The US dollar is weaker (and AUD a little stronger) from where I posted yesterday morning, thanks largely to gains for Sterling and which has dragged EUR along for at least part of the ride. US stocks having turned negative despite earlier been buoyed by positive earnings results from the likes of IBM and Procter & Gamble, rallied to close just in positive territory after another wild trading session. US bond yields are little moved. A big day ahead with French, German and pan Euro-Zone PMIs this morning followed by the ECB. Will Mr. Draghi change his tune?
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For anyone following my Platinum Service it made 210 points yesterday and is now ahead by 1334 points for January, having made 2803 points in December, 1541 points in November, 2094 points in October and 1279 points in September Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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As for the ongoing government shutdown, President Trump and newly installed House leader Nancy Pelosi may not have spoken for well over a week now, but there are reports that the Democrat side may be moving towards a proposal that would offer $5.7bn worth of funding for border security (if not $5.9bn worth of explicit ‘’Wall’’ funding, in which case the prospects for an end to the government shutdown in the coming week or two might not be completely hopeless. In the meantime the chair of the President’s Council of Economic Advisers, Kevin Hassett, has been out warning that Q1 GDP could be zero if the shutdown does not end soon, but talks of a ‘’humongous’’ rebound as and when it does.
Currencies
FX markets becoming more convinced that the ‘’worse’’ that might happen on Brexit is that Theresa May’s previously doomed Withdrawal Agreement might actually get overt the line if the ‘’Hard Brexiteers’’ in her government become convinced that the alternative is an extension of the Article 50 timeline, a second referendum and potentially no Brexit. GBP/USD is up 0.9% on this time yesterday (EUR/GBP 0.8705 which is 450 points lower in just two weeks) and the best performing G10 currency.
A stronger pound has meant that EUR/USD is up, but by only 0.25%, maintaining its status as a ‘’low beta’’ Sterling. Whether these gains can survive the Euro-Zone PMI data and ECB this afternoon of course remains to be seen.
Sterling gains are followed by the NZD, after yesterday’s Q4 CPI numbers showed an acceleration in annual inflation rates on most core measures and a particularly large jump in the ‘’non tradeables’’ component that represents domestically generated inflation. This saw the market-implied odds of the RBNZ cutting rates this year significantly reduced, albeit not eliminated.
JPY is slightly weaker and where the Bank of Japan’s Governor Kuroda was arguing yesterday morning that there are still plenty of unconventional policy measures the Bank could deploy to achieve its inflation target. Markets aren’t convinced though and despite the BoJ’s inflation forecast downgrades yesterday, the JPY is stronger than where it sat prior to yesterday’s (unchanged) BoJ meeting outcome.
The CAD is the other underperformer, follow weaker than expected Retail Sales numbers (-0.9% headline, -0.6% ex-autos) with household goods spending particularly weak. The latter chimes with a subsequent Bloomberg TV interview with Bank of Canada Governor Stephen Poloz in Davos in which he highlighted the current weakness of the housing market. While still saying higher rates will be needed in so far as policy is seen to be well below ‘’neutral’’, he revealed himself to be in no hurry whatsoever to contemplate the next move up in the 1.75% o/n lending rate.
Equities
After a rollercoaster trading session both the Dow and S&P closed 0.70% and 0.22% higher respectively. Gains earlier in the session followed good earnings reports from IBM, United Technologies and Procter & Gamble, but looking at the S&P sub-sectors, Energy and Materials are both off more than 1% and in which respect I would note than oil prices turned lower as the US session progressed.
Bond markets
Not much to say about bonds. 10-year Treasury yields were as high as 2.78% earlier in the New York session but have slipped to 2.735% as stocks turned over (2.75% now). The 2-year yield is currently at 2.59%, where I left it yesterday morning.
Commodities
WTI and Brent crude are both currently off about 35 vents or 0.6%, precious metals are narrowly mixed (gold down $2) but base metals are all higher led by a 1.4% rise in aluminium (copper up a lesser 0.3%). Iron ore futures and both coals are unchanged. This morning on the Economic Front we have French. German and Euro-Zone Markit Manufacturing/Services PMI at 8.15 am, 8.30 am and 9.00 am respectively. This is followed by the ECB Rate decision at 12.45 pm and the Dragi press conference at 1.30 pm.
Markets will be keen to hear from the ECB on whether the deterioration in data since its last meeting has shifted its view. I envisage some modest downgrade to the 2019 growth downgrade but no formal shift in guidance on monetary policy (so a ‘’dovish tilt’’ but no more at this stage). One particular point of interest will be any hint from Mr Draghi on the willingness to undertake fresh TLTROs (Targeted Long Term Refinancing Operations) given the heavy upcoming maturity schedule, in Italy in particular. I still think it is premature to expect anything on this today.
Also at 1.30 pm we have US Weekly Jobless Claims. Finally at 2.45 pm we have US Markit Manufacturing and Services PMI.
March S&P 500
My S&P plan worked perfect with the S&P trading higher to my 2644 sell level with a 2653.50 high print before falling an incredible 40 Handles. This move lower saw the S&P hit my revised 2636 T/P level and I am now flat. The S&P subsequently rebounded into the close with the market again holding the important 50 Day Moving Average which itself is now lower at 2620. Today I will again look to sell the S&P on any further rally to 2648/2662 with a 2671 tight stop. Meanwhile I will raise my buy level to 2602/2614 with a 2595 stop.
EUR/USD
Despite the strength of GBP/USD, the Euro has so far struggled to rally. I am still flat and today I will now raise my buy level to 1.1285/1.1315 with a higher 1.1249 stop. I no longer want to be a seller of the Euro at this time.
March Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 96.30/96.70 with a 97.05 stop.
March DAX
The DAX managed to close above 11000 despite the two-way volatility in the US Indices. I am still flat and today I will leave my 10870/10930 buy level unchanged with a higher 10815 stop. I still do not want to be short the DAX at this time.
March FTSE
Unfortunately the FTSE just missed my 6740 buy level before rallying into the New York close and I am still flat. Today I will raise my buy level slightly to 6710/6750 with a 6675 stop. Just like the DAX above I still do not want to be short the FTSE at this time despite the stronger Pound.
Dow Rolling Contract
My Dow plan worked perfectly yesterday as no matter where you sold the Dow within my sell range you would have had a nice gain. Personally I sold the Dow at a price of 24580 before covering this position at my revised 24450 T/P level and I am now flat. Today I will again look to sell the Dow on any further rally to 24670/24820 with a 24930 tight stop. I am reluctant to chase the Dow higher and today I will only raise my buy level slightly to 24050/24220 with a 23950 stop.
March NASDAQ
Just like the FTSE above the NASDAQ also just missed my buy level before having a nice rally into the Chicago close and I am still flat. Today I will now raise my buy level to 6230/6580 with a higher 6485 stop. The NASDAQ has strong resistance from 6750/6800 and I will be a seller on any rally to this area with a 6840 stop.
March BUND
Frustratingly the Bund just missed my 164.30 buy level before also having a nice rally off its 164.35 low print and I am still flat. Today I will lower my buy level slightly to 163.80/164.20 with a 163.45 stop.
Gold Rolling Contract
I am still flat Gold. The market is really struggling to break the key 1300/1310 resistance area. Today I will raise my buy level to 1265/1274 with a 1258 stop.
Silver Rolling Contract
No change as I am still a buyer on any dip lower to 14.85/15.25 with the same 14.45 stop. If I am taken long I will have a T/P level at 15.50. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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