Fed Chair Janet Yellen sang from the same script as her FOMC colleagues before her on Friday and confirmed that ‘fairly soon’ really does means March. Fed Vice-Chair Stanley Fischer later chimed in with “If there has been a conscious effort” to boost expectations of a rate rise, “I’m about to join it”. Given the residual risk of a disastrous Payrolls Report yet derailing a March hike, market pricing moved up only slightly (to about 80%), while Treasury yields were marginally lower where changed and the US Dollar fell. In the words of Alison Moyet (et al) markets look to be ‘All Cried Out’ in fretting about a quarter point Fed rate rise next week. At the same time, I would note that Ms Yellen failed to suggest any need to upgrade the inflation view this month compared to last December, or to suggest upside risk around the December FOMC median ‘dot points’ currently indicating three rate rises this year. She did acknowledge rates will likely move up faster this year than prior years, but with only one each in 2015 and 2016, this is hardly a big call.
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For anyone following my Platinum Service it made 31 points on Friday and is now down just 5 points for March, having made 1481 points in February, 1734 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.
US data wise, the Non-Manufacturing ISM exceeded expectations rising to 57.6 from 56.5 and with the new orders and employment sub-series both strong. In FX the Euro was the best performing of the major currencies on Friday, ending just over 1% higher at 1.0622. Dollar slippage aside, I would note that in the wake of last Thursday’s rise in Euro Zone CPI to 2% from 1.8% and in Germany from 2.2% from 1.9%, the pressure on the ECB from Germany to shift course is mounting. I doubt Draghi will have much sympathy for this view (after all, higher inflation in Germany compared to the rest of the Euro-Zone which raises Germany’s real exchange rate is just what’s needed). That said, the notion that the ECB will be quick to scale back its QE programme early next year is gaining traction.
Also relevant to the Euro’s revival is diminishing risk of Marine Le Pen being victorious in the April/May elections. Indeed, a weekend poll puts Emmanuel Macron ahead of le Pen even in the first round of voting, with added support seemingly being drawn from the rapidly dwindling support for Francois Fillon. He has again just been out saying he won’t stand down. Also to note is that Dutch voters appear to be turning away from Geert Wilders’ populist message.
USD/JPY finished -0.32% at Y114.04 and AUD/USD 0.32% higher at 0.7596. In contrast NZD was Friday’s worse during the APAC session). Sterling ended NY trade slightly higher (+0.2%) despite a weaker than expected UK services PMI (53.3 down from 54.5). In contrast the NZD was Friday’s worse performer, -0.45% to 0.7031. In EM, the Mexican peso jumped by 2.5% after US Commerce secretary Wilbur Ross said it could strengthen ‘quite a lot’ if Mexico stuck a sensible trade deal with the United States.
US stocks took Yellen in their stride with the S&P closing +0.05%, the Dow +0.01% and the NASDAQ +0.16%. The VIX fell by 0.85 to 10.96, the first time back below 11 since mid-February.
In rates 2 year Treasuries fell by 0.3bp to 1.307% (+16.2bps on the week); 5s lost 0.6bp to 2.01% (+20.5bps on the week) and 10s finished unchanged at 2.479%, back from an intra-day high of 2.52% and 16.6bps up on the week.
In commodities, gold lost $6.40 and is $30 down on the week at $1,226.50 while oil was 70-80 cents up. Iron ore lost $1.00 to $91.32 but is still $0.82 on the week. Steaming coal lost $1.25 to $80.95 while coking coal didn’t trade, last at $165.00.
In other news, yesterday, China’s National Policy Committee meeting opened with an affirmation of a 6.5% GDP growth target for 2017 (vs. 6.5-6.7.0% in 2016 and an actual 6.7% reported out-turn). The NPC pledges to reduce coal production by 150 million tonnes this year and steel capacity by some 50 million tons (or 18%). Whether this means more or less demand for Australian coal as local production is pared back, remains to be seen. Last year, cuts in China production (under the 272 day rule) was the key driver of the coal price rally. This cut in GDP by China is weighing on Global stock markets this morning.
This morning on the economic front we have German Construction PMI at 8.30 am and this is followed by Retail PMI at 9.10 am. Next we have Euro-Zone Retail PMI and the Sentix Investor Confidence at 9.30 am. Finally in the only scheduled US release, we have Factory Orders at 3.00 pm.
