In markets, the US Dollar fell along with Treasury yields while US stocks ended modestly higher in the wake of what was undoubtedly a good US Employment Report, but testament to both the ‘whisper’ numbers being to the high side of published consensus estimates and the absence of a smoking gun for the FOMC to lift its inflation and/or median ‘dot’ forecast on Wednesday. Payrolls came in at 235k with only small revisions and while Average Hourly Earnings only rose by 0.2% against 0.3% expected, there were 0.2% worth of upward revisions to January and December such that annual growth rose to 2.8% (from 2.6%) as expected. The unemployment rate dropped to 4.7% from 4.8%, as expected.
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For anyone following my Platinum Service it made 44 points on Friday and is now ahead by 400 points for March having made 1481 points in February, 1734 in January, 1351 in December, 1971 in November and 1582in October. The previous four months saw gains of 1142, 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1800 points.
The US Dollar ended about 0.6% down led by gains in EUR/USD thanks to an ECB source story suggesting a discussion on exit strategies at last Thursday’s Council Meeting include the possibility of raising the deposit rate ahead of ending QE. Treasury yields are back inside established ranges (10s ending Friday at 2.575% down from an intra-week high of 2.62%) in what was a classic ‘buy the rumour/sell the fact’ response to payrolls.
In FX, both the barrow DXY and broader BBDXY lost 0.59%. EUR/USD aside (+0.91% to 1.0673) nothing else gained by more than 0.5%, with AUD/USD faring next best, +0.48% to 0.7542 and where it re-opened the week. Oil continued to leak lower (-$0.80 with WTI -9.1% on the week and Brent -8.1%) as did gold (-$1.80) and iron ore (down 10 cents and $4.60 or 5% on the week).
In my opinion this is one of the most significant weeks in many years with six things which we should care about:
FOMC on Wednesday (6.00 pm).
If, in conjunction with a 25-point Funds rate rise, the FOMC fail to lift their median ‘dot’ points currently indicating 3 rate rises in total this year and three next, or meaningfully lifts its inflation forecast, the US dollar shouldn’t get any fresh support, indeed could extend Friday’s ‘buy the mystery/sell the history losses).
US Budget outline on Thursday.
With US administration trade policy a long way from being fashioned amid reports (Weekend FT) of fierce infighting in the administration, the Budget outline is likely to be short on detail (in particular with respect to the fate of a Border Adjustment Tax). If nevertheless it indicates a willingness to see deficits and the debt trajectory rise above pre-election baseline estimates (or it contains heroic growth and assumptions to ensure they do not) then market could re-price somewhat for the risk that fiscal policy will be adding to upside growth and inflation risks next year (Dollar positive). Initial responses from Congressional leaders will also be important, Paul Ryan in particular.
US debt ceiling re-imposed (Wednesday).
In practical terms this won’t mean anything for a couple of months at least with the government having enough cash to operate business as usual without breaching the ceiling (that will be imposed at the prevailing level of debt). That said, indications of the willingness or otherwise of Congressional leaders to support a ‘clean’ lifting of the debt ceiling rather than embroil it in Trump administration fiscal policy ambitions, will be important as sign of the ease or otherwise within which deficit and debt enhancing budget policy will pass in Congress.
Dutch general elections (Wednesday).
The worse (or better) the showing of Geert Wilders ultra-nationalistic Freedom Party the more markets – rightly or wrongly – will dial up or down their expectations for Marine Le Pen being victorious in the final round of the French Presidential elections on May 7 (assuming she makes it through to the run-off of course). My bet is that he’ll fare relatively poorly and if so that it will be ‘risk positive’ and good for the Euro.
Article 50 Brexit trigger.
UK PM Theresa May is reportedly looking to invoke Article 50 as early as tomorrow (subject to the House of Commons today overturning the amendments to the Brexit Bill agreed by the House of Lords last week). Once this occurs and if early exchange from non-UK EU leaders is less than conciliatory about what the UK’s relationship with the EU should look like, Sterling is at risk of fresh weakness. Newly re-elected EU President Donald Tusk has promised an initial response within 48 hours.
G20 (Friday and Saturday, Baden Baden).
This is a more important affair than usual, with draft Communiques circulating on Friday omitting – evidently at US initiative, references decrying protectionism or competitive currency devaluations. The final wording of the Communique, among other things, will be important for currency markets.
