The major event yesterday was the US FOMC meeting where rates were left on hold as expected. There were very few changes to the Post Meeting Statement with the Fed playing a straight bat. Markets were somewhat disappointed, with Treasury Yields and the US Dollar reversing earlier gains that had occurred following stronger than expected US economic data. On the FOMC Statement itself, there were two tweaks of interest. The Fed seemingly upgraded its inflation outlook ever so slightly, noting that inflation “will rise to 2%” instead of last meeting’s “is expected”. The Fed also noted the recent improvement in Consumer and Business Sentiment of late. Despite those tweaks, the market took it as slightly dovish and not providing any support to the Fed’s mooted 3 rate hikes for 2017. The OIS market now places the probability of a March rate hike at 35%, down from 42% just prior to the FOMC, and is currently pricing in 2.1 rate hikes for 2017.
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 125 points yesterday on the first trading day in February having made 1734 points in January, 1351 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 2015 it has averaged a monthly gain of over 1800 points.
US Treasuries reacted similarly to the Statement, falling 2bps immediately after and ending the day almost unchanged at 2.47%. It’s worth noting here that yields did actually reach 2.51% after stronger than expected US economic data. ADP Payrolls printed at 246k, well up on expectations of a 167k print and suggestive of upside risks to Tomorrow’s Non-Farm Payrolls (note a 200+ print for payrolls would be enough to drop the unemployment rate by 0.1 assuming a constant participation rate). The ISM Manufacturing Index also continued its surge increasing to 56.0 – the highest level in 26 months. Under the hood of the ISM, the prices paid index rose to its highest level since May 2011 to be at 69.0.
Other major Sovereign Bond Yields followed the moves in Treasuries pre FOMC, with German Bund yields up 3.2 bps to 0.47% and UK Gilts also up 3.2 bps to 1.45%. Euro periphery yields rose more than Bunds with French OATs up 4.9 bps and Italian BTPs up 5.1bps – it seems the French Presidential Elections and Italian worries are starting to weigh.
In the FX space, US Dollar strength yesterday afternoon also reversed on the back of the FOMC with Bloomberg’s DXY ending unchanged. On the currency leader board, the Pound was the outperformer, up 0.7% to 1.2669 following a strong UK Manufacturing PMI with the cost sub-index reaching its highest level since 1992!. That read plays into the view that the Bank of England is likely to slightly upgrade its inflation and growth forecasts at today’s Meeting. Other currency pairs were unchanged to slightly lower with the Aussie unchanged, and the Euro, Yen and CAD down 0.2% each respectively. The Kiwi was the clear underperformer, down 0.4% following a mixed labour market report. The Kiwi Unemployment Rate rose to 5.2% from 4.9% but that was on the back of a surge in the participation rate with employment growth still strong. In Kiwi news, the NZ PM called the general election for 23 September.
Comments yesterday on currency manipulation by Trump’s adviser Peter Navarro sparked a flurry of responses across the Pacific and the Atlantic. Japan’s Cabinet Secretary said it was “absolutely not the case” while German Chancellor Merkel said they do not exercise any influence on the ECB. Donald Tusk who is President of the European Council said the US was a “worrying” source of unpredictability.
Equities were mixed. US equities were lower or unchanged with the S&P500 down 0.1%. With declines in Energy (-1.0%), Real Estate (-1.1%) and Utilities (-1.6%) weighing. European equities were stronger with the EuroStoxx up 0.9% on the back of strong earnings from Siemens and Volvo. However overnight the Nikkei fell 1.22% to close at 18,915 and this is weighing on European equity markets at the open.
In commodities, oil was up 1.7-2.0% with WTI at $53.72 and Brent at 56.67. Thermal Coal fell 0.4% to $82.7 along with Coking Coal which was down 1.3% to $168.0.
This morning on the economic front the ECB will publish its latest Economic Bulletin at 9.00 am and this is followed at 9.30 am by UK Construction PMI. The Bank of England meets and releases its latest Inflation Report as well at 12.00 pm. It is expected that inflation and growth forecasts for the UK could be upgraded slightly, but this is unlikely to precipitate any change in the outlook given Brexit is yet to come. Finally we have US Weekly Jobless Claims and Non-Farm Productivity/Unit Labour Costs at 1.30 pm.
Corporate earnings seasons continues with Deutsche Bank, Amazon, and Shell reporting amongst others.
This afternoon at 12.15 pm the ECB President Dragi is due to speak in Ljubijana and it will interesting to see if he mentions the Euro especially after the comments from the new US Administration last Tuesday.
