Yesterday President Trump said it would be ‘’foolish’’ for the Fed to raise Interest Rates again next week, demanding help in his trade fight with the US. The plea rightly fell on deaf market ears with no shift in pricing for a rate rise next Wednesday. This currently stands at 91% on my calculations, assuming that the Fed only moves up the interest rate it pays banks on excess reserves (IOER) by 20bps. This would be designed to push the effective Fed Funds rate back closer to the middle of the Fed’s Quarter point-wide target bands from nearer the top at present. CPI yesterday came in as expected, so did nothing to impact Fed expectations. Far more relevant for markets has been the sharp improvement in sentiment towards the US and China settling a good chunk of their trade differences in coming months and which has culminated in China expressing willingness to revamp its so called ‘’Made in China 2025’’ policy. In the scheme of things and were this to prove true, this is far more relevant than China agreeing to restart purchases of American soybeans, or even reducing the tariff on US car imports from 40% to 15%, as has been indicated in the last 48 hours.
To mark my 1725th 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 To demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 142 points yesterday and is now ahead by 1494 points for December, having made 1541 points in November, 2094 points in October, 1279 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Meanwhile the leadership challenge to UK PM Theresa and what this means for Brexit continues to be a sideshow outside of the UK, save that the EUR has drawn some support from the stronger pound (May won the challenge by 200 to 117 with the caveat that she will not lead the party into the next election), helped too by sharply lower Italian bond yields as the EU and the Italian government comes tantalisingly close to agreeing on a budget deficit target for 2019 (in the order of 2%).
Equities
Risk sentiment was buoyed during the European session yesterday by a variety of comments, including President Trump himself, indicating progress on trade talks, a willingness to suspend further tariff action until it became clear whether a deal can be done and even expressing willingness to intervene in the Huawei case if this would help progress trade talks. Plus, media reports indicate that China’s Economic Czar Hui told US Treasury secretary Steve Mnuchin on Monday that the tariff on US car imports would be cut to 15% from 40%.
Yesterday, the Wall Street Journal has reported that China was drafting a replacement for the Made in China 2025 policy. It has become perhaps the main sticking point in the US-China trade war, and a change in direction from China on this front would increase the chances that the two sides come to an agreement next year. According to the WSJ, China was considering delaying some of its targets to 2035 and put more focus on improving industry standards, with the new policy planned to be rolled out early next year.
However the US Indices reversed earlier sharp gains to close 0.50% higher. Gains are fairly uniform across the S&P 500 sectors, save that defensive stocks are low (consumer staples, utilities) and interest rate sensitive sectors underperforming (real estate). European Indices closed up between 1.0% and 1.8% and these gains have been maintained on the re-open of the markets this morning.
November Core CPI inflation came in line with expectations at 0.2% m/m. The annual core rate was 2.2% y/y and also as expected. Mapping CPI onto PCE (the Fed’s preferred inflation measure) suggests Core PCE for November will be subdued at 0.15% m/m and 1.8% y/y. Overall this suggests a more stable inflation outlook, which gives the Fed scope to pause its hike cycle if needed next year.
Currencies
The USD is weaker by about a third of a percent, gains in the DXY driven by the 1%+ rise in Sterling on indications UK PM may will comfortably defeat the confidence vote against her party leadership. Her victory really does nothing to clear the Brexit fog still hanging over UK markets, and indeed does not diminish the chances that the current political fiasco could end up in an early General Election. But markets are trading the view that risk of a no deal ‘’crash out’’ next March are lower in so far as May is not about to be replaced by a ‘’hard Brexiteer’’ from the right wing of the Tory party.
EUR/USD has been caught in the slipstream of the GBP rally, up 0.4%, but which is also a function of a sharp (15bps) narrowing in Italian BTP/German Bund spread with Italian 10s back below 3% for the first time since late September. The EU and Italy seem close to agreeing 2019 budget deficit target that will be very close to 2% of GDP. French President Macron’s fiscal response to the yellow shirt protests and which now sees France projecting budget deficits back above 3% next year, is seen playing into Italy’s hands in its battle with the European Commission.
Bonds
The better risk tone and absence of downside CPI surprises has lifted US Treasury yields, 10s +2.0bp to 2.90% and 2s up 0.2bp to 2.766%. 10yr Bund yields needed 4.6bps higher in front of today’s ECB meeting.
Commodities
Iron ore futures are flat while base metals are mixed despite the improved Sino-US trade backdrop, with copper -0.5% and aluminium unchanged while nickel lead and tin are all higher.
