Things went from bad to worse Friday starting with the RBNZ’s missive proposing that New Zealand’s large banks lift their total capital from 10.5% to 18%. Markets did not react immediately but within half an hour the S&P e-mini and very shortly thereafter NZD and AUD, hit the skids. Weaker than expected China Industrial Production and Retail Sales data shortly thereafter pushed APAC equities, AUD and NZD further in the direction they had already headed. And then came a pretty dire set of European PMI data, from France in particular – clearly impacted the ‘’yellow vest protests’’ with both Manufacturing and Services falling below the 50 (the level that ostensibly separates expansion from contraction). The French economy now looks to be shrinking (Italy already is) while German numbers were not pretty either, Services leading weakness here, to see the overall Euro-Zone Composite PMI fall from 52.7 to 51.3.
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For anyone following my Platinum Service it made 314 points on Friday and is now ahead by 1855 points for December, having made 1541 points in November, 2094 points in October, 1279 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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US Retail Sales data that together with revisions and in underlying terms shows the US consumers to still be putting their money firmly where their (confident) mouths are, failed to ride to the rescue at the start of the New York session. It did though compound the otherwise safe-haven and EUR/USD driven bid under the US dollar to see the DXY make a new YTD high of 97.71. AUD closed NY 15 pips or so below its 50-day moving average a level that has been important this year at 0.7172. It has restarted the week little changed.
Equities
The three major US Indices closed around 2% lower Friday with the China data and Euro-Zone PMIs compounding existing global growth concerns. The health care sector fared worse within the S&P (-3.4%) after a Texas federal judge ruled that the ‘’individual mandate’’ provision within the Affordable Care Act (aka Obamacare) – the bit which requires all US citizens to have a basic level of health insurance cover – was unconstitutional and therefore so was the whole of Obamacare. This sets up the first major battle between a Democrat controlled House and the Administration early next year.
Utilities (defensive) and real estate (rate sensitive) were the least worse performing sectors and consumer staples did not suffer as much as consumer discretionaries despite the strong retail sales data. Energy (and material) suffered as oil lost more than $1r with the stronger USD not helping here. The VIX added a point to 21.6.
US stocks fared more than twice as badly as Euro -Zone stocks, and in Index terms 0.5% worse than Shanghai, despite the latter’s poor economic news. Equally surprising is that Euro-Zone stocks are up on the week whereas all others are lower, but testament perhaps to the reliance on so many S&P500 on earnings from overseas.
Currencies
Together with NOK on the aforementioned oil price drop, NZD followed by AUD were firmly at the bottom of the G10 scoreboard Friday. Sterling and EUR both lost about 0.5% on the day, Sterling on lack of any encouraging signals from Brussels on possible tweaks to the Brexit Withdrawal Agreement (re the Irish backstop) and the single currency on the EZ PMI data.
JPY gained some safe haven support, +0.2%, while the overall DXY scraped a new YTD high of 97.71 before closing 0.4% higher at 97.44.
Bonds:
2-3bps declines across the US Treasury curve Friday amid a very light bull curve steepening, sliding US equities trumping strong retail sales.
Retail Sales rose by only 0.2% in both headline and ex-autos terms, but there were big positive revisions and the ‘’Control’’ measure that maps across to the consumption component of GDP rose an impressive 0.9% (with October revised to 0.7% from 0.3%). Against this, Industrial Production at 0.6% was only positive because of a surge in utilities output, with manufacturing flat. Nevertheless on the back of Friday’s figures the Atlanta Fed revised up its Q4 ‘’GDPNow’’ estimate to 3% from 2.4%.
On the week we have a mild US bear steepening; the 2/10s curve some 2bps steeper at 15.7 bps versus its recent low close to 10bps.
Internationally, German Bunds just outperformed USTs in price terms (weak PMIs to blame). On the week, the standout feature is the slide in BTP yields on optimism that Italy and the EC are about to reach an accommodation on acceptable budget deficit targets for 2019 and beyond.
Commodities:
On a day that China Industrial Production printed much weaker than expected, iron ore and coking coal were the only two non-agricultural commodities to be up on the day. Go figure. Oil and base metals all lower, as too gold (in keeping with the stronger USD). Iron ore and coking coal are also the only two commodities to be up on the week.
