US equities opened Friday’s session on the back foot, but a decent US Payrolls Report, as a whole, triggered a turnaround in sentiment and helped equities end the week on a positive note (S%P +0.35%, DJ +0.32% and NASDAQ +0.60%). The Dow came close to breaking through the 20k mark, but after reaching an intraday high of 19,999.63, it ended the day at 19963. After trending lower in the previous two days the US Dollar recovered a bit of lost ground (DXY+0.69%) and US Treasury Bonds sold off with the moves led by the back end of the curve. Fed hike expectations are now at 40% for March after declining to 34% post the Minutes on Thursday and now there are 2 ¼ of hikes priced for 2017, compared to 2 and a bit priced previously.
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 42 points on Friday and is now ahead by 204 points for January having made 1351 points 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 20154 it has averaged a monthly gain of over 1900 points.
US payrolls in December printed at 156k, below the 175k expected by consensus, however given the +19k revisions to the previous months, we still ended up with a net rise of 175k job for the month. The Unemployment Rate rose one-tenth to 4.7% as expected, but on a positive note the rise in the Unemployment Rate was in part due to a slight increase in the labour force participation rate to 62.7%. Average earnings rose 0.4% mom and because a +0.0% monthly figure was seen in Dec-15, the annual rate rose to 2.9%; the highest rate of growth in the post-GFC period. So as whole, the US labour market report for December was pretty solid, there are more people in work, the pool of available labour is rising and wages are also going up.
Looking at currencies in more detail, the US Dollar was stronger across the board with JPY leading the losses amongst G10 currencies. USDJPY gained 1.5% on Friday and it is currently trading at 117.42. GBP lost 1.2% and today it is down another 0.85% following weekend comments from PM May that the UK will leave the EU single market and that she is not interested in keeping “bits of EU membership”. This morning GBP/USD and EUR/GBP are trading at 1.2175 and 0.8655 respectively. The Australian Dollar also came under pressure post NFP (down 0.5%) but relative to other G10 currencies it was the second best performer (currently trading at 0.7310). In contrast, NZD fell 0.94% and now trades below the 70c mark after spending most of the previous 24hrs with a 7 in front of it. The Canadian Dollar was the outperformer (-0.09%) supported by better than expected jobs data (+53.k job vs -2.5k expected)
Over the weekend we also learned that China’s FX reserves fell by $41bn to $3.01trn in December, fairly close to analysts’ expectations. Nevertheless, if we assume China’s trade balance in December (due for release Friday) was close to the average seen over the previous three months (~ $45bn) while also considering currency valuation effects, I would estimate that the PBoc FX intervention in December was probably close to $75bn. So pressure on the Renminbi was still significant in December and it remains to be seen if the recent introduction of new capital controls will help ease this downward pressure on the currency in 2017.
In other news Chicago Fed’s Evans (voter, dove) said that 3 hikes is ”not implausible”, however there are also downside risks. Cleveland Fed Mester (non-voter, hawk) said that three hikes this year is a reasonable number, while Philly Fed Harker (voter, neutral) noted that he was also in the 3 hikes camp for 2017.
Lastly CFTC data showed that speculators increased their net long USD notional positions to $25.4bn from $24.17bn as of January 3. The $1.26bn USD gain was largely driven by increases in short positions against most currencies with EUR and GBP recording the largest increase in short contracts (9.7k and 7.2k respectively).
This morning on the economic front we already had the release of German Industrial Production which came in at 0.4% versus 0.6% expected. At 8.30 am we have UK Halifax House prices and this is followed at 9.30 am by the Euro-Zone Sentix Business Confidence and at 10 am by the Euro-Zone Unemployment Rate. Finally at 3.00 pm we have the US Labour Market Conditions Index Change.
Both the Fed’s Rosengren and Lockhart are speaking this afternoon at 3.00 pm and 5.45 pm respectively.
