It is a rather odd world scene right now. Geopolitical factors abound across the globe, with markets again focusing on European politics again, but despite all this and the uncertain shape of US growth, tax and trade policies, the global economy has started the year in rude economic health with evident momentum. Earlier this week, we have already seen Euro-zone PMIs printing on the strong side for February with Germany’s Manufacturing PMI at 57 and France’s only just behind at 56. That level of growth is on a par with the state of US Manufacturing. Yesterday’s German IFO survey for February was again not only on the strong side of expectations, but “strong”. The Current Assessment index component, the component that tracks GDP, printed at 118.4, up from 116.9 (consensus was steady at a still healthy 116.9). Along with a brief period of growth in 2010-11 that was subsequently scuttled by the European debt crisis, February’s reading was the strongest reflection of the economy since 2006.
To mark my 1275th 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 12 points yesterday and is now ahead by 1252 points for 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.
This release did not spur buying of the Euro, nor push up Bund yields. The opposite was occurring, the market instead focusing on polls for the upcoming Dutch and French elections. A Dutch poll showed the far right PVV party gaining in popularity, spurring selling of the Euro below 1.05 and a widening in the German-French 10y bond spread to 82bps. Later in the European session, this all reversed with news that French Presidency centrist candidate Francois Bayrou withdrawing from the race and throwing his hat in the ring behind Emmanuel Macron to support the campaign against Le Pen.
The Euro, along with other major non-USD currencies had another leg up courtesy of some selling of the US Dollar in the wake of the FOMC Minutes from their January 31-Meeting. The markets were looking for guidance on whether the upcoming March 15 meeting was any more likely than the one third chance being priced by the market. Instead, there was no killer punch to suggest March is closer to if not above a 50% chance.
Many (FOMC members) saw a hike “fairly soon” providing the economy is on track. Fairly soon is more evasive than say “soon”. There were also comments (again) emphasising the gradual pace of hiking rates, tinged with concerns about downside risks of further dollar strength against upside risks from fiscal stimulus. But even there, some saw risks from some “potential policies” (trade wars?). Fed Governor Powell was also speaking last evening and he was also unspecific on timing, saying that the Fed can raise rates gradually and that a hike is warranted “reasonably soon if the economy is on track”.
Next Friday’s Non Farm Payrolls will be especially important in what it says about wages growth and thus the implications for inflation. January Average Hourly Earnings underwhelmed, and even then despite mandated increases in the minimum wage across many States.
What data that was available from the US was positive. Existing Home Sales continued growing in January, sales up 3.3%, more than countering December’s 1.6% decline (revised a tad higher). Median sales prices in January ($US 230,400 for single family homes; think about that in the Irish context) were up 7.3% y/y, seemingly unruffled to date by higher mortgage rates in recent months.
This morning on the economic front we already had the release of German GDP for Q4 and this came in as expected with a 0.4% rise. The German GFK Consumer Confidence was also released coming in at 10.1 versus 10.0 expected. At 11.00 am we have UK CBI Total Retailing Reported Sales and this is followed at 1.30 pm by US Weekly Jobless Claims and the Chicago Fed National Activity Index. Finally we have the House Price Purchase Index and the Kansas Fed Manufacturing Activity Index at 3.00 pm and 4.00 pm respectively.
More Fed speak this evening with Fed Presidents Lockhart (nv) and Kaplan (v, more hawkish, in the “three” camp, estimating three recently as a “pretty good guess” (his words).
March S&P 500
The S&P missed 2351 buy level with a 2354.75 low print before spending the rest of the trading session in a sideways to higher as yet another all-time high was achieved. All of this happened against a weakening McClellan Oscillator which closed just barley in positive territory. I must say that I have never in my 30 years of trading seen so much good news priced into a stock market. The ”Open Gap” from last Friday’s Chicago close at 2347.50 to Tuesday’s Chicago low print at 2356 still remains open and as all ”Open Gap’s” get filled eventually I will leave my buy level unchanged at 2345/2351 with the same 2340 stop as I do not want to chase this market higher from here. I was in IG London yesterday and it was interesting as they were telling me that in the total outstanding positions for the US stock market that nearly 80% are short and have lost a lot of money so far this year. As I keep saying this market will not sell-off until we get a sell extreme that lasts for more than a few days with the probability that we get a Downside Key Day Reversal first to signal the start of this anticipated sell-off. Sentiment continues to be at elevated levels as shown by the the two 91% bullish readings over the past four days and this reflects the greatest level of investor optimism in over three years. Today I will lower my sell level slightly to 2366/2372 with a 2377 stop.
