Both the US Dollar and US equities ended the week on a positive note, but a mixed US labour market report reinforced the flattening theme in the US Treasury curve. A December Fed hike remains well priced (92%), but question marks continue to linger on the inflation outlook and likelihood of further rate hikes in 2018. Hurricane distortions have not helped the cause, as US October Non-Farm Payrolls underwhelmed printing at 261k vs. 313k expected, however the 90k upward revisions to the two previous months made up for the headline miss. Average Hourly Earnings also disappointed coming at 0% mom (0.2% exp.) and after revisions the yoy rate fell to 2.4% vs. consensus at 2.7%. On a positive note, the Unemployment Rate declined one tenth to 4.1% with the participation rate falling 0.4% to 62.7%.
To mark my 1450th 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 is interested in this offer can you please email me on bryan@tradernoble.com for details.
For any one following my Platinum Service it made 19 points on Friday and is now ahead by 45 points for November, having made 657 points in October, 447 points in September, 1560 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 1600 points.
Later in the day the Non-Manufacturing ISM beat expectations (60.1 vs. 58.5 exp.) and printed at its highest reading since 2005. USD indices recovered pretty quickly after an initial drop of circa 0.4% on the US employment report headlines. In the end DXY ended the day up 0.27% and BBDXY up 0.3%.
In G10, the US Dollar was stronger against the AUD and EU currencies, little changed against NZD and JPY and softer against GBP and CAD. AUD was unable to recover after Friday’s disappointing September Retail Sales report and continued to leak lower during the New York session, ending 0.82% down on the day and closing the week at 0.7650. The pair has opened today a little bit stronger and currently trades at 0.7657.
The better than expected Canadian increase in jobs boosted the CAD (0.35%) taking the Canadian Dollar to the top of the G10 leader board on Friday. Canada’s October Employment report revealed an increase in jobs to 35.3k versus 15k estimate, but the Unemployment rate rose to 6.3% versus 6.2% estimate (6.2% prev.). The rise in the participation rate to 65.7 vs. 65 previously, was a contributor to the increase in the Unemployment rate. After reaching a three-month high of 1.2917 in the previous the week, USD/CAD looks to be heading down again closing the week at 1.2764. The rise in oil prices (see more below) has been a supporting factor for the CAD despite concerns over NAFTA negotiations. USD/JPY closed the week above the ¥114 mark (now at ¥114.05), but remains unable to break above three previous ¥114.40/50 highs seen so far this year. A decisive move above 2.40% in 10y US Treasury Yields is seemingly still the big obstacle.
Looking at equities in more detail, main US equity indices scrapped small gains on Friday and of note the S&P500 managed to close higher for an eighth week in a row, aided by Apple’s (2.6%) and the IT sector’s performance (0.85%). That said the big winners on the week were Japanese equities with the Nikkei up 2.4%, even after been closed on Friday.
US data releases saw the 10y UST yield trade in a 4bps range, reaching a low of 2.323% immediately after payrolls and then a high of 2.359% post the ISM release. Overall the curve-flattening theme in UST yields over the week remained intact on Friday. After the US data deluge, 2y UST yields edged up half a bps to 1.65% while the 5y, 10y and 30y closed the day 1bps lower, ending the week at 1.99%, 2.33% and 2.81% respectively. In the past 5 days the 2y10y UST curve flattened 9.9bps and it ended at 71.8bps, its lowest levels since November 2007. Looking at other core yields 10y UK gilts closed Friday essentially unchanged at 1.26%, 10y Bunds ended 0.8bps lower at 0.364% and after the soft AU retail sale number, 10y AU Futures closed the week at 97.41, 8.5bps lower in yield at 2.59%.
In commodities, oil prices continued to march higher, WTI gained 2.02% and Brent gained 2.39%. WTI closed the week at $55.64, punching through the January 2015 high and from a technical perspective the break now suggests a move towards $60 looks more attainable. Meanwhile Brent closed the week at $62.07, the first time it has closed above the figure since July 2015. Iron ore closed the week just under the $60 mark and was little changed on the day and Gold ended the day softer, down 0.7%. Met. Coal gained 1.4% on Friday and was the quiet achiever of the week, up 3.76%.