Economic Data
France December Manufacturing PMI 49.7 (50.7E, 50.8P)
France December Services PMI 49.6 (54.8E, 55.1P)
France December Composite PMI 49.3 (54.0E, 54.3P)
Germany December Manufacturing PMI 51.5 (51.7E, 51.8P)
Germany December Services PMI 52.5 (53.5E, 53.3P)
Germany December Composite PMI 52.2 (52.4E, 52.2P)
EZ December Manufacturing PMI 51.4 (51.8E, 51.8P)
EZ December Services PMI 51.4 (53.4E, 53.4E)
EZ December Composite PMI 51.3 (52.8E, 52.7P)
US November Retail Sales 0.2% (0.1%E, 1.1%P revised from 0.8%)
US November Retail Sales ex-autos 0.2% (0.2%E, 1.0%P revised from 0.7%)
US November Retail Sales Control Group 0.9% (0.4%E, 0.7%P revised from 0.3%)
US November Industrial Production 0.6% (0.3%E, -0.2%P revised from 0.1%)
US November Manufacturing Production 0.0% (0.3%E, -0.1%P revised from 0.3%)
US December Markit Manufacturing PMI 53.9 (55.0E, 55.2P)
US December Markit Services PMI 53.4 (54.6E, 54.7P)
US December Markit Composite PMI 53.6 (54.7P)
China November New Home Prices 0.98%m/m (1.02%P); Yr/yr 10.25% up from 9.65% in Oct
This morning on the Economic Front we have Euro-Zone CPI and Trade Balance at 10.00 am. This is followed at 1.00 pm by US Empire Manufacturing. Finally at 9.00 am we have the Total Net TIC Flows.
December S&P 500
My S&P plan worked well with the market trading lower to my 2615 buy level shortly after I posted on Friday. The S&P rallied to a high above 2630 which enabled me to cover this position at my 2620 T/P level. Subsequently I emailed my Platinum Members to re-buy the S&P again at 2612 with a 2619 tight T/P level and I am now flat. This is a big week for the Markets with the FOMC Meeting on Wednesday followed by the Powell press conference. On Thursday we have the Bank of England and Bank of Japan rate announcements. Finally on Friday we have the expiry of all December Contracts and Options. The S&P closed at a crucial level of 2600 on Friday which is just above the key 2580 support level which must hold or else we will see a quick move lower to the February low of 2532. A break and close below here and then we can safely say that a long-term top in the market is a given. Today I will again look to buy the S&P on any dip lower to 2578/2590 with a 2568 tight stop. As we have the FOMC on Wednesday I do not want to be short the S&P at this time.
EUR/USD
I bought the Euro at an average rate of 1.1283 on Friday before covering this position at my revised 1.1297 T/P level and I am now flat. For those of you still long the Euro is trading higher this morning at 1.1315. Today I will again look to buy the market on any dip lower to 1.1230/1.1270 with a 1.1195 stop.
March Dollar Index
The December Contract expires this afternoon and I have now rolled to the March Contract which trades at a 55 point discount to the Cash Dollar Index at a current price of 96.85. Today I will be a seller on any rally higher to 97.20/97.60 with a 98.05 stop. Given how severely overbought the Dollar is trading I do not want to be long the market at this time.
December DAX
Despite the US Indices losing 2% on Friday the DAX closed higher on the day. I am still flat and I will now raise my buy level to 10690/10750 with a 10630 stop.
December FTSE
I am still flat the FTSE and today I will leave my 6725/6765 buy level unchanged with the same 6655 wider stop.
Dow Rolling Contract
I was lucky with my Dow call on Friday as shortly after I posted the market traded lower to my 24250 buy level before rallying to my 24340 T/P level. Subsequently I bought the Dow again at 24170 before thankfully emailing my Platinum Members to exit any long position at 24230 and I am now flat. The Dow closed weak at 24100 which is just above the 23800/23950 long-term support area. Today I will be a buyer on any dip to this support with a 23690 tight stop. Just like the S&P above I do not want to be short the Dow at this time. Sentiment readings are getting oversold with the DSI closing at 16% bulls on Friday.
December NASDAQ
After the NASDAQ hit my 6600 buy level the market had a small rally and I used this move higher to exit any long position at 6618 and I am still flat. Today I will again look to buy the market on any dip lower to 6525/6575 with a 6480 stop.
March BUND
No change as I am still a small seller on any rally higher to 163.55/163.95 with a 164.30 stop.
Gold Rolling Contract
Gold again traded in a sideways pattern on Friday as the market tries to hold the 1230 support level. I am still flat and today I will leave my 1218/1226 buy level unchanged with the same 1211 stop.
Silver Rolling Contract
I am still long Silver at 14.60 with the same 14.25 stop and a now lower 14.75 T/P level. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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