For once the polls were right! The Republicans kept control of the Senate, actually increasing their majority by three, but the Democrats rested control of the House back from the GOP. At his press conference, as well as claiming credit for the economy’s performance, President Trump struck something of a conciliatory political tone, saying that he is willing to work with the Democrats to get policy through, though not if there is a blizzard of subpoenas threatening the President. In Asia yesterday, the USD drifted lower, with risk currencies such as the AUD and the NZD doing better, Kiwi also having had the benefit from a large drop in the unemployment rate to below 4% and a large rise in employment, the best such figures since before the GFC. Meanwhile, European and US equity markets have rallied, the Eurostoxx 600 index up 1.06% and the main board US indexes up 2-3% with the Nasdaq doing the better. US bond yields are mixed, US 2s up but 10s down a basis point as we go to press.
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For anyone following my Platinum Service it was flat yesterday as none of my calls got hit and is still ahead by 285 points for November, having made 2094 points in October,1276 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Currencies
With trade tensions to the fore over recent months and risk currencies in the spotlight, the US Mid-Terms were being seen through the prism of whether the outcome might embolden the President to go harder on trade or in effect if the elections would clip his wings. With the Democrats gaining control over the House, the latter scenario now might be a little more likely, including from his press conference, though both sides are unsurprisingly claiming victory as they might.
The USD drifted lower during the APAC session yesterday as the election results came in, but the moves were not large. At the end of the day, the President can still prosecute further changes on trade and a step up in the tariff rate to 25% is still on the cards to take effect from January 1 (together with the threat of potentially wider coverage of higher tariffs) unless some ‘’deal’’ can be nutted out at the G20 in Argentina later this month.
The star performer though yesterday was the Kiwi on the back of the much stronger labour market report for the September quarter. While the surprise half a percent quarterly drop in the unemployment rate from 4.4% to 3.9% possibly overstated the improvement in the labour market on a full read through, including the accompanying more muted wages data, the NZD jumped higher, dragging the AUD along for the ride early in the APAC session yesterday. Both the NZD and the AUD are 0.3-0.4% higher than where they sat when I posted yesterday morning.
As expected, the RBNZ left rates on hold this morning at 1.75%. The NZD has been whippy since with the various pieces of the RBNZ’s Statement offering something for everyone.
Sterling also makes some net gains including against the Euro – as markets prepare further for the probability/likelihood of a Brexit deal to be put before British Parliament as early as November 27. Markets are giving PM May wiggle room knowing she is pulling out all stops with that the clock ticking to get a deal ratified not only by the UK Parliament but the European Parliaments. The Irish border issue still needs to be sorted out, but rather than what has mostly this year been one disappointment after another, markets are now positioning for a deal. I still think that Sterling could rise another 3-4% as news develops further in the days and weeks ahead, EUR/GBP at its lowest levels since mid-year, down 3.8% from late August highs.
Bonds
There has been little movement in bond yields, US short term yields a little higher as the FOMC approaches this evening, but long term yields drifting lower, perhaps with the knowledge of less likelihood of another round of US tax cuts, though additional infrastructure spending has bipartisan support, in principle. Remember too that there are budget continuing resolutions and debt ceilings yet to negotiate.
Commodities
With the USD drifting lower, it would not have been surprising to see commodities push a little higher. In the event, oil is flat to lower, WTI leading with Brent little changed, gold up smalls, with base metals also mostly higher, copper unchanged while aluminium had a good session. Dalian iron ore and steel rebar futures ended a little higher yesterday, while steaming coal rose 1.88%.
Economics
It has been an uneventful day for data reports. A little from left field and something worth keeping an eye on has been some further softness in the US mortgage demand as a consequence of rising mortgage rates. The 30 year mortgage rate is the highest since 2010 with the latest weekly US MBA mortgage (flow) index down another 4% for the week to November 2 to the lowest reading since December 14. While the US economy has been well and truly firing, the drag on the economy from dwelling investment evident over the past year or so seems likely to persist and likely build.
This morning on the Economic Front we have the ECB publishes its latest Economic Bulletin at 10.00 am. Next we have the US Weekly Jobless Claims and Canadian Housing Starts at 1.30 pm. Finally we have the FOMC Statement at 7.00 pm. They are expected to remain on hold, with only the post meeting statement. It will be still upbeat on the economy, noting the continuing improvement in the labour market with signs that labour cost pressures are beginning to emerge. There is no new set of forecasts , nor a press conference.
December S&P 500
It is hard to believe that just 10 days ago the S&P was trading at a spike low of 2606, especially as we have now rallied over 210 Handles since that Monday low print. The buy the dips theme continues all year with the markets spending little