Oil was initially higher on news that US crude inventories fell by 1.2 mn. barrels last week but has since fallen back again with WTI 40 cents down and Brent about unchanged on 24 hours ago.
This morning on the Economic Front we already had the release of Final German CPI which came in as expected with a +0.1% rise. The main event is the is the ECB meeting at 12.00 pm, where I expect the Governing Council to confirm at end of the Asset Purchase programme (APP) this month. Growth forecasts are likely to be cut by 0.1-0.2 pts (2018 likely 1.9% from 2.0%; 2019 1.6-1.7% from 1.8%). Headline Inflation forecasts may also be lowered by 0.1 pts or so due to the fall in the oil price but confidence is likely to be maintained in inflation heading up next year driven by wages.
The ECB’s forward guidance on rates (rates expected to rise after the summer of 2019) but a dovish emphasis is likely in the press conference at 1.30 pm provide assurance that accommodative policy is set to remain for a good while yet. Also at 1.30 pm we have the US Weekly Jobless Claims which are of increased importance in so far as the recent uptick prefaced last Friday’s weaker than expected rise in US Payrolls.
December S&P 500
My S&P plan worked very well with the market trading higher to my initial 2685 sell level with a 2686 high print before falling 40 Handles into the close. Unfortunately as I was already short both the Dow and NASDAQ I did not sell the S&P myself. This morning on the back of the stronger Asian Markets the S&P is now trading 20 Handles off its overnight low at 2665. I am still flat and today I will again look to sell the S&P on any rally higher to 2683/2693 with a 2702 stop. The S&P has strong support from 2610/2625 and I will be an aggressive buyer on any dip to this area with a 2595 wider stop.
EUR/USD
The 1.1100/1.1300 is proving to be strong support for the Euro as everytime we look like we are going to break lower the market rebounds. I am still flat the Euro and the market needs to break and close over 1.1425 for the bulls to regain control. With the ECB Meeting and Dragi press conference this afternoon I will now raise my buy level slightly to 1.1270/1.1310 with a 1.1235 stop.
December Dollar Index
I am still flat the Dollar which again traded in a narrow sideways direction for the last 48 hours. Today I will now lower my sell level to 97.40/97.80 with a 98.25 stop.
December DAX
The rally in the DAX off last week’s 10300 low print has been impressive with the market again closing over the key 10800 support level. I am still flat and today I will now raise my buy level to 10770/10830 with a 10710 tight stop.
December FTSE
Both Sterling and the FTSE have reacted well to PM May winning her leadership challenge last night. Under Conservative Party rules she is now exempt from any challenge for the next 12 months and it makes you wonder why the right wing of the party took this leadership challenge yesterday. The fact that the FTSE closed over 6800 is positive for higher prices. Today I will now raise my buy level to 6790/6840 with a 6755 stop.
Dow Rolling Contract
My Dow plan worked well with the market trading higher to my 24750 sell level before selling off to my 24680 T/P level. Subsequently I emailed my Platinum Members to sell the Dow again at 24825 with a revised 24798 T/P level and I am now flat. The good part about yesterday was that no matter where you sold the Dow in my range the market you should have made nice points given the accelerated sell-off into the close. The Dow has resistance from 24825/24975 and today I will be a seller on any rally to this area with a 25060 tight stop. I have no interest in buying the Dow at this time.
December NASDAQ
My NASDAQ plan also worked well with the market trading higher to my 6830 sell level before selling off to my revised 6785 T/P level and I am now flat. The NASDAQ has resistance from 6880/6930 and today I will be a seller on any rally to this area with a tight 6965 stop. My only interest in buying the market is on a large move lower to 6540/6600 with a wider 6470 stop.
March BUND
After weeks of sideways to higher prices the Bund finally had a small sell-off yesterday. I am still flat and today I will now lower my sell level to 163.40/163.80 with a 164.20 stop.
Gold Rolling Contract
Despite Gold closing above 1230 for most of the past 10 days the market is struggling to see any follow through. I am still flat and today I will leave my buy level unchanged from 1225/1233 with a higher 1217 stop.
Silver Rolling Contract
Silver just missed my 14.50 buy level before rallying into the New York close. Silver has strong resistance from 14.80/15.10 and if we can break and close above here then I will be more confident that we have finally seen a low in the market at last month’s 13.87 print. Today I will raise my buy level to 14.35/14.65 with a 14.05 stop.
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