It was the San Francisco Fed’s (John) Williams not William (Tell) who spilled the beans on Friday saying that raising rates at the Fed’s March meeting might make sense. He said that inflation will build up if we push the economy too hard and sees arguments for moving rates earlier not later. He says all FOMC meetings are ‘live’. In doing so he reversed a good chunk of the market’s reaction to US Employment data that in all but the headline payrolls number was a weaker than expected report. Payrolls rose by 227k against 180k expected, but the prior two months saw downward revisions totaling 39k while the Unemployment rates ticked up to 4.8% from 4.7% (albeit aided by a 2/10% rise in the labour participation rate). But the standout feature of the report was the mere 0.1% rise in Average Hourly Earnings and where going in to the numbers the risks were seen to be skewed toward a rise of as much as 0.5% due primarily to the rise in minimum wage in many states.
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 75 points on Friday and is now ahead by 248 points for February having made 1734 points in January, 1351 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 1800 points.
While scepticism regarding the veracity of the earnings number abounds, at face value annual growth dropped to 2.5% in January from 2.8%, well below the 3% that Fed vice chair Stan Fischer told us last year he wanted to see to be consistent with the Fed’s 2% inflation target. 10-year Treasury yields dropped from 2.48% to 2.43% rose all the way back up to 2.5% after Williams, before settling at 2.465%. On the week, 10s are down 1.9bps.
The Payrolls Report was a goldilocks affair as far as equities were concerned, the S&P500 adding 0.73% to 2297.4, the Dow 0.94% to 20,071.46 and the NASDAQ 0.54%. Stocks did not take a hit on Williams’ comments, unlike bonds and where the firing of the starting gun on Thursday night for the repeal of Dodd-Franc saw the S&P financials sub-series jump by 2%. The VIX dropped back below 11 to 10.97, a full point down on the day.
In FX, the US Dollar traced out a similar pattern to Treasuries with the BBDXY index off about 0.6% post payrolls and then recovering nearly half the losses after Williams. Taking into account the modest dollar gains in Asia and Europe pre-payrolls, BBDXY ended NY just 0.11% lower to be 1.2% down on the week. For individual dollar pairs, NOK gained the most (0.56%) followed by NZD (+0.37% to 0.7315). AUD added 0.29% to 0.7680. EUR/USD +0.22% to 1.0783, USD/JPY fell 0.17% to Y112.61 while GBP/USD lost 0.34% to 1.2484. A disappointing service sector PMI was largely responsible (54.5 down from 56.2 and 55.8 expected).
In commodities, gold and oil were up smalls: gold +$1.80 to $1218.5, Brent and WTI crude both added $0.30 to $56/81 and $53.54 respectively. Iron ore +$1.20 to $82.19. Steaming coal out of Newcastle added 25 cents to $83.00 while coking coal didn’t trade, last at $168.0.
This morning on the economic front we already had the release of German Factory Orders which came much stronger than expected with a 5.2% rise versus the consensus of +0.7%. At 9.30 am we have the Euro-Zone Sentix Investor Confidence. We have no US data due today, however the Fed’s Harker will speak later this evening at 8.00 pm on the economy in San Diego.
March S&P 500
The S&P traded higher on the back of Friday’s NFP data and in the process has left another ”Open Gap” from Thursday’s Chicago close at 2275 to Friday’ afternoon’s low at 2285.Thankfully we had no sell levels in any of our Indices on Friday and from memory I do not think that this has ever happened before over a NFP data release.. There is no doubt that we are still in a bull market and this trend will continue until we get a sell extreme that lasts for more than a few days. However with the VIX closing with a ”10 Handle” we are getting close. I still believe that the S&P will make some sort of a trading high in my 2300/2334 target range as outlined early last year. This market is now at dangerous levels and of course we have the risk of wakening up to a negative tweet from President Trump on any given morning. Today I will be a seller on any rally higher to 2299/2305 with a 2310 stop. I will also look to buy the S&P on any close of last Friday’s Gap to 2275/2281 with a 2270 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any dip lower to 2259/2265 with a 2254 stop.
EUR/USD
My Euro plan worked well with the Euro trading lower to my 1.0710 buy level on the NFP Headline release before rallying to my 1.0750 T/P level and I am now flat. Today I will continue to look to sell the Euro on any rally higher to 1.0855/1.0895 with a 1.0925 stop. With ECB Member Smets due to speak at an Economic Conference in Brussels at 10.30 am we may see him try to talk the Euro lower and if he does I will again look to buy the market on any dip to 1.0685/1.0715 with a 1.0655 stop.
March Dollar Index
My Dollar plan eventually worked out with the Futures Contract hitting my 99.50 buy level before rallying to 99.90 and this rally enabled me to cover this position at my revised 99.70 T/P level and I am now flat. The Dollar is still oversold and continues to find support in the 99.10/99.50 area. Today I will again be a buyer in this range with a 98.85 tight stop. Given how oversold the Dollar is trading I still do not want to be short the market at this time despite last Month’s Downside Key Month Reversal.
March DAX
The DAX having rallied on the NFP data on Friday, subsequently spent the rest of the trading session trading flat to lower. The much stronger than expected Factory Orders release this morning sees the DAX trading back below 11600 with the market hitting my 11580 buy level. Subsequently the DAX has rallied and I emailed my Platinum Members to exit this position for a small gain at 11595 and I am now flat. Today I will again look to buy the DAX on any further dip lower to 11450/11510 with a 11395 tight stop. Despite the negative price action I still do not want to be short the market at this time as the DAX needs to break and close below important support at 11400 for me to turn bearish.
March FTSE
Unfortunately the continued sell-off in Sterling saw the FTSE trading higher with the market just missing my initial 7045 buy level after I posted on Friday and I am still flat. It is incredible how much of an influence that Sterling is having on the FTSE with the market trading very weak when Cable was near 1.27 and now with Cable at 1.2470 this morning we are seeing the FTSE trading at 7120. Today I will raise my buy level to 7055/7085 with a 7025 stop which is just below last week’s low point. I still do not want to be short the market as we are still in a bull trend despite the FTSE trading lower/sideways over the past few weeks.
Dow Rolling Contract
The anticipated repelling of the onerous Dodd-Franc Legislation by the Trump Administration is certainly helping the Bank stocks which in turn is supporting the Dow which closed comfortably about its round number 20K on Friday. Thankfully we had no sell levels in the Dow on Friday as yet again any short positions just got slammed. However we are nearing an inflection point when these markets just cannot continue to forge ahead especially with the S&P Earnings Ratio at a lofty 24. Today I will be a small seller on any further rally to 20150/20210 with a 20260 stop. My only interest in buying the Dow is on a dip lower to 19940/20000 with a 19890 stop.
March BUND
I am still flat the Bund which rallied strongly on Friday despite the sell-off in US Treasuries. This is bullish price action and today I will now move my buy level higher to 162.10/162.45 with a 161.75 stop.
Gold Rolling Contract
Gold is again trying to break the key 1220/1227 resistance level as I write this commentary. I am still flat and today I will move my buy level higher to 1199/1207 with a 1192 stop.
Silver Rolling Contract
Late Friday I emailed my Platinum Members to exit their latest long 17.45 Silver position for a breakeven and I am now flat. Silver continues to trade at the top of its Daily Bollinger Band which is another reason why I cut my position on Friday. Today I will again look to buy the market on any dip lower to 17.10/17.35 with a 16.80 tight stop.
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