Have markets broken up with the Trump trade? Today will be a key test of this hypothesis with the US Congress voting on a key Healthcare Reform Bill which is seen as a crucial test of the relationship between the White House and Congress. If the bill does not pass, that could suggests a low willingness of Congress to accommodate Trump’s legislative agenda and could delay or reduce the scope of Trump’s signature policies of tax reform and infrastructure spending on which markets have rallied on. Trump himself has tweeted it’s a “Big Day for Health Care. Working Hard”. According to the Republican Freedom Caucus’ Mark Meadows, 25 Republicans are opposed, meaning at this stage a defeat is likely – defeat only requires 21 to vote against.
To mark my 1300th 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 finished flat yesterday as for only the third time in five years of writing this commentary that none of my calls were hit. My Platinum Service is ahead by 726 points for March having made 1481 points in February, 1734 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.
With such a backdrop, markets have mostly treaded water in the past 24 hours following yesterday’s risk-off Asia session. A tragic terrorist attack in London (5 dead, 20 injured) yielded no immediate reaction, but did help the bid of risk-off assets. UK Gilt yields fell 2bps on the news and are down 7bps overnight while the Pound was broadly steady. The VIX did rise slightly, but at 12 is still at low levels.
US Treasury yields continue their Trump unwind with yields down 2.5bps to 2.39%, down from its recent peak of 2.63%. The unwind has mostly been focused on the real yield component, with real yields down at 0.41% – well down from the peak of 0.68%. In contrast, the inflation breakeven component still sits at 1.98% – around the 2% level it has been averaging since the beginning of January. Bund yields were also down 5.1bps overnight to 0.41%.
The US Dollar closed down 0.1% across the board. Correspondingly the Euro was up 0.1% along with the Kiwi (+0.1%). The Aussie underperformed slightly, down 0.2% with a lower iron ore price weighing. The iron ore price fell 3.0% to $85 a tonne and is down around 8% on the week. The Yen was the outperformer, up 0.77% largely in the Asian risk-off session, but also supported by the better than expected Trade Balance (¥813bn against expectations of 807bn and the highest for seven years). Equities having fallen sharply in Asia yesterday, largely reflecting the sharp fall in US equities (down 1.2%) the previous day, have stabilised overnight with the Nieeki closing slightly higher with a 0.23% gain. Equities were broadly steady, with the S&P500 up 0.2% and the EuroStoxx down 0.3%.
While the Trump unwind has affected most markets, expectations for the Fed have been more resilient. The market currently prices a 42% chance the Fed hikes rates in June and are currently pricing 1.4 rate hikes for the year ahead. Fed commentary in recent days has no doubt helped to steady expectations. Kaplan (voter) in a Reuters interview said two more rate hikes this year was a “reasonable” base case and on the balance sheet “we are moving toward a period where we should begin allowing the balance sheet to gradually patiently run off” but “we have work to do, probably, to get to that point”. Mester (non-voter) was more unequivocal on the timing, stating she was comfortable starting to unwind the Fed’s balance sheet “this year”.
Finally, the RBNZ kept rates on hold as expected. The last paragraph was unchanged with a neutral policy bias maintained. The Kiwi Dollar was unchanged on the news.
This morning on the economic front we already had the release of the German GFK Consumer Confidence which came in at 9.8 versus 10 expected. Next we have UK Retail Sales and the CBI Retailing/Total Distributive Reported Sales at 9.30 am and 11.00 respectively. This is followed at 12.30 pm by the US Weekly Jobless Claims and New Home Orders at 2.00 pm. Finally at 3.00 pm we have the Kansas City Fed Manufacturing Index and Euro-Zone Consumer Confidence.
Fed Chair Janet Yellen is due to speak at 12.00 pm. Normally a speech by US Fed Chair Yellen would elicit some excitement, but today’ speech is to the Fed’s Community Development Research Conference. The conference is aimed at the economic future of children and communities and thus unlikely to contain much in the way of policy guidance; FOMC members Evans and Kashkari also speak at this conference. The more interesting soundings are unlikely to come until 4.30 pm with the Fed’s Kaplan (hawkish) speaking in an off the cuff Q&A session on the economic outlook in DC.
