The Bank of Canada delivered on an almost universal expectation for a 25-point rate hike yesterday afternoon. While saying it would adopt a cautious approach to further tightening in order not to choke off growth (and also citing NAFTA as one particular concern) Money Market pricing continues to ascribe more than 100% probability to a further move no later than May (27.1bps on Bloomberg’s calculator). A knee jerk ‘’sell the news’’ response in all things CAD (USD/CAD to 1.2520 from around 1.2400) has since been fully reversed, with the ‘’loonie’’ sitting pretty much where it was pre-decision.
To mark my 1500th 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 anyone following my Platinum Service it made 119 points yesterday and is ahead by 121 points for the month of January, having made 946 points in December, 823 points in November and 657 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
I have a YouTube Channel which contains recent interviews I have given. This can be viewed by clicking HERE. Please subscribe to this for new interview notifications.
A growing chorus of European Central Bankers are imploring markets to rein in their enthusiasm for the Euro. ECB’s Vice President Constancio noted that ‘’I am concerned about sudden movements which don’t reflect changes in fundamentals’’ the latter reflecting the modest tick down in inflation. He signaled that there is little prospect of a change to policy language next week, arguing that officials should be careful not to ‘’choke off growth too soon’’. The ECB’s Nowotny also weighed in, saying that Euro appreciation ‘’is not helping’’ and that while the ECB ‘’has no exchange rate goal’’ it must be watched in terms of its impact on economic developments.
The Euro’s near term course remains important for the AUD; as the EUR strength is proving to be a ‘’rising tide that floats all boats’’. That said, the break above the 80 cent level in AUD/USD in the last couple of hours (to 0.8023, since reversed) has come despite EUR/USD currently trading below the 1.2323 high seen around midday yesterday, albeit it had recovered most of the ECB-rhetoric inspired losses witnessed during the European session, before falling dramatically into the New York close to currently sit at 1.2175.
The US dollar in general continues to ignore positive incoming news, yesterday’s being a consensus-busting 0.9% rise in Industrial Production (with net positive backward revisions), albeit flattered by a 5%+ surge in utility output due to last month’s Arctic weather. The Fed’s Beige Book noted ‘’on-going labour market tightness and challenges finding qualified workers across skills and sectors, which, in some instances, was described as constraining growth”. At the same time wages were described as increasing “at a modest pace” in most districts and price gains “modest to moderate” (Bloomberg reporting).
Also to note is Apple saying that it will bring back $38bn into the United States as a result of the changes to the tax code and requirement to pay tax on earnings stashed offshore. Apple says it will invest $30bn in the U.S, in the next five years. $328bn represents about 15% of Apple’s $252.3bn overseas cash pile (which is also the tax rate to be applied to profit held in liquid assets abroad). Given the estimate $3.1tn in profits held overseas across all of corporate Americas, 15% would amount of some $465bn of total repatriation (remember only the taxes to be paid, not the gross profits, need to be returned).
Given that taxes due can be spread over 8 years (and back-loaded) and much of the cash is already in dollars (we don’t know how much) the annual flows back into dollars from this source are hardly going to touch the sides of the FX market. Certainly they are not going to be the dollar-positive force I thought last year that they could be. That said, actual flows could be larger, to the extent US multinationals choose to repatriate more than just the amounts required to pay their taxes, either to invest in ‘’Making America Great Again’’ or (more likely?) to facilitate share buybacks and//or additional dividends.
Incoming Fed speak continue to span the hawk-dove divide, Robert Kaplan (Dallas, non-voter this year) told the Wall Street Journal he sees three rate rises this year but the risk skewed to the need for more in order to prevent overheating. He spoke again after the New York close, saying that ‘’cyclical inflation pressures are building’’, though offset by some structural factors like technology. He is also lamenting that tax cuts are coming just when the US is at or near full employment (he sees unemployment in the ‘’3s’’ by end 2018 due to the tax cuts). Chicago Fed President Charles Evans meanwhile (also a non-voter this year) says that while US fundamentals are very strong and he is confident inflation will move back to target, it is important for Monetary Policy to support the economy. Recall a week or so again Evans said he would have preferred a six month delay to the rate hike the majority agreed to in December.
Elsewhere, we still do not know if a US Government shutdown after tomorrow will be averted (the working assumption is that it will, the dollar will suffer if it is not).