March S&P 500
The S&P had a wild trading session with the market trading to a high of 2285 before falling to a 2268.25 low print ahead of the FOMC Statement. This fall saw the S&P hit my initial buy level at 2271 and as I wanted to be flat ahead of the FOMC Statement I emailed my Platinum Members to exit this position at 2274. Subsequently the S&P rallied to 2278 following the Statement release before selling off again this morning. The S&P has already bounced three times off important support at 2264/2269 and a fourth test is unlikely to hold. Given this view I will now lower my buy level to 2251/2256 as the next support level is at 2253 which was the low from last week. Remember the volume in the S&P has been at multi-year lows as most traders are too scared to buy the market given the fact that that S&P Earnings Ratio is close to all-time highs at 24. They are also reluctant to sell given the promises from President Trump that he will cut taxes and spend huge amounts of money on infrastructure. As I have said over the past few weeks, Trump getting elected as probably postponed a recession in the US by 9/15 months. I will now lower my sell level in the S&P to 2283/2288 with a 2293 stop.
EUR/USD
Unfortunately the Euro just missed my 1.0730 buy level by one point before rallying back to test 1.08 and I am still flat. For any member who bought in front of my buy level then this idea worked perfectly. The Euro still has strong resistance at the early December high at 1.0874 and I would expect the market to have difficulty in breaking this key resistance on the first attempt. For this reason I will again look to sell the Euro on any rally higher to 1.0855/1.0895 with a tight 1.0925 stop. A break and close over 1.0875 will be very bullish. With Dragi speaking this afternoon I will only raise my Euro buy level slightly to 1.0705/1.0745 with a 1.0675 stop, in the hope that Dragi comments on the 450 rally in the EUR/USD since early January.
March Dollar Index
My Dollar plan worked well with the market hitting my 99.50 buy level shortly after I posted yesterday morning before rallying back over 100 and this rally enabled me to cover this long position at my 99.85 T/P level and I am now flat. Given how oversold the Dollar is trading I will again look to buy the Dollar on any further dip lower to 98.80/99.20 with a 98.45 tight stop. The Dollar has strong support in my buy range and I would expect the market to rally on any test of this level initially before resuming its down trend.
March DAX
I am still flat the DAX which is surprising as given the rally in the Euro over the past 48 hours I would have expected a further sell-off in the DAX. Today I will leave my buy level unchanged at 11490/11550 with the same 11465 tight stop. I still do not want to be short the DAX at this time as despite the price action I am not comfortable in being short the market at these levels.
March FTSE
The FTSE traded lower to my average buy level at 7040. With the market struggling due to the suddeen move higher in Sterling over the past week I emailed my Platinum Members to exit this position at 7060 and this was filled following the FOMC Statement and I am now flat. Today I will again look to buy the market on any dip lower to 6975/7010 with a 6945 stop. Despite the negative price action I still do not want to be short the FTSE at this time.
Dow Rolling Contract
It took a while but finally the Dow hit my 19800 buy level with a 19799 low print overnight before rallying in the last 20 minutes and this rally has enabled me to cover this long position at my revised 19840 T/P level and I am now flat. The Dow continues to underperform the other major US Indices but as long as we can hold the December 30 low at 19718 and the January low at 19677 then then the market is still bullish. However a break and close below 19650 coupled with the S&P closing below 2227.75 will see the US Indices sell off and perhaps aggressively. Today I will again look to buy the Dow on any dip lower to 19710/19770 with a 19660 stop. Given the importance of this nearby support level I still do not want to be short the market at this time.
March Bund
Just like the Euro above the Bund also missed my 161.50 buy level by 1 point with the market printing a 161.51 low print before rallying back to 161.95 again which is frustrating. Today I will lower my buy level slightly to 161.00/161.35 especially ahead of Dragi’s speech at 12.15 pm.
Gold Rolling Contract
In keeping with yesterday’s theme of so many markets just missing my initial buy level Gold made a low at 1197 which just missed my 1192 buy level before rallying strongly and this rally has continued this morning with Gold currently trading at 1216. Gold has huge resistance at 1220 and this level has repelled Gold on three occasions so far so may well break it on this attempt. Today I will now raise my buy level to 1198/1205 with a 1191 stop.
Silver Rolling Contract
Thankfully Silver traded to a low at 17.34 after I posted yesterday morning giving everyone a chance to buy Silver at hopefully a lower level than my latest 17.50 long position. With Silver trading higher at 17.67 this morning I will now go ahead and raise my stop to 17.25 on this position.
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