In a defiant and brief speech, President Trump made it clear that from now on “It’s going to be only America first” and in what has now become a great economic debate he reiterated his view that “Protection will lead to great prosperity and strength”. Against this view, history and economic theory tells us that protectionism usually involves an increase in tariffs and a decline in trade. Whether Trump achieves prosperity for America it remains to be seen, but from a global perspective while his policies could result in America getting a bigger share of the pie, the pie is unlikely to become bigger if global trade declines. As a sign of where Trump’s policy priorities lie, after the inaugural parade the new administration announced a loosening of rules linked to Obamacare and it ordered a freeze on new regulation in order to reduce the ‘burden’ of government red tape.
To mark my 1250th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 62 points on Friday and is now ahead by 1273 points for January having made 1351 points in December, 1971 in November and 1582 in 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 1900 points.
The new administration also revealed that it will pull out of the Trans-Pacific Partnership and today it will notify Canada and Mexico that it plans to renegotiate NAFTA. The FT also reports that some analysts predict Mr Trump will use his executive powers next week to boost oil and gas industry by approving pipeline applications. If so oil prices could come under pressure early in the week, but broadly speaking it appears that protectionist policies will come ahead of any fiscal stimulus measures.
Equity market reaction to Donald Trump’s inauguration was a positive one with the S&P 500 closing +0.34%, DJ +0.48% and the NASDAQ +0.28%. That said intraday charts reveal equity gains were pared during Trump’s speech, probably reflecting concerns over the emphasis on protectionism.
For the first time since January 3 and before Trump climbed onto the stage, 10y US Treasury yields briefly traded above 2.50%, but then rallied 5bps to end the week at 2.466%. 2y UST traded in a similar pattern down 3.2bps on the day and closing the week at 1.191%. The 2y10y UST curve ended the day 2.5bps steeper at 128bps and the 5y30y curve steepened 3bps closing at 111bps.
In FX, BBDXY ( USD index) gained just over half a per cent before Trump’s speech, but ended the day 0.4% lower. The US Dollar traded softer against all European currencies with SEK leading the way, up 0.79%. The EUR was +0.37% and GBP was +0.27%. Meanwhile G10 commodity linked currencies ended the day little changed but softer against the USD (CAD -0.08%, AUD -0.08% and NZD – 0.28%). The AUD traded to a high of 0.7588 ahead of Trump, a level that was last seen in November 12 last year, but pair some gains ending the week at 0.755.
In EM currencies, MXN (+1.70) and TRY (+1.57%) ended at the top of the leader board amid rumours of Central Bank intervention, but gains are likely to be short lived, especially for MXN given Trump’s NAFTA renegotiation announcement.
As for commodities, gold closed the week above the $1200 pivot (+0.28%), iron ore was -0.72%, but remains above $80. Oil rallied (WTI +2.04% and Brent 2.46%) on news that OPEC and other nations are on their way to achieving promised output cuts.
CFTC data from the week ending January 17 shows US Dollar speculative longs against G10 currencies were paired slightly with the net long position trimmed by 14k to 237k. AUD positioning was the highlight, after three weeks being short, speculators are now long AUD at +4.8k and up 8k on the week. In Interest Rates, US Treasury shorts were reduced in all tenors with shorts in 2y flipping to net long (5k from a 14.5k short position).
In Central Bank news, The Fed’s Williams said he isn’t worried about letting the Fed’s balance sheet shrink in a healthy economy. Meanwhile the Fed’s Harker repeated his support for 3 rate hikes in 2017 and added that the Fed should consider stopping balance sheet reinvestment after Funds rate hits 1%. The ECB’s Draghi says that persistent inflation differentials may become a source of vulnerability” and also noted that any country leaving the Euro-Zone must settle bills first.
Today is another day of light economic data releases. We have no US data while the only European release is Euro-Zone Consumer Confidence at 3.00 pm. At the same time we have the Canadian Nanos Confidence Index. Thankfully the rest of the week has lots of data from both sides of the Atlantic with the highlight coming on Thursday when we have US GDP.
