 T/P level and I am now flat. As usual I will stay flat until we get the Payroll Data at 1.30 pm and if the market sells off following this release I will again look to buy the Dow on any dip lower to 20480/20540 with a 20430 stop. It is amazing that no matter how many times the US stock markets sell-off it just bounces back so quickly. For this reason I still do not want to be short the Dow at this time, especially as I have a sell level in the S&P above the market.
It took a while but finally the Bund hit my 162.80 sell level on the open this morning before trading lower. I emailed my Platinum Members to exit this short position at 162.60 and I am now flat. Today I will again look to sell the Bund on any move higher to 162.95/163.25 with a 163.50 stop. Given how overbought the Bund is trading I do not want to be long the Bund today in case we get a robust NFP.
Gold Rolling Contract
Gold rallied to just shy of 1270 on the US airstrike before selling off small. This 1260/1265 is key to the next large move in Gold. I still expect that given the number of tests of this key resistance that it is only a matter of time before Gold breaks out to the upside. Today I will move my buy level higher to 1245/1252 with a 1239 stop.
Silver Rolling Contract
No change as I am still long Silver at 18.30 with the same 18.60 T/P level. I will now move my stop level higher to17.95.