This morning on the Economic Front we have German Factory Orders at 7.00 am. This is followed by German and Euro-Zone Services/Composite PMI at 8.55 am and 9.00 am respectively. Next we have the Euro-Zone Sentix Investor Confidence at 9.30 am. We have no US data releases today with markets now back to normal trading hours after the US clocks went back one hour over the weekend.
President Trump visits Asia, including Japan, China and South Korea where he addresses the National Assembly on Wednesday, an event sure to be followed closely. US Tax reform is also going to be a focus with the House Ways and Means Committee is expected to mark up the bill and allow amendments from Monday with a vote pencilled in for the following week. Meanwhile the Senate is expected to release its own version of a tax bill on Wednesday. The degree of differences between the two bills will set the tone in terms of tax reform expectations.
December S&P 500
The S&P closed at yet another new all-time high. Despite this new high there have been a couple of worrying signals. The Hindenburg Omen generated a confirmed signal after we got a HO on October 25th and a second one last Thursday November 2. There is now a 20% chance of a crash occurring by March 2, 2018 which is how long this signal is valid. Incredibly, this is the ninth confirmed HO since August and yet the stock market continues to make one new high after another. On Friday the McClellan Oscillator again closed in negative territory with a -61 print. With all three US Indices closing at new all-time highs the MO should not be negative. However until we get a sell extreme that lasts for more than a few days it is still difficult to be short the market. I am still flat the S&P and today I will now raise my buy level to 2565/2571 with a 2560 stop. The S&P has strong resistance at 2600 and today I will be a small seller on any further rally to 2599/2605 with a 2610 stop.
EUR/USD
The Euro just missed my 1.1595 buy level on Friday with a 1.1598 low print before rallying into the close and I am still flat. Initially after the NFP release the Euro traded higher to 1.1691 before selling off into the New York close. Today I will now lower my buy level slightly to 1.1545/1.1575 with a 1.1515 stop. Given how oversold the Euro is trading I still do not want to be short the market at this time.
December Dollar Index
Late in Friday’s session the Dollar traded higher to my 94.95 sell level. As I wanted to be flat over the weekend I emailed my Platinum Members to exit any short position at 92.84 and I am now flat. With sentiment towards the US Dollar near extreme levels I will continue to be a seller of the Dollar on rallies. Today my sell level will be from 95.20/95.50 with a 95.85 stop.
December DAX
The DAX again traded in a narrow range on Friday as the market continues to consolidate its huge 250 point move higher on Wednesday and I am still flat. I do not want to chase this market higher and today I will leave my buy level unchanged from 12280/12340 with a 12235 stop.
December FTSE
No change as I am still a buyer of the FTSE on any dip lower to 7445/7475 with a 7415 stop. The FTSE is struggling near recent highs as it refuses to follow the US markets to new highs.
Dow Rolling Contract
I am still flat the Dow which did have a small sell-off after the NFP was released before again rebounding to close at a new all-time high. I am reluctant to chase this market higher given how severely overbought we are trading coupled with the recent confirmed Hindenburg Omen and the internal weakness of the market. Today, therefore I will leave my buy level unchanged from 23340/23400 with a 22990 stop.
December NASDAQ
Just before the close the NASDAQ again traded higher to my initial sell level at 6295. As I wanted to be flat over the weekend I emailed my Platinum Members to exit this trade at my revised 6287 T/P level and I am now flat. If it were not for the 2.6% rise in Apple shares on Friday the NASDAQ would have closed flat. Today I will again look to sell this market on any further rally to 6310/6350 with a 6385 tight stop.
December BUND
The Bund traded in a narrow 40 point range on Friday with no sign of a sell-off in the market. I am still flat and today I will leave my buy level unchanged from 161.80/162.15 with a 161.50 stop.
Gold Rolling Contract
Gold fell post the NFP release with the market trading lower to my 1267 buy level with a 1265 low print. As I am already long Silver I did not buy Gold which is now trading at 1269 as I go to publish. I do not trust this Gold market especially as everyone I talk to is long the market and I did not like Friday’s price action. If you did buy Gold at my buy level on Friday I would take your profit now and stand aside. Today my only interest in buying the market is on a dip lower to 1247/1255 with a 1240 stop.
Silver Rolling Contract
I am still long Silver form late Thursday at 17.10. I will now only add to this position on any move lower to 16.65 with a 16.40 stop. I will now lower my exit level on this position to 17.00. If either of these scenarios happen I will be back with a new update for my Platinum Members.
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