This promises to be one hell of a week with plenty of two-way volatility.
This morning on the economic front we have no economic data from either the Euro-Zone or the UK. On what is a very light calendar, the only US data is the Labour Market Conditions Index Change at 2.00 pm. Meanwhile the ECB President Dragi speaks in Frankfurt this afternoon at 1.30 pm.
March S&P 500
My S&P plan worked with the market trading lower to my 2364 buy level before rallying back above 2372. However as I wanted to bank some points for Friday’s trading after taking an earlier loss in the Bund I covered this position at my revised 2367.50 T/P level and I am now flat. As expected the S&P rallied on the back of the severely oversold McClellan Oscillator which had closed on Thursday with a -266 print before improving to close at -188 on Friday. As I mentioned on Friday whatever low is put in the S&P on the Thursday/Friday in the week ahead of a Quarterly Expiration tends to be the low. On Thursday the S&P hit a low at 2353.75 before rallying. With the FOMC Meeting on Wednesday I would not be short this market and today I will now look to buy the S&P on any dip lower to 2360/2366 with a 2355 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 2349 with a 2344 stop. I do not want to be short the S&P ahead of Wednesday.
The Euro continues as expected to quietly rally with the end of QE for the Euro-Zone in sight. The Euro has initial support at 1.0495 and more important support at 1.0341 but the fact that the Euro broke and closed over 1.0640 in New York on Friday could be significant. Today I will move my buy level higher to 1.0625/1.0665 with a 1.0590 stop. I still do not want to be short the Euro at this time as in my opinion it is only a matter of time before the Euro takes off to the upside.
March Dollar Index
I am still flat the Dollar as the market tries to confirm January’s Downside Key Day Reversal by moving lower after spending much of the last six weeks trading higher. However as the Dollar was unable to break the key 102.45 resistance level, we saw renewed selling over the past 48 hours. Today I will now lower my sell level to 101.40/101.70 with a 102.05 stop.
The DAX having hit my buy level at 11940 rallied back to a 11990 high print. Given the strength of the Euro I was not happy in staying long the DAX especially as both the Dow and S&P had hit my buy levels and I covered this position for small gain at 11950 and I am now flat. The DAX has strong support from 11810/11865 and today I will be a buyer in this area with a 11760 stop. Despite the negative price action I still do not want to be short the market at this time.
I am still flat the FTSE which missed my buy range on Friday before rallying strongly before a late fade. The FTSE has strong support from 7265/7295 and today I will use any dip to buy in this range with a 7235 stop. Given the continued weakness in Sterling ahead of PM May’s expected triggering of Article 50, possibly tomorrow, I do not want to be short the market at this time.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 20845 buy level before rallying back above 20900. In anticipation of getting filled in my S&P, I emailed my Platinum Members to exit this position at 20865 and I am now flat. I still believe that the Dow is a buy on dips this week especially ahead of the FOMC on Wednesday and the Quarterly Expiration on Friday. The oversold condition of the McClellan Oscillator is another reason why I expect a rally. Today I will again look to buy the Dow on any dip lower to 20780/20840 with a 20725 stop. Just a reminder with the US clocks changing over the weekend, the US stock market will now open at 1.30 pm and close one hour earlier at 8.00 pm until the end of March.
For the second consecutive trading session my Bund plan did not work well as shortly after I posted on Friday I was stopped out of my long 159.90 position from Thursday at 159.45. The Bund is severely oversold after the losses incurred over the past 10 days and is due a bounce. Today I have bought the Bund again in very small size here at 159.00 with a 158.60 tight stop. Given how oversold the Bund is trading I do not want to be short the market at this time.
Gold Rolling Contract
As I wanted to be flat ahead of last Friday’s Payrolls I covered my long 1196 position at 1199 and I am now flat. Gold is bouncing as expected given how oversold the market is trading after getting slammed over the past few weeks. With Gold back trading above the key 1203 level this morning I will again look to buy the market on any dip lower to 1197/1204 with a 1191 stop.
Silver Rolling Contract
Thankfully Silver has bounced after the rout over the previous week. I emailed my Platinum Members to exit our long 17.16 position for a small loss at 17.10. This morning with Silver bouncing I have again bought the market at the same 17.10 level and I will leave my stop the same at 16.55 which is just below the key 16.60 low from late January from which we had the Upside Key Day Reversal. I will have a T/P level on this position at 17.40.