June S&P 500
The S&P traded in a narrow range after Tuesday’s Downside Key Day Reversal with the market unfortunately missing my 2350 sell level twice with a 2349 initial high followed by a 2349.50 high print overnight. Both tests saw subsequent sell-offs in the market but frustratingly the S&P did not hit my sell level and I am still flat. The sell-off in the S&P since its March 1 high at 2400 has been led by the Financial Sector which is now down 6 1/2% since that day. Financials had been one of the leading sectors during the post Trump rally and are now leading the market to the downside as well. Today I will raise my sell level slightly to 2353/2360 with a 2365 stop. I will also raise my buy level to 2327/2333 with a 2322 stop. Remember I will still be an aggressive buyer on any dip lower to 2297/2305 over the coming days with a 2291 stop.
EUR/USD
The volatility in the Euro has just evaporated. Following any large move the market just goes on hold as we wait for the next movement and this has happened in the Euro since it made its low at 1.0341 on January 3. Yes the Euro is overbought and we will see some sell-offs from time to time but the direction for the Euro is higher. With Le Pen only 1% behind in the French Polls she may get some support following yesterday’s terrorist attack in London and this may lead to a drop in the Euro. Today I will leave my sell level unchanged from 1.0850/1.0890 with the same 1.0920 stop. Given how overbought the Euro is trading I do not want to chase this market higher and for this reason I will leave my buy level unchanged at 1.0700/1.0735 with the same 1.0670 tight stop.
June Dollar Index
Unfortunately the Dollar just missed my 99.15 buy level with a 99.30 low print before rallying overnight and I am still flat. Although I believe the Dollar will weaken further over the course of the rest of the year it is severely oversold at this time. For this reason I will now raise my buy level slightly to 99.05/99.35 with a 98.70 stop.
June DAX
I am surprised how quickly the DAX reversed Tuesday’s sell-off following its Downside Key Day Reversal. I do not trust this market and today I will only raise my buy level slightly to 11780/11840 with a 11730 stop. Despite Tuesday’s KDR I do not want to be short the market at this time.
June FTSE
I am still flat the FTSE which bottomed shortly after I posted yesterday morning. I am not going to chase this market higher and I will leave my buy level unchanged at 7160/7195 with the same 7130 stop. I would expect the FTSE to have a decent rally on any initial test of this strong support level.
Dow Rolling Contract
Talk about small margins as the Dow just missed my 20570 buy level with a 20578 low print before rallying nearly 120 points and I am still flat. Today I will raise my buy level slightly to 20515/20575 with the same 20460 stop. It is interesting that the recent sell-off in the Dow sees the Daily Sentiment Index which had pushed to 92% bulls ahead of the 21169 high print on March 1 to fall to 55% bulls last night. It is amazing that even with just a small 500 point sell-off in the Dow how quickly sentiment changes. It just shows how nervous traders are at this time. I still do not want to be short the Dow at this time especially as I have a sell range in the S&P above.
June BUND
No change as I am still a small buyer on any dip lower to 159.55/159.85 with a 159.20 stop. Interestingly the 10 Year Bond market has seen Yields fall from a high at 2.63% to 2.39% last night as yet again the Daily Sentiment Index proves what a valuable trading tool this is.
Gold Rolling Contract
I am still flat Gold which is struggling to rally further. Given the latest Terrorist attack in London I expected Gold to rally further which it did not. I am still flat Gold and today I will leave my sell level unchanged from 1261/1268 with the same 1274 stop.
Silver Rolling Contract
Silver traded in a very narrow range yesterday with the market just missing my initial 17.40 buy level after I posted yesterday morning. As I want to have some insurance against further terrorist attacks I bought Silver again yesterday afternoon at 17.56 where it still trades this morning. I will have a 17.10 stop on this position. I will also add to this trade on any dip lower to 17.25.
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