Stocks and bonds ended the Friday session lower with focus on tariffs. Sentiment was initially boosted on reports that President Trump was set to postpone the tariffs by one month to March 1st, however the White House Press Secretary announced this was false and that Canada and Mexico will be hit with 25% tariffs from Saturday, February 1st, while China will face 10% tariffs. This set the tone for the remainder of the session with both the Canadian Dollar and Mexican Peso selling off while T-Notes were pressured into settlement, and bear steepening. With the deadline fast approaching, Trump hit the wires just ahead of the closing bell noting that nothing can be done by Canada, China and Mexico to forestall tariffs, suggesting the time for negotiations is over. He also announced that there will be tariffs on chips, oil and gas from February 18th. He also said he will put tariffs on steel and aluminium this month or next. In response to the hawkish tariff commentary from Trump, this saw further pressure on CAD, and Peso, while oil prices also caught a bid post-settlement, rising to fresh peaks. The Dollar was supported by the Press Secretary’s denial of the postponement of tariffs, while she also highlighted that Trump is yet to make up his mind on a tariff timeline for the EU. However, Trump after hours announced they will be doing something very substantial on tariffs with the EU. Overall, US PCE data was in line with expectations on both headline and core while the consumption data came in above expectations, similar to what was seen in the Q4 report released on Thursday. Core PCE rose 0.156% vs exp. 0.2%, accelerating a touch from the prior 0.1%, while the six month annualised rate fell to 2.3%, the lowest level throughout 2024, while the 3mth annualised rate dropped to 2.2% from 2.6% in November. Core Y/Y rose 2.8%, maintaining the prior month’s pace. Headline M/M rose 0.2557%, in line with the 0.3% forecast and up from the prior 0.1%. Y/Y rose 2.6%, up from 2.4% in November. Consumption rose 0.7%, above the 0.5% forecast, accelerating from the upwardly revised 0.6%. Overall, the data does little to alter the view of the Fed with Fed Chair Powell largely stressing a no rush approach to future policy changes, particularly with uncertainty ahead due to new Trump policies. Analysts at Capital Economics highlight a lot depends if there is a repeat of the surge in prices at the start of last year, although note that Governor Waller had previously been optimistic on the path of inflation as these base effects abate. CapEco notes that “If we are right in our belief that there is no residual seasonality at work, then the annual core PCE inflation rate should fall markedly over the first few months of this year. Beyond that, however, the growing risk that Trump will impose tariffs a little earlier than we are assuming presents an upside risk to inflation.” Employment Costs Index rose by 0.9%, in line with expectations after rising 0.8% in Q3, but remained below the 1.2% jump seen in Q1’24. Regarding the components, Benefits rose 0.8% (prev. 0.8%) while wages and salaries increased by 0.9%. Elsewhere, compensation costs accelerated more in the private sector, 0.8% (prev.0.7%) relative to state and local government organisations, which fell to 0.9% from 1.1%. On the increase in the ECI in Q4, Oxford Economics said “it doesn’t justify changes to our forecast for inflation, consumer spending, or the path of monetary policy.” Ahead the firm, notes residual seasonality will put a little upward pressure on the ECI in Q1, but the Fed should look through this and as the Q4 figure “should reassure the Federal Reserve that the labour market isn’t a source of upward pressure on inflation”. Fed Governor Bowman, in a speech written before the in-line PCE report, towed her usual hawkish remarks. Bowman said that inflation is still elevated and upside risks remain, noting she still expects it to moderate, but more data is needed to confirm that before conducting more rate cuts. The Fed hawk said that current policy is in a good place for the Fed to monitor data and become clear on the impact of the Trump administration policies before cutting rates again. She expects further rate reductions this year, but future moves should be cautious and gradual, with time to assess data. It is not clear whether monetary policy is exerting much pressure on the economy, with easy financial conditions and high asset prices possibly slowing progress on inflation. She is watching long-term Treasury yields as a potential sign that markets are expecting tighter policy will be needed to control inflation. She stressed the labour market is not especially tight, but wage growth is still inconsistent with the 2% inflation target, while she noted how Q1 data will be important to see how quickly inflation will improve going forward. Bowman added that fragility of supply chains, geopolitical tensions, release of pent-up demand post-election, and other factors could also feed inflation. As expected, the