Global Equity and Bond Markets were left somewhat flat footed yesterday after the initial estimate of US Q4 GDP which surprised to the downside with a 0.1% contraction, thus joining Europe and Japan in confirming that the developed world contracted in the final Quarter of 2012. But a better than expected US ADP Employment report posed some upside risk to consensus forecast for tomorrow’s January Non Farm Payrolls report. Whilst an FOMC statement also indicated that it is full steam ahead as far as the Fed’s QE Monetary largesse is concerned which has limited the fallout. So too has the appreciation that the US GDP contraction was driven by two variables – defence spending and inventories. The latter subtracted 1.27% from the outcome, whilst personal consumption added 1.52% and if the Q4 GDP outcomes in the developed world are a parade of ugly sisters then the US stands the least ugly and, as the the FT said this morning, this is the best looking contraction in GDP that you will ever see. The Fed has recommitted to buying $85 billion of securities each month.
This morning, on the economic data front we have Unemployment and CPI from Germany. We also have CPI for the Euro-Zone followed in the US by the Weekly Jobless No’s which will be closely watched ahead of tomorrows Non Farm Payrolls. The US also has Personal Income and then at 3pm we have the Chicago Purchasing Managers Survey.
March S&P 500
Yesterday was another quiet trading day with the S&P dropping down to my 1499 buy level after the weaker than expected US GDP No’s. I took a nice gain at 1505 on this position after the US open and I am now flat. The markets have opened weaker in Europe after Deutsche Bank reported weaker than expected earnings. We have a small Gap down in the market and I am a buyer from 1491/1495 with a tight 1488 stop as, being month end, I will look for the market to trade higher today. Remember we are looking for a sell extreme of at least 15 handles to start bearish positions and I believe this will happen over the next 7-10 days. I will also look to short the market on any rally to 1508/1512 with a 1515 stop.
March FTSE
We finally had a sell extreme in the FTSE yesterday and we can start to look at setting up bearish positions in this market. Today I am a seller on any rally to 6280/6300 with a 6320 stop. I am hoping the month end/start of new month buying will give me the chance to set up this trade.
March BUND
The Bund has had a really nice rally off the very important 141.30/141.50 support zone and the Williams Index has given a buy signal. This morning I am a small buyer from 141.60/141.90 with a 141.38 stop as I look for the Bund to retest the 142.50/142.80 important resistance zone. If the Bund trades up to this resistance area I will be a seller with a 143.10 stop.
Euro/USD
I was quickly stopped out of my 1.3510 short position at 1.3540. The market subsequently traded up to my 1.3580 sell level and I am now short at this price. The Euro is extremely overbought and at the top of the Bollinger Band but the Williams Index has started to turn down. I will leave my stop the same at 1.3610 as I have had a good week and I want to try and give this position some room.
GBP/USD (Cable)
After 12 days in a row of Cable falling this trend was reversed yesterday helped by Euro/GBP hitting very strong resistance at .8600. This morning I will look to buy Cable on any dip to 1.5770/1.5800 with a tight 1.5750 stop as I look for Cable to retest the important 1.5875/1.5900 resistance area.
March DAX
Unfortunately I was stopped out of my 7820 long position yesterday at 7795 and I am now flat. Today I will be a seller on any rally to 7850/7880 with a 7895 stop. I do not want to be long at this time as the Dax continues to underperform the other main Equity Indices.
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