Friday’s US Payrolls report delivered across-the-board strength and markets responded to script, the Dollar and Bond Yields both sharply higher but equity markets not sure whether to embrace the more positive US growth signals or fear the seemingly near-inevitably of December Fed ‘lift-off’. The S&P 500 finished the Day flat, with Utilities (now seen to be in greater competition with somewhat higher-yielding bonds) and Energy (via the fresh impact of Dollar strength on Commodity prices) suffering at the expense of banks whose profitability is seen likely to rise in a higher rates environment. The NFP printed +271K versus 185K expected while the Average Earnings came in at +0.4 versus 0.0 last month and was a key driver in the rise of the US Dollar across the board.
For anybody following my new Platinum Service it made 90 points on Friday and is now ahead by 320 points for November. The previous five months saw gains of 1600, 2833, 2195, 1810 and 3045 points respectively.
Other indices ended higher however, suggesting fear of the Fed is not nearly as pronounced as earlier in the year. In Currencies, every G10 currency lost more than 1% in the immediate wake of the Payrolls Report, with AUD, NOK, and NZD faring worst, second and third worst respectively. AUD/USD dropped by 1.4 to 0.7043 and NZD by 1.35% to 0.6524.
Losses have been compounded first thing this morning following Sunday’s release of October China trade data. Though the overall trade surplus of $61.6bn was in line with expectations, this came about on weaker than expected (negative) export and import growth rates. Exports were down 6.9% y/y from -3.7% and the -3.2% expected, and Imports down 18.8% y/y, up from -20.4% in September but worse than the -15.2% expected.
So no comfort here for those looking for an improvement in imports on stronger domestic demand, or stronger exports on improving global demand conditions. Of direct relevance to Australia, China’s customs data showsIiron ore import volumes down 12.3% on the month and 4.9% down on a year ago. Coal imports were 21.4% down on the month and 30.7% lower than a year ago. Also released over the weekend, China’s FX reserves rose by $11.4bn to $3.53tn. This is in contrast to an expected rise of about $50bn. but when set against the $60bn trade surplus last month, this still suggests substantial FX intervention to defend against RMB weakness, albeit not as much as was evident in Q2 and Q3.
Also to note from Friday is latest CFTC/IMM FX futures positioning data for the week ended Tuesday 3 November. This shows a further sharp rebuild in EUR speculative shorts, to -134.4k from -105.9k. This is, though, still back from the extremes (> -200k) witnessed earlier in the year. The overall speculative USD long vs G10 currencies rose, to 236.5k from 183.9k, still little more than half the levels seen at the turn of the year (~400k).
September S&P 500
Two amazing statistics that I read over the weekend are that half the paying Jobs in the US carry a salary of less than $36,000 per year and that 46 million Americans are on food stamps. I still believe that despite the stronger than expected NFP on Friday that the US is heading back into recession. One other interesting note is that a 1% rise in the 5 year interest rate is equivalent to an extra $120 billion in interest per year. This is the number than runs the Military and Health for 2015. America has a Deficit of $18 Trillion which has doubled since President Obama entered the White House in 2008. When I look at all of the above the last thing that the US needs is a rate hike but following the NFP on Friday and assuming that the December Payrolls are close to expectations then we will probably see a rate hike next month. The US Stock market continues to hold in despite the internals been extremely weak as shown by the McClellan Oscillator which closed in negative territory on Friday at -14. I am still flat the market and today I will raise my buy level to 2083/2088 with a 2077 stop. My only interest in selling this market is still on a rally higher to 2109/2114 with a 2119 stop.
EUR/USD
The Euro spiked lower to near the bottom of my buy range following the NFP release on Friday which saw me go long the market at 1.0715. I am still long and today I will raise my stop on this position to 1.0670.
December Dollar Index
The Dollar spiked 100 points following the release of the NFP on Friday and in the process traded through my sell level and stop. Now you can see why the NFP is the one economic release that I always go flat into especially given the potential volatility. Friday’s huge move higher has broken the key 98.10/98.50 strong resistance and this level should now as strong support to any move lower. Today I will be a buyer form 98.20/98.50 with a 97.90 stop. I will also look to sell the Dollar on any spike higher to 99.70/10.00 with a 100.30 stop.
December DAX
Surprisingly the DAX went bid after the stronger than expected NFP release helped mainly by the weaker Euro. I am still flat the DAX and today I will raise my buy level to 10880/10930 with a 10840 stop. The price action continues to tell me not to be short the market at this time.
December FTSE
In contrast to the DAX above the FTSE continues to struggle. As I mentioned on Friday the FTSE is having huge problems in breaking the 50% retracement of the whole August move lower at the 6400/6450 where coincidently the 100 and 200 Day Moving Averages are situated and turning down. I am still flat the FTSE and today I will still be a seller on any rally higher to 6410/6440 with a 6470 stop. I still do not want to be long the market at this time.
Dow Rolling Contract
No change as I am still a small seller on any further rally higher to 17980/18030 with a 18070 stop. With the MO closing in negative territory as explained under the S&P above I do not want to be long the Dow at this time.
December BUND
The BUND traded lower to my 155.15 buy level shortly after the NFP was released. I am still long and today I will raise my stop on this position to 154.70. If I am stopped out of this trade I will be a more aggressive buyer in front of 154.30 with a 153.85 stop.
Gold Rolling Contract
Thankfully I had cut my long 1105 Gold position ahead of Friday’s NFP at 1108, with Gold trading as high as 1111 ahead of the announcement. Gold got hammered after the NFP release and I bought the market at 1086 as outlined earlier to my Platinum Members. As I am long Silver. I have decided to cover this position here at 1093 and go flat. Today I will again look to buy the market on any dip lower to 1077/1084 with a 1069 stop. Remember Gold has now closed lower in 12 of the past 13 trading sessions.
Silver Rolling Contract
Finally I was stopped out of my long 15.60 Silver position on Friday at 14.90. Subsequently Silver traded lower to my 14.75 more aggressive buy level. I am still long and I will leave my stop the same at 14.35.
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