Comments from Fed officials on Friday, in particular recently installed Vice-Chair Rich Clarida and Dallas Fed President Bob Kaplan acknowledging a global slowdown and downside risks as being relevant to Fed policy, and a Wall Street Journal interview with Philly Fed President Patrick Harker questioning a December rate hike, sparked a bout of US Treasury buying and US Dollar selling. The S&P and Dow posted small-scale gains on the day, with some afternoon support from comments on trade from President Trump that were seen as offering a further glimmer of hope that further tariff action could be held in abeyance following the Trump-Xi meeting in Buenos Aries at the start of next month. The exchange of barbs between US Vice-president Mike Pence and Chinese President Xi Jinping in PNG on the weekend- where disagreement resulted in the failure to agree and deliver a communique – continues to suggest this is unlikely.
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Currencies
The USD started falling across the board soon after 8:30 am NY time Friday, immediately after first Rick Clarida and then Bob Kaplan started talking. ‘’Certainly where the economy is today, and my projection for it and the Fed’s projection of where it is going, I think being at neutral would make sense.. but then added ‘’The global economy is something’’ the Fed has to pay attention to as there is some evidence that it is slowing.
Kaplan said ‘’In the short run, you will see inflation pressures build, but I don’t think inflation is running away from us’’ So at the Fed, I think that gives us a little bit of latitude to be patient and gradual” when thinking about monetary policy. The Fed might have further moves to go, but I am going to avoid being rigid and predetermined. Says risks globally are to the downside
Later Friday, in a WSJ interview, Patrick Harker said ‘’At this point, I am not convinced a December rate move is the right move’’ .but I need to watch the data over the next few weeks’’ before determining whether it is prudent to boost the cost of borrowing again, he said.
EUR, AUD, NZD and JPY all gained between 0.7% and 0.8% in conjunction with a smart fall in US Treasury yields averaging 5bps. AUD got a small additional late-day lift after President Trump told reporters with respect to further tariff action that ‘’We may not have to do that’’ and that he is optimistic about reaching a trade deal with China.
EUR gains followed a bit of weakness earlier in the European session on comments from ECB President Draghi, in particular his remark that ‘’underlying inflation in yet to show a convincing trend up’’. In market, the debate about whether the ECB might not commence ‘’lift-off’’ on interest rates before 2020 has already begun.
Sterling underperformed but still managed to claw back about 0.5% of Thursday’s more than 2% fall. Rising speculation that the current Brexit-related political and market convulsions could yet end up in a ‘’People’s Vote’’ second referendum is helping steady the ship here.
The DXY Index ended the day 0.5% lower and the BBDXY -0.6%, with the JPM EMCI index up 0.5% led by gains of more than 1% for both BRL and ZAR:
CFTC/IMM futures positioning data for the week ended November 16th shows a slight pull back in the overall USD speculative long, due to a paring of net short in EUR, AUD, GBP and NZD, partially offset by an extension of net JPY shorts.
Equities
A mixed day overall for stocks on Friday and while the Dow, Shanghai and S&P500 all posted gains on the day, Shanghai is the only major stock market to finish the week in positive territory with losses of 1.5% or more from all other Indices. Within the S&P, real estate was just about the best performing sector, consistent with its sensitivity to (now falling) interest rates.
Bonds:
US Treasuries rallied right from the start of New York trading on the Fed commentaries with 2s and 5s faring best as the market has a rethink about how much further rates might rise from here before the Fed considers them to be at neutral and might then pause. On the week, bull steepening is also the theme with 5s the best performer on the curve, down almost 16bps:
Commodities:
Oil was relatively subdued on Friday with no major new news, while base metals did well, buoyed by the combination of a falling dollar and the aforementioned Trump trade soundbites.
On the week copper is up an impressive 4.1% while Brent and WTI crude are off 4.9% and 6.2% respectively on top of the previous week’s 4% losses:
This morning we have no Economic Data of note from either side of the Atlantic. However at 3.45 pm the Fed’s Williams is speaking at a Q&A session in New York and it will be interesting to see if he backs up the comments by Fed Vice- Chair Clarida last Friday.
December S&P 500
My S&P plan worked well with the market selling off before lunch to my 2710 buy level before rallying to my way too early T/P level at 2715.50 and I am still flat. The S&P made impressive gains off these earlier lows to close at 2740 which is nicely above the 2730 resistance area mentioned last week. As long as the S&P can hold the 2700/2710 support area we should see a nice rally in this short trading week due to the US Thanksgiving Holiday on Thursday with only a half-day’s trading on Friday. Today I will now look to buy the market again on any dip lower to 2715/2727 with a wider 2699 stop. I still do not want to be short the S&P at this time.
EUR/USD
Clarida’s comments on Friday certainly put a strong bid to the Euro. As I have said consistently for the last few years one of the best trading indicators is the Daily Sentiment Index especially when it has a single digit reading as it had for most of last week when the Euro spiked to a 1.1215 low print last Monday. If the Fed do go on hold at next Month’s FOMC Meeting then we will see the Euro move above the May high of 1.2550 over the coming months. Today I will be a small buyer on any dip lower to 1.1310/1.1350 with a 1.1265 stop.
December Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 96.70/97.10 with a 97.55 stop.
December DAX
As so many of my Index calls hit near the same time on Friday morning I waited to buy the DAX near the bottom of the range at a price of 11260, Unfortunately I covered this position too early at 11285 and I am now flat. With the DAX trading higher at 11380 this morning no matter where you bought the market on Friday you should have made a nice gain. The higher Euro is hindering the DAX from rallying further and today I will again look to buy the market on any dip lower to 11220/11290 with a 11150 stop.
December FTSE
After the FTSE traded the whole of my buy range for an average long position at 7000 I covered this position for a small loss at 6988 and I am still flat. Similar to the DAX above the FTSE subsequently rallied with the market trading to a rebound high so far at 7040. Today I will again look to buy the market on any dip lower to 6960/7000 with a 6925 tight stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 25115 buy level which was just above its 200 Day Moving Average before rallying over 400 points. Unfortunately as I was continuing with my theme of banking points when available and I covered this position at my revised 25160 T/P level and I am still flat. My own view is that we will see a test of the 50 Day MA which comes in at 25803 this morning over the coming days. This view will hold unless we break the key 25050/25220 support area. Today I will be a buyer on any dip to this area with a 24925 stop.
December NASDAQ
The NASDAQ again just missed my buy range before rallying and I am still flat. Today I will raise my buy level to 6780/6830 with a 6735 tight stop.
December BUND
I am still flat the Bund and today I will leave my sell level unchanged from 161.00/161.40 with a now lower 161.75 stop.
Gold Rolling Contract
As I am still long Silver I will leave my 1199/1209 buy level for Gold unchanged. If I am taken long I will leave my T/P level unchanged at 1215 with the same 1190 stop,
Silver Rolling Contract
I am still long from last Friday at 14.30 with the same 13.80 stop.
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