EUR/USD
Just as I posted yesterday morning I was stopped out of my average long 1.0560 Euro position at 1.0515. Subsequently the Euro missed my 1.0490 second buy level twice with a 1.0493 low print. As a result of this I emailed my Platinum Members to re-buy the Euro at 1.0518 or lower with a 1.0545 T/P level which was then filled and I am now flat. It is ironic that with the European Economies beginning to stir after years in the doldrums that the Euro is weak on the back of both the Dutch and French upcoming elections. It it was not for the latter then the Euro would be trading much higher in my opinion. Today I will again look to buy the Euro on any dip lower to 1.0485/1.0525 with a 1.0455 stop. Despite the negative price action I still do not want to be short the Euro at this time.
March Dollar Index
Unfortunately the Dollar missed my 101.90 sell level with a 101.75 high print before selling off and I am still flat. Remember the Dollar is only correcting some of its 5% fall in January which resulted in a Downside Key Month Reversal which in itself is a rare event. The Dollar needs to break its first resistance at 102.45 and its January high at 103.82 to put the Dollar back in a bullish mood. Today I will lower my sell level slightly to 101.65/101.95 with a 102.20 stop.
March DAX
No change as I am still a small buyer on any dip lower to 11870/11920 with the same 11825 tight stop. Despite the overbought nature of the DAX, I still do not want to be short the market at this time.
March FTSE
The FTSE continues to trade in a narrow range with the weakness in Sterling helping to keep the market from falling. The FTSE continues to underperform the other major Indices which may be a warning of downside price action to come. As I have mentioned over the past week, the 7295/7335 area is strong resistance as it includes the January all-time high. Today I will be a seller in this area with a tight 7355 stop.
Dow Rolling Contract
The Dow has now rallied 2898 points which is over 16% since the end of a pullback on November 4, 2016. The market has closed up 13 out of the past 16 weeks and investors are overwhelmingly positive about the prospects for the stock market and the economy. This is shown by the Conference Board Consumer Confidence Index which hit a fifteen-and-a-half-year high last month. Yet the McClellan Oscillator which measures the internal readings of the market only closed with a +20 print last night. This stock market is on borrowed time in my opinion and may well hit 21,000 over the coming days which if it does will have been one of the quickest 1000 points moves in its 100 year history. Yesterday was the ninth consecutive higher Dow close in a row and more importantly, three of the past four higher closes have occurred in conjunction with a negative advance/decline ratio, with more stocks closing down than up. This is a bearish signature that often occurs during the final days of a rally. I am still flat the Dow and today I will again look to sell the market on any further rally to 20820/20900 with a 20950 stop. Again I will scale into any short position with a small stake initially. Given all of the above I do not want to be long the Dow at this time.
March Bund
For once I was lucky yesterday as after the Bund hit my 165.15 average sell level the market missed my 165.55 stop with a 165.54 high print before selling off over 80 points and this sell-off enabled me to cover my short position at my revised 164.85 T/P level. Subsequently I emailed my Platinum Members to go short again which I have done at 165.20 this morning. I am still short and I will leave the same 165.55 stop on this position. Given the extent of the recent Euro-Zone growth it is insane to see two year German Bunds trading with a negative 80 basis point yield. This is not sustainable in my opinion.
Gold Rolling Contract
I am still flat Gold and today I will raise my buy level slightly to 1217/1225 with a 1210 stop.
Silver Rolling Contract
Silver has traded in a very narrow range over the past 10 days. I am still long at 17.96 with the same 17.65 stop.
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