ECB pulled the trigger on another 25bps rate cut, taking the Deposit Rate to 2.75%. The policy statement saw the GC reiterate that it will retain its meeting-by-meeting and data-dependent approach whilst not pre-committing to a specific policy path. Despite Thursday’s easing, policymakers still see policy as “restrictive”. In terms of the economic assessment, the statement noted that the economy is still facing headwinds but demand should pick up over time. Elsewhere, inflation is seen as “high” but has developed in-line with expectations and the disinflation process is well on track. At the follow-up press conference, the overall lack of overtly dovish signals from Lagarde in her opening remarks elicited a hawkish reaction within the marketplace. However, as the Q&A segment got underway, this move faded as Lagarde noted that Thursday’s decision was unanimous and there was no discussion of the terminal rate despite recent comments from Germany’s Schnabel that the ECB is getting closer to the point at which it needs to look at whether and how much further it can cut interest rates. Elsewhere, Lagarde noted that the debate about neutral rates is “entirely premature” and cannot say if rates will go below neutral. Note, on February 7th the ECB will publish a paper on the revision of the natural interest rate. Additionally, the ECB will publish its debut release of its latest wage tracker. Overall, the ECB is continuing to dial back the level of policy restrictiveness. However, it is cautious in doing so on account of the uncertainty stemming from the looming threat of tariffs by the Trump administration which has clouded the bloc’s growth outlook. As the dust settles on the announcement, year-end pricing is little changed with around 70bps of easing seen by the December meeting. Post-meeting and press conference, both Reuters and Bloomberg sources implied another 25bps rate cut in March but further debate thereafter. Highlighting this, Reuters noted that ECB policymakers expect to cut rates again in March with a broader and deeper debate after that, potentially implying an April pause. Later, BBG stated the ECB may drop “restrictive” label on rate stance as soon as March, and with another 25bps rate cut highly likely then, bringing the deposit rate to 2.5%, such a level may not fully deserve that label anymore. Elsewhere, Oil closed Friday with a 2% gain while despite a stronger Dollar, Gold ended Friday with a gain of 1.2%.
To mark my 3125th issue of TraderNoble Daily Commentary I am offering a special 2-Year rate of Euro 2750 for my Platinum Service which includes 1 monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 714 points on Friday, closing January with a gain of 2768 points, after closing December with a gain of 1997 points after closing November with a gain of 3049 points having finished October with a gain of 2179 points. September saw a gain of 4402 points following a 301-point loss for August after closing July with a gain of 1918 points while June closed with a gain of 2074 points, having made 1843 points in May. The Platinum Service made 4010 points in April after ending March with a gain of 2113 points. February closed with a gain of 1606 points, after closing January with a gain of 3675 points. December saw a gain of 1890 points after finishing November with a gain of 1734 points. October ended with a gain of 3184 after closing September with a small gain of 228 points, after finishing August with a gain of 1485 points, following a small gain of 285 points gain in July, after closing June with a gain of 2683 points. May closed with a gain of 3205 points. April saw a gain of 3354 points while March closed with a gain of 6168 points. The Platinum Service made a record 9619 points last October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 0.50% lower at a price of 6040.
The Dow Jones Industrial Average closed 337 points lower for a 0.75% loss at a price of 44,544.
The NASDAQ 100 closed 0.14% lower at a price of 21,478.
The Stoxx Europe 600 Index closed 0.13% higher.
Last Friday, the MSCI Asia Pacific closed 0.2% higher.
Last Friday, the Nikkei closed 0.15% higher at a price of 39,572.
Currencies
The Bloomberg Dollar Spot Index closed 0.67% higher.
The Euro closed 0.6% lower at $1.0358.
The British Pound closed 0.4% lower at 1.2390.
The Japanese Yen fell 0.1% closing at $155.12.
Bonds
Germany’s 10-year yield closed 10 basis points lower 2.46%.
Britain’s 10-year yield closed 4 basis points lower at 4.54%.
U.S.10 Year Treasury closed 1 basis points higher at 4.54%.
Commodities
West Texas Intermediate crude closed 1.99% higher at $73.74 a barrel.
Gold closed 1.2% higher at $2800 an ounce.
This morning on the Economic Front we have the German, Euro-Zone and U.K. Manufacturing PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed by Euro-Zone CPI at 10.00 am. Next, we have U.S. Manufacturing PMI at 2.45 pm, followed by Construction Spending and ISM Manufacturing PMI at 3.00 pm. Finally, we have a speech from Fed Member Bostic at 5.30 pm.