March S&P 500
The S&P closed higher on Friday. However the rise was not particularly strong, and stocks remain in a sideways pattern since December 13th, 2016. Although the McClellan Oscillator improved slightly it still closed with a negative reading of -25, which is incredible when you see markets so close to all-time highs. The big question is whether stocks start to sell-off or will we wait to see whether Trump is given time to implement his policies. In my opinion a lot of the good news is already priced in but we really need to see the S&P close below the December 30th, 2016 low at 2227.75 before I will commit to putting on a more longer-term bearish position. Today I will look to buy the market on any dip lower to 2243/2249 with a 2238 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2226/2232 with a 2221 stop. My only interest in selling the S&P is on a rally higher to 2276/2282 with a 2282 stop.
EUR/USD
My Euro plan worked well on Friday with the Euro hitting my 1.0630 buy level before rallying strongly overnight to a high of 1.0755. As I wanted to be flat ahead of Trump’s Inauguration Speech I covered my long Euro position at 1.0649 and I am now flat. This morning the Euro is trading at the top of its Daily Bollinger Band and Williams Index following a 400 point rally off its 1.0341, 14 year low on Tuesday January 3rd, which was the first trading day of 2017. The Euro has strong resistance from 1.0820/1.0865 and today I will be a seller in this area with a 1.0895 tight stop. My only interest in buying the Euro today is on a dip lower to 1.0650/1.0690 with a 1.0615 stop.
March Dollar Index
No change as I am still a buyer on any further dip lower to 99.30/99.70 with the same 98.85 stop. Given how oversold the Dollar is trading after its near 4% decline since the beginning of January, I do not want to be short the Dollar at this time.
March DAX
The stronger Euro is finally seeing some weakness in the DAX which has been very resilient over the past few weeks. I am still flat the market and today I will now lower my buy level to 11380/11440 with a 11340 tight stop. I will also lower my sell level to 11620/11670 with a 11715 stop. The DAX needs to break and close above the July 2015 high at 11810 for the market to see some more follow through to the upside.
March FTSE
The FTSE hit my 7095 buy level on the back of the much stronger Sterling which now trades at 1.2450 against the US Dollar. It is only last Monday morning that Cable was trading 500 points lower at 1.1960. I am still long the FTSE which is selling off as I write this commentary and I will leave my stop unchanged at 7055 as I do not want to risk too many points on this trade. Friday’s lower close in the FTSE saw the market break back below its 10 year trendline at 7140 and today I will now look to sell the market from 7135/7165 with a 7190 tight stop.
Dow Rolling Contract
I am still flat the Dow and today I will leave my buy level unchanged at 19600/19670 with the same 19540 stop. The Dow has key support at the December 30th low at 19718 and last Thursday’s 19675 low print. These levels are key as so far both the S&P and NASDAQ continue to trade well above their respective low prints from that day which is positive divergence. However if all three major US Indices break and close below their December 30 low then the market could well see an acceleration to the downside. Given how close we are to strong support in the Dow, I do not want to be short the market at this time.
March BUND
My Bund plan worked well with the Bund hitting my 162.50 buy level before trading higher and this subsequent rally enabled me to cover this position at my revised 162.72 T/P level ahead of Trump’s Inauguration and I am still flat the market. Today I will again look to buy the Bund on any dip lower to 162.10/162.40 with a 161.85 stop. Remember the Bund has strong support at 162.15 with the market hitting a post Trump speech at 162.19 before rallying strongly.
Gold Rolling Contract
I am still flat Gold which has continued to rally albeit in a slow manner given its near $100 rally over the past five weeks. Today I will raise my buy level slightly to 1187/1195 with a 1179 stop. If Gold can break and close over its next resistance level at 1220, then we could well see a quick move higher to 1250.
Silver Rolling Contract
My long 17.04 Silver position finally worked out overnight with the market hitting my 17.25 T/P level and I am now flat. I am impressed with the fact that Silver closed last week over its key resistance at 17.00. However Silver really needs to close over 17.27 to confirm a breakout to the upside. Today I will again look to buy Silver on any dip lower to 16.80/17.10 with the same 16.60 stop.
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