Bitcoin plunged below $10,000 yesterday, down from its $19,511 December high, but has since come back though this level. The year-on-year gain has been reduced to a mere 1,130%.
This morning on the Economic Front we have no data of note due from either the UK or ECB. At 1.30 pm we have US Housing Starts, Building Permits Philly Fed and the Weekly Jobless Claims.
Finally at 2.30 pm the ECB’s Coeure is due to speak on the Euro-Zone Economy.
March S&P 500
What a trading day with the S&P unsure what to do next before rallying strongly into the close in what could well be interpreted as the final capitulation stage. The latest Advisors Intelligence data shows the number of bearish traders at just 12% which is the lowest in its 32 year history as yet again anyone trying to short the market has to take their profit before it evaporates. Yesterday after the S&P just missed my initial 2795 sell level with a 2794 high print the market fell 14 Handles before rallying back to the 2800 area. I went short at 2801 before emailing my Platinum Members to cover this revised sell level at 2800 and I am now flat. Today I will again be a seller on any further rally to 2812/2820 with a 2827 stop. Given the sentiment extreme I no longer want to be a buyer of the market at this time.
EUR/USD
Unfortunately the Euro just missed my 1.2290 sell level after I posted yesterday morning before having a wild down and back up move late in the New York session with the Euro eventually trading higher to my 1.2275 revised sell level as outlined to my Platinum Members. As I had to catch a flight back to Dublin I covered this short position at my revised 1.2250 T/P level before the market got hit hard after the close to a 1.2164 low print. There is no doubt the ECB are really concerned about the strength of the Euro while the Bundesbank have the opposite view. Today I will again look to sell the Euro on any rally higher to 1.2250/1.2310 with a 1.2360 stop. My only interest in buying the Euro is still on a dip lower to 1.2010/1.2060 with a 1.1970 stop.
March Dollar Index
My long 90.00 Dollar position worked well with the market trading higher to my 90.35 T/P level and I am now flat. Subsequently the Dollar traded back below 90.00 before rallying strongly into the close. There is no doubt the 90.00 is major support and some large Central Banks are trying to hold this level knowing the ramifications of a break and close below here. Today I will now be a buyer on any dip lower to 89.90/90.30 with a 89.55 stop.
March DAX
Thankfully we had no sell levels in the DAX which continues to be a buy on dips despite the negative price action that has prevailed on some of the trading sessions so far this year. I am still flat and today I will now raise my buy level to 13050/13120 with a 12990 stop.
March FTSE
No change as my only interest in buying this market is still on a dip lower to 7580/7625 with the same 7545 stop.
Dow Rolling Contract
My Dow plan worked well with the market initially trading higher to my 25990 sell level before falling over 100 points. As I wanted to bank some points for yesterday’s session I covered this position at my revised 25954 T/P level. Subsequently I went short the Dow again at 26060 before thankfully emailing my Platinum Members to exit any short position at 26047 and I am now flat. Incredibly the move from 24,000 to 25,000 took 23 days which was a new record for a 1000 point move to new highs at the time. However the subsequent move from 25,000 to 26,000 only took 7 days as the final capitulation stage takes hold as mentioned in my S&P commentary above. Today I will again look to sell the Dow on any further move higher to 26200/26300 in small size with a 26380 stop. I will still be an aggressive buyer on any dip lower to 25400/25500 with a 25280 wider stop.
March NASDAQ
As I was already short the Dow and S&P, I emailed my Platinum Members to cancel my sell level in the NASDAQ. If any member did go short at my initial 6795 sell price, the NASDAQ had a nice sell-off from this level before following the other markets higher into the close. Today I will be a buyer of the NASDAQ on any dip lower to 6670/6720 with a 6630 stop. The 6660/6700 is good support and should lead to a decent rebound on any test of this area. I no longer want to be short the NASDAQ at this time.
March BUND
The Bund traded in a narrow range yesterday and I am still flat. Today I will lower my buy level slightly to 159.90/160.30 with a 159.60 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold which rallied initially to 1340 got hit hard after the rebound in the US Dollar. I am still flat and today I will now lower my buy level slightly to 1306/1316 with a 1298 stop.
Silver Rolling Contract
No change as my only interest in buying Silver is still on a dip lower to 16.40/16.75 with a 16.10 stop.
Recent Comments