March S&P 500
On Wednesday the S&P topped at the important trend line resistance from 2395/2400 with a 2401.75 high print before selling off again on Friday to a 2374 low before recovering to 2383 on what turned out to be the lowest volume of the week in a very quiet trading session. On the back of the lower GDP forecast out of China yesterday the S&P traded to a 2371 low on the open last night and has traded in a narrow range since. I still believe that the S&P will re-test Wednesday’s highs and that this will give us a better risk/reward at getting short. Therefore over the coming days I will look to sell the S&P on any rally to 2396/2402 with a 2408 stop. The S&P still has the ”Open Gap” from last Chicago close at 2364 to fill and as long as we can hold the 2360 level then the market should rally back to test Wednesday’s highs, especially ahead of the FOMC Meeting next week. Today I will lower my buy level slightly to 2360/2366 with a 2355 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2345/2351 with a 2340 stop.
Very late on Friday the Euro recovered three days of losses in just a few hours to hit my 1.0620 sell level. As the Dollar also hit my buy level with this move I emailed my Platinum Members to cut the Euro short position last night at 1.0610 and I am now flat. It is amazing that almost two years ago in April 2015, the Euro was trading at 1.08 and has basically gone no-where since. To me as long as the Euro does not break its January 3, low at 1.0341, that it is only a matter of time before we rally especially with growth and inflation picking up in Germany and France. This will eventually filter through to the other weaker European Countries. Today I will move my buy level higher to 1.0540/1.0590 with a 1.0495 stop which is just below last Friday’s low print. I do not want to be short the Euro as any surprises should be to the upside as we saw with the late rally on Friday evening.
March Dollar Index
Just before the New York close the Dollar traded lower to my 101.40 buy level. I am still long and today I will now raise my stop on this position to 101.05.
The fact that so far the failure of the DAX to break its 5.5 year trend line at 12145 is a worry for the bulls as the market sells off this morning on the stronger Euro and downgrade of Chinese growth. I am still flat the DAX which has important support at 11835/11885 and today I will be a buyer in this area with a 11785 stop. Despite the negative price action and given how important this support level is I do not want to be short the DAX at this time.
No change as I am still a buyer of the FTSE from 7280/7315 with a 7255 stop. The 7292 was the previous top from January’s all-time high and any test of this level should be met initially by strong buying especially given the weakness of Sterling.
Dow Rolling Contract
With the McClellan Oscillator again closing with a negative 66 print on Friday, it shows how weak the internals of the US Stock market are. However just like my S&P commentary above, I still believe that this market will rally back to near last Wednesday’s highs ahead of the FOMC next week, thus giving us a better entry level for selling the market. Over the coming days if the Dow rallies I will be an aggressive seller from 21140/21200 with a 21260 stop. Today I will lower my buy level slightly to 20800/20870 with a 20740 stop.
Today I have rolled to the June Contract which trades at a hefty 326 point discount to the March Contract which makes extremely difficult to short the Bund. On Friday the March Bund traded the whole of my buy range from 163.95/164.25 which put me long at an average buy level at 164.10. As I want to roll to the June Contract I cut my March position at 164.22 and I am now flat. Today for the June Contract I will look to buy the market on any dip lower to 160.70/161.00 with a 160.35 stop.
Gold Rolling Contract
Unfortunately Gold just missed my 1219 buy level on Friday with a 1222 low before rallying strongly into the close and I am still flat. Today I will raise my buy level slightly to 1217/1225 with a 1211 stop.
Silver Rolling Contract
My Silver plan worked well with the market finally trading lower to my 17.65 buy level before bouncing 25 points. As I wanted to bank some points for Friday’s trading session I covered this position at my revised 17.74 T/P level and I am now flat. There is no doubt the surprise 4% drop in Silver on Thursday has the bulls worried including me. However for Silver to turn bearish it needs to break and close below 16.61 which is the low from late January from which we had an upside Key Day Reversal. I certainly do not believe that this level will be broken anytime soon. Today I will again look to buy Silver on any dip lower to 17.30/17.70 with a 16.95 stop.