March S&P 500
As most members know at this stage the key component of the Monthly NFP data is the Average Earnings and when this came in stronger than expected I emailed my Platinum Members that the S&P would rally. Unfortunately the S&P just missed my 2256 buy level with a 2258 low print shortly after the Chicago open before the market rallied to my 2274 sell level with a 2277.50 high print. Subsequently the S&P made a low at 2270 on the latest shooting incident at Fort Lauderdale Airport and I emailed my Platinum Members to cover this short position at 2272.50 and I am still flat. With the major TV networks all focused on the Dow 20K break, it is only a matter of time before this threshold finally cracks. However the market is severely overbought after its huge run-up since the Trump victory, coming on top of an already over stretched 8 year rally. The S&P made a new all-time high on Friday and as I have consistently said for the lat six months that the S&P would hit the 2300/2334 resistance level before we get a chance to see a sell extreme that lasts for more than a week. Today I will move my buy level higher to 2261/2267 with a 2255 stop. I will also look to sell the S&P on any further rally higher to 2285/2291 with a 2296 stop.
EUR/USD
Initially the Euro missed my 1.0530 buy level with a 1.0535 low print before rallying twice to a 1.0583 high. As I no longer wanted to buy the Euro at this level I emailed my Platinum Member to lower their buy level to 1.0510 which unfortunately again juts missed with a 1.0516 low print overnight. I am still flat and today I will again look to buy the Euro on any dip lower to 1.0480/1.0520 with a 1.0445 stop. Given the large rally off the 14 year low at 1.0341 on Tuesday, I no longer want to be short the Euro at this time especially as the Dollar Index had a downside Key Week Reversal last week.
March Dollar Index
My Dollar plan worked well as after the Dollar hit my 102.10 sell level with a 102.16 high print the market sold off to 101.80. As I had a close buy level in the Euro I emailed my Platinum Members to exit this short position for a small gain at 101.95 and I am now flat. As mentioned above the US Dollar had a downside Key Week Reversal last week as the Dollar made a new high at 103.85 on Tuesday before trading 250 points lower on Thursday. The KWR will hold as long as we stay below last Tuesday’s high print and today I will again look to sell the Dollar on any rally higher to 102.40/102.80 with a 103.10 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any rally higher to 103.40/103.75 with a 104.10 stop. Remember the Dollar is due a large correction after its 40% rally over the past 2 ½ years.
March DAX
Incredibly the low volatility in the DAX which is now entering its fourth week continues. I am still flat the market and today I will lower my buy level slightly to 11430/11490 with a 11380 stop. Despite the DAX trading in a severely overbought condition I still do not want to be short the market until we get a sell extreme that lasts for more than a day.
March FTSE
Finally the FTSE broke and closed over its 10 year trendline at 7140/7150 on Friday for a new all-time closing high. The FTSE is severely overbought but with Sterling again getting hit this morning on the weekend comments from PM May it is difficult to be short the market. Today I will raise my buy level to 7075/7110 with a 7060 stop. I will also raise my sell level slightly to 7195///7230 with a 7265 stop.
Dow Rolling Contract
The Dow still has now broken the 20,000 mark coming withing a 1/3 of a point in doing so on Friday. Probably if the Fort Lauderdale gun attack had not happened we would have finally broken this milestone. However the Dow is in the very late stages of this incredible 8 year rally from its 6400 low print in 2008 to now and is due a large sell-off that lasts for more than a few days. Today I will leave my sell level unchanged at 20050/20120 with a higher 20170 stop. My only interest in buying the Dow is on a sell-off to 19790/19860 with a 19740 tight stop.
March BUND
The Bund hit my average buy level at 162.78 and as I wanted to be flat over the weekend I emailed my Platinum Members to exit this position at 162.90 and I am now flat. With pessimism towards the US Bond market so extreme I believe that the Bund is still a buy on dips. This view will hold as long as we stay above the December low at 159. Today I will again look to buy the Bund on any dip lower to 162.25/162.60 with a 161.95 stop.
Gold Rolling Contract
Gold again traded in a narrow range as it tries to work off its oversold condition. As long as Gold can hold above its December low at 1123 the market is still a buy on dips. Today I will move my buy level higher to 1157/1165 with a 1150 stop.
Silver Rolling Contract
No change as I am still long from last week at 16.55 with the same 16.05 stop. If I am stopped out of this position I will be a more aggressive buyer on any further dip lower to 15.70/16.00 with a 15.20 stop. Just like Gold above, as long as Silver can hold above its December low at 15.61 then the market will continue to be a buy on dips.
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