Over the weekend China’s PBoC announced a 25bp cut to both the 1 Year lending Rate and the Deposit Rate, which follows the cut to the Reserve Requirement Ratio on 4 Feb. The new rates are now 5.35% and 2.5% respectively. The Chinese easing signal will probably continue and we could see another Reserve Requirement Ratio cut ensue in the coming weeks, followed by another rate cut in April. These rate cuts have led to a weakening on the Chinese Yuan after markets re-opened last night.
Overall last Friday was another very quiet trading session which saw US Equity markets lower while European Bourses again closed higher. The main reason for this continuing anomaly is the weaker Euro which is currently trading near the 2015 lows at 1.1170. The S&P 500 finished down 0.3% at 2104.50, despite which the VIX was lower, -0.57 to 13.34 and looks to be closing back in on levels last seen back in November.
In Commodities Oil was higher, Brent up $2.53 to $62.58 and WTI +$1.59 to $49.76. The Baker Hughes Rig count showed a 12th consecutive fall in operating US rig numbers, -33 to 986, the first time the count has been below 1,000 since 2011 and versus a high of 1609 just last October.
Data wise, China’s official Manufacturing PMI which was released yesterday, remained below 50 but rose to 49.9 from 49.8 last month, while Non- Manufacturing rose slightly to 53.9 versus 53.7 expected.
US Q4 GDP was revised to 2.2% from 2.6%, just above the 2.1% consensus, with most of the revisions accounted for by a smaller inventories number than reported last month. The biggest eye opener in last Friday’s data was the Chicago PMI which slumped to 45.8 from 59.4 the previous month. While there was a tendency for some to see this as evidence of Dollar strength hurting manufacturing, as well as the weather, there is also a suggestion that the US West Coast Ports Strike, whose impact was at its most extreme in January, may have been partly responsible.
In contrast to last week, today is really busy on the economic front. This morning we have German and Euro-Zone Manufacturing PMI at 8.55 am and 9.00 am respectively. At 9.30 am the UK will release Net Consumer Credit, Money Supply and PMI Manufacturing. This is followed by Euro-Zone Unemployment Rate at 10.00 am. At 1.30 pm we have US Personal Income/Spending and Euro-Zone CPI. Finally we have US Manufacturing PMI and Construction Spending at 2.45 pm and 3.00 pm respectively.
March S&P 500
Despite the European Bourses again closing at new highs the S&P has struggled since it broke the 2100 resistance level last week and ended Friday lower by 0.3% on what was an extremely quiet and narrow trading session. The Daily Sentiment Index is still near record levels but as long as the S&P can continue to hold the 2067/2072 support level, it is very difficult to be short the market on a consistent basis. Given how overbought this market is I will continue with my strategy of selling rallies with a tight stop. Today I will again look to go short on any further rally to 2116/2121 with the same 2126 stop. I will also leave my buy level unchanged at 2093/2098 with a 2087 stop as I do not want to chase this market higher.
EUR/USD
The Euro plan worked out very well on Friday as shortly after I posted the Euro traded higher to my 1.1240 sell level before having a nice sell-off which enabled me to cover this position at 1.1190 and I am now flat. Today I will again be a small seller on any rally higher to 1.1235/1.1265 with a 1.1280 stop. I will leave my buy level unchanged at 1.1120/1.1150 with a 1.1080 stop which is just below the 1.1094 spike lower in January.
US Dollar Index
I am still flat the Dollar and today I will lower my sell level slightly to 95.70/96.00 with a 96.25 stop. Given the extreme sentiment towards the Dollar I still do not want to be long the Dollar at this time.
March DAX
The DAX plan did not work out so well as I have just been stopped out of my 11320 short position at 11410 and I am now flat. The DAX continues to trade at the top of its Bollinger Band and Williams Index. The next resistance for the DAX is from 11470/11520 and I will be a more aggressive seller in this area with a 11550 stop.
March FTSE
My short 6925 FTSE short position worked out on Friday as shortly after I posted the FTSE traded lower which enabled me to cover this position at 6900 and I am now flat. This morning the FTSE is opening slightly higher on the back of the Chinese Rate cut and I will continue with my strategy of selling rallies with a tight stop which has worked out very well so far in 2015. Today I will be a seller from 6970/7000 with a 7025 stop. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
There is no doubt that the strong Dollar is weighing on the Dow stocks at this time. I am still flat and today I will lower my sell level to 18250/18300 with a tight 18330 stop.
March BUND
After I posted on Friday the Bund just missed my 159.75 sell level with a 159.66 high and I am still flat. Today I will lower my sell level to 159.60/159.90 with a 160.10 stop which is just above the all-time highs made last week.
Gold Rolling Contract
The Gold plan worked well on Friday as just as I posted Gold was trading at my 1205 buy level. Gold is opening nicely higher this morning and I have decided to cover this position at 1219 and I am now flat. Today I will again be a small buyer on and dip lower to 1200/1208 with a 1195 stop.
Silver Rolling Contract
Unfortunately when I was stopped out of my long 16.20 position at 16.40 on Friday, which was the low of the day and I am still flat. As most members know at this stage I am not happy when I do not have a long Silver position as I believe that Silver is extremely under-valued. Today I will raise my buy level to 16.30/16.60 with a 15.90 stop.
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