Hung parliaments on current voting tallies in general elections in New Zealand on Saturday and Germany on Sunday have taken bites out of the NZD and EUR at Monday’s market re-open. The NZ result isn’t much of a surprise and slippage may merely reflect the flip side of strength we saw on Friday plus something of a ‘risk-off’ start to the week after weekend N. Korea-related shenanigans (USD/JPY has also started the week weaker). Uncertainty over whether the new parliament will be a Nationals/NZ First affair could linger for weeks however, so ‘relief’ that the market’s least preferred option of a Labour-Green collation has been avoided isn’t likely to carry the NZD far for the time being. The German result is more troubling for markets. Angela Merkel will still be chancellor and for a fourth term, but the BBC’s Berlin correspondent is describing the result as disastrous for Mrs Merkel, who has been punished for opening Germany’s door to almost 900,000 undocumented refugees and migrants. The far-right AfD looks set to capture about 13% of the national voted and might end up as the strongest party in the state of Saxony.
To mark my 1425th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone if interested in this offer can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it finished flat on Friday and is still ahead by 256 points for September having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
In the scheme of things the German result has none of the connotations of the Brexit vote last year, or had Marine le Pen won this year’s French Presidential election. That said, the likelihood of a so-called ‘Jamaica coalition’ of CDU/CSU, Free Democrats and Greens (of which the latter two are ideologies apart), together with the representation for the AfD in parliament for the first time, brings the prospect of instability in German politics for the first time in a many years. I still nevertheless doubt its impact on the Euro and Euro assets will be large relative to other (economic and monetary policy) influences.
Markets went out with more whimper than bang on Friday, US yields and the US Dollar a touch softer and US stocks ending flat. There was no US economic data and central bank speak from Williams, Kaplan and George failed to move the dial much on December and 2018 Fed rate hike odds. Sterling fell away late in the day after Moody’s followed S&P and Fitch’s post-Brexit vote actions in lowering the sovereign rating another notch to AA2. All are now two notches below AAA. PM May’s earlier Florence speech on Brexit was long on (friendly) rhetoric and short on (financial) specifics.
The US Dollar Index finished -0.1% and BBDXY -0.2% but these Indices are still 0.3% and 0.5% higher on the week and so extending the previous week’s gains. EUR/USD ended +0.1% at 1.1951 (some earlier support came from strong EZ PMI data). AUD ended +0.4% to 0.7962 and is 0.7950 now. NZD was +0.31% to 0.733 and is 0.7270 now. CAD underperformed AUD and NZD after CPI and Retail Sales (ex-autos) both came out on the soft side of market consensus estimates.
In Interest Rates US Treasuries traced out narrow ranges, 10s – 2.6bps at 2.251%. US stocks finished virtually unchanged while the VIX finished at 9.59 down from 9.67 and 10.17 the previous Friday, its lowest close since July 25th. In commodities iron ore lost another $2.56 to $63.56.
This morning on the Economic Front we have the German IFO Business Climate and Current Assessment/Expectations at 9.00 am. This is followed at 1.30 pm by the Chicago Fed National Activity Index at 1.30 pm. Finally at 3.30 pm we have the Dallas Fed Manufacturing Index at 3.30 pm.
In contrast to a sparse economic calendar, this week is replete with central bank speak. Today alone we’ll hear from the Fed’s Dudley, Evans and Kashkari and the ECB’ Draghi (before parliament) Mersch and Constancio ahead of Fed President Yellen tomorrow.
December S&P 500
Before May of this year there had only been 11 trading sessions out of the previous 6900 sessions – almost 28 years – when the VIX closed below 10. Last May we had two, and two more in July while last Wednesday, Thursday and Friday the VIX closed below 10. Historically when this happens we see a large sell-off in the stock market. I am mentioning this statistic to emphasise how quiet trading has been so far in 2017. In my 31 years of trading I have never seen lower volatility across all asset classes in these Central Bank controlled markets. In my opinion Yellen will do whatever she has to get to the end of her term as Fed Chair until February with the markets unscathed before passing on the role to somebody else. I have had no luck this month with my calls with the S&P missing my 2505 sell level with a 2504.50 high print overnight before selling off 8 Handles and I am still flat. As I mentioned on Friday I expect the S&P to sell-off over the coming weeks but crucially to hold above the key 2390/2440 major support level before having the final melt-up rally which could well extend to its third Standard Deviation at 2792 before we see the long awaited crash. In comparing the S&P to the Japanese stock market in 1988 when the Dow broke its 2nd STD at 28,000 to top 12 months later at 39,000 which was between its 3rd and 4th STD. Eight months later the Nikkei was trading between 20.000 and 23,000. If the S&P can break and close over 2500 for 2/3 weeks then the final rally may happen without any preceding sell-off. Today I will raise my sell level slightly to 2510/2516 with a 2522 stop. Meanwhile I will also raise my buy level to 2481/2487 with a 2476 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2460/2466 with a 2455 stop.
EUR/USD
Unfortunately the Euro also missed my 1.1880 buy level with a 1.1894 low print before rallying to a 1.1936 overnight high and I am still flat. The Euro has strong support at 1.1850 and today I will lower my buy level slightly to 1.1815/1.1855 with a 1.1790 tight stop. As I still expect the Euro to move higher over the coming weeks I still do not want to be short the market at this time.
December Dollar Index
I am still flat the Dollar and today I will now raise my buy level to 91.25/91.65 with a 90.90 stop.
December DAX
Despite the AFD party doing better than expected in the German Election yesterday the reaction to the DAX has been fairly muted. I am still flat the market and today I will lower my buy level slightly to 12420/12480 with a 12375 stop. Despite overbought conditions until we get a sell signal there is no point in trying to sell the DAX at this time.
December FTSE
The Moody’s downgrade to the UK’s Sovereign Debt has so far had very little impact on either Sterling or the FTSE. Today I will now raise my buy level to 7175/7205 with a 7145 stop. Just like the DAX above I still do not want to be short the FTSE at this time.
Dow Rolling Contract
No change as I am still short the Dow in tiny size at 22030. Today I will now lower my second sell level slightly to 22420/22480 with a 22530 stop. My only interest in buying the Dow is on a large move lower to 21835/21960 over the coming days with a 21780 stop.
December BUND
I am still flat the Bund which is unchanged this morning despite the German Elections results. The Bund has support at 160.50 and today I will now lower my buy level slightly to 160.30/160.65 with a 159.95 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1275/1283 with the same 1268 stop. The latest Commitment of Traders Managed Money Index continues to point to lower prices before we finally attempt a more meaningful rally in Gold.
Silver Rolling Contract
No change as I am still a buyer on any dip lower to 16.45/16.80 with the same 16.20 stop.
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