The November US jobs report was good for risk assets depicting a strong labour market, but with no signs of an acceleration in wage growth. This goldilocks scenario helped US equities close the week in a positive note, the US Treasury curve ended marginally steeper and after initially falling on the Average Earnings headlines, the US dollar closed the week stronger while Sterling gave back much of its previous day’s gains. Oil prices led the move higher in commodities with gold the notable loser.
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For anyone following my Platinum Service it was flat on Friday and is still ahead by 549 points for December, having made 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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The US wage conundrum remains alive and kicking with the November labour market data dump revealing a record 86th consecutive month of job gains. Non-Farm Payrolls beat expectations (228k vs. 195k exp.), the job gains kept the Unemployment rate at a 17 year low (4.1%), but average hourly earnings disappointed at 0.2% mom vs. expectations for 0.3% rise. So despite all the job creation, the year on year wage growth declined to 2.5%yoy from 2.7% in the previous month. The data suggests there is still slack in the US labour market, but expectations of more job creation over the coming year also point to further declines in the Unemployment rate and eventual acceleration in wage pressures. The debate within the Fed remains unresolved, does the FOMC waits for evidence of higher wage growth or does the outlook warrant a slow reactive approach to further hikes next year? The latter remains my Fed bias for 2018.
So after an initial wobble on the headlines, the US Dollar managed to end Friday stronger with both DXY and BBDXY recording a fifth consecutive day of gains. A closer look at G10 performance however shows that much of the USD strength on Friday emanated from Japanese Yen and Sterling weakness. The latter reflecting a classic case of buy the rumour sell the fact while the former declined amid an improvement in risk appetite and a small rise in 10y UST yields.
The pound enjoyed a steady rise after I posted on Friday session amid speculation followed by a formal announcement that a “deal to make a deal” had been agreed between the UK and the EU (the most contentious issue – how to avoid a hard border between EU member Ireland and Northern Ireland – was left largely unresolved). Subject to EU leaders approval this week, negotiations can now move to phase two– a transition deal and then a future trade agreement. On the positive side, the news removes some uncertainty and likely means PM May’s position is shored up for some months. Nevertheless there is still a fair bit of uncertainty and the conditionality to the Irish agreement serves as a reminder that the pillars of negotiations remain precarious.
The Australian Dollar ended Friday almost unchanged, but looking at the chart the currency remains vulnerable to the downside. In our session on Friday, the pair initially traded to a low of 0.7502, but then China’s better than expected trade figures provided a small uplift. US labour data headlines briefly took the currency to an overnight high of 0.7534, but then a resurge in the USD dragged the AUD back down to 0.7502, before closing the week at 0.7509.
As for US Treasuries, the aftermaths of the US labour data deluge saw the 2y rate end the day 0.7bps lower at 1.794% while 10y UST yields ended the day 0.7bps higher at 2.376%.So a mild steepening of the curve, partly reversing the flattening trend over the week.
Oil prices led the gains in commodities supported by china’s trade data revealing a decent rise in oil imports during November. The risk on theme for the day was also helped commodities perform, after a volatile couple of days, copper was up 0.5% and iron ore gained 1.6%. Meanwhile, amid its safe haven attributes, gold struggled and closed Friday down 0.4%.
On Saturday China’s November CPI rose to 1.7% (1.8% exp.) and PPI came in line with expectations at 5.8% yoy, but down from the 6.9% printed in October.
This morning on the Economic Front we have no data due from either the UK or the Euro-Zone, while the only US data of notes is the JOLTS Job Openings at 3.00 pm.
December S&P 500
The days of a volatile reaction to the US NFP data seems to be a thing of the past as yet again on Friday the S&P traded in a narrow range on Friday as the market goes on hold ahead of the FOMC rate announcement and Yellen press conference on Wednesday. Despite the weaker than expected Average Earnings the S&P refused to sell-off and as is the norm on a FOMC Meeting week will probably rise. We also have the expiration of the December Futures Contracts on Friday so any sell-off this week will be bought by traders. I am still flat the S&P and today I will now raise my buy level to 2636/2643 with a 2630 stop. The S&P has strong resistance at last Monday’s 2665.25 latest all-time high and today I will be a small seller on any further rise to 2665/2672 with a 2677 stop. Again if I am taken short and subsequently stopped out of this position I will be a more aggressive seller from 2685/2700 with the same 2715 stop.
EUR/USD
Unfortunately the Euro just missed my 1.1715 buy level with a 1.1730 low print before closing Friday at 1.1770. I am still flat and today I will now raise my buy level to 1.1715/1.1755 with a 1.1680 stop. With a rate rise priced in for Wednesday’s FOMC Meeting we may well see a sell-off in the US Dollar post Yellen’s press conference and is one of the main reasons why I expect the US Dollar to trade lower over the coming months.
December Dollar Index
The Dollar just missed my 94.25 sell level with a 94.05 high print before spending the rest of the trading session trading lower. It is clear that the Dollar has strong support at 92.50 and resistance at the 94.10/94.50 area. Today I will be a buyer on any dip lower to 92.50/92.85 with a 92.20 stop, while I will now lower my sell level slightly to 94.10/94.45 with a 94.75 stop.
December DAX
I am still flat the DAX which initially rallied to a 13240 high print after I posted on Friday before having a small sell-off. Today I will lower my sell level slightly to 13270/13340 with the same 13375 tight stop. Meanwhile I will l raise my buy level to 12980/13040 with a 12930 stop.
December FTSE
The movements in the FTSE market over the past few months have all been based on the price of Sterling. If the pound rallies then the FTSE sells off and vice-versa. The net result is a FTSE market which has traded sideways for the past five months rising one day on a weak pound and then selling off another day when the pound rallies. I am still flat and today I will now raise my buy level to 7345/7380 with a 7315 stop. With the FTSE now trading over its 100 Day Moving Average we should some decent support in my buy range. I still do not want to be short the FTSE market at this time.
Dow Rolling Contract
I am still flat the Dow as the markets continues to build on its 24070 low print form Thursday with the Dow now trading nearly 300 points higher as the Santa Rally continues. The Dow has strong support at 24170 and today I will now raise my buy level to 24150/24220 with a 24095 stop. As we wait for the FOMC on Wednesday and more importantly Yellen’s press conference I will now raise my sell level to 24490/24560 with a 24625 stop.
December NASDAQ
Unfortunately the NASDAQ again missed my buy level on Friday before rallying and I am still flat. The fact that the market closed over 6320 on Friday is positive and today I will now raise my buy level to 6295/6330 with a 6265 stop.
March BUND
No change as my only interest in selling the Bund is still on a rally higher to 163.80/164.10 with the same 164.35 stop.
Gold Rolling Contract
With the Daily Sentiment Index closing at 19% bullish on Friday there is still room for Gold to fall further. I will be much happier buying Gold if this Index got to a single digit print and even though the market had a nice rally off Thursday’s 1243 low, my only interest in buying Gold is still on a dip lower to 1229/1236 with a 1222 stop.
Silver Rolling Contract
In contrast to Gold above, the DSI reading for Silver has now dropped to 10%. I am still long from Friday morning at 15.75 and will continue to add to this position on any further move lower to 15.40 with the same 15.05 stop. Meanwhile I will now lower my T/P level on this position to 15.95 and if this happens I will be aback with a new update for my Platinum Members.
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