Cash S&P 500
The first week of the Trump Presidency brought relief for investors in view of the absence of any announcement of fresh Trade Tariffs. Compared with expectations this suggested a lessened, or at least a delayed, inflationary impact for the U.S. which in turn re-triggered a re-calibration of Long Dollar positions and of course long S&P positions. By the end of the second week. However, Trump had again stepped up his threats on Mexico and Canada and the S&P sold off from new highs as the market concluded that this may also raise the risk of tariffs for other regions including the EU. This is now a live threat based on Trump’s comments over the weekend. Everyone is long and many investors are now prepared to pay unprecedented amounts of money for any type of financial performance. The last two times that valuations were as stretched as they are now in 1929 and 1999, the stock market reversed course and declined dramatically. Many measures of financial valuation are considerably higher than they were in 1999 and 1929. The S&P 500 Price-to-Sales ratio is 3.1, meaning that investors are willing to pay over $3 for every dollar of sales generated by the Index’s companies. This is 40% higher than at the end of the dot-com boom in 2000. Another chart that I studied over the weekend was a key valuation in the FT Wilshire 5000, which is the broadest measure of U.S. stock market performance, relative to annual U.S. GDP. The current ratio is 2.05, which is a record extreme over the past half century. Coupled with Thursday’s S&P commentary, it makes it extremely difficult to be a buyer of this market without first seeing at least a 10% correction. Whether the Fed will also this is another matter. My S&P plan worked well as the S&P hit my 6082 sell level post the ECB rate cut on Thursday before selling off to my 6061 T/P level. Subsequently, I emailed my Platinum Members to sell the S&P again on Friday which we did at price of 6118 before selling off to my 6095 ‘T/P level and I am now flat. That sell-off continued into Friday’s close and again this morning, trading at a price of 5945 as I go to press. A few minutes after the S&P opened on Sunday night I emailed my Platinum Members to buy the market at a price of 5927. I am still long with a now lower 5959 T/P level. I will add to this position at 5890 with no stop for now. The S&P has resistance from 6050/6066 where I will again be a seller with a 6083 ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 6032.
EUR/USD
The Euro traded lower to my second buy level at 1.0370 for a now 1.0400 average long position. I will leave my 1.0315 tight ‘’Closing Stop’’ unchanged, while lowering my T/P level to 1.0440. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Dollar Index
The Dollar has surged 1% on the open this morning, trading above Thursday’s sell range, trading at a price of 109.45 as I go to press. I have sold the Dollar here, I will ad to this trade at 110.05 with a now 110.65 higher ”Closing Stop”. I will have a T/P level at 108.80. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Russell 2000
Finally, my patience has paid off following a 3% fall in the Russell 2000 last night on the re-open of the market. This move lower saw my 2210 buy level triggered. I will add to this position at 2130 while leaving 2075 ”Closing Stop” unchanged. I will now lower my T/P level to 2260. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Cash FTSE
The FTSE continues to defy logic, leaving one unfilled gap below after another while trading to all-time highs on Friday. This move higher saw the FTSE trade the whole of my sell range for a now 8625 average short position. Following last night’s aggressive gap lower I emailed my Platinum Members to exit this short position at 8565 and I am now flat. I will take these points gained in February. As I go to press the FTSE has rebounded, trading at a price of 8590 as I go to press. The FTSE has resistance from 8630/8700 where I will again be a seller with a 8755 ”Closing Stop”. If triggered, I will have a T/P level at 8580.
Dow Rolling Contract
Frustratingly, the Dow missed my 45100 initial sell level by 30 points on Friday before selling off over 1100 points, sitting at a price of 44000 as I go to press. The Dow has further support below from 43550/43800 where I will be a buyer with a 43395 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 44030. Given how far the Dow has fallen since Friday, I no longer want to be short the market at this time.
Cash NASDAQ 100
The NDX has traded in a wide range since Thursday’s Daily Commentary was posted. My NDX plan worked well as the market rallied to my 21580-sell level before trading lower to my revised 21506 T/P level. Subsequently, I emailed my Platinum Members to sell the NDX again at a price of 21580 before selling off to my 21440 T/P level and I am now flat. On Friday, the NDX rallied to a high above 21800 before selling off over 350 points into the close on the Trump Tariff announcement. This morning, the NDX is trading at a price of 20990 as I go to press. The NDX has short-term support from 20650/20810 where I will be a small buyer with a 20495 ”Closing Stop”’.
March BUND
My latest 131.10 long Bund position worked well as the market rallied to my 131.70 T/P level and I am now flat. I am still not convinced that inflation is falling in the Euro-Zone and that sooner rather than later this will start to filter through. The Bund has support below from 130.80/131.50 where I will be a small buyer with a lower 130.25 ‘’Closing Stop’’.
Gold Rolling Contract
Late Friday, Gold traded the whole of my sell range for a now 2799 average short position. I will leave my 2817 ‘’Closing Stop’’ unchanged while raising my T/P level to 2785. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Silver Rolling Contract
Silver never came close to Thursday’s buy range and I am still flat. Given the strength of the Dollar, I am reluctant to chase Silver much higher. Silver has support from 29.80/30.50. I will move my buy range to this area while leaving my 28.55 ‘’Closing Stop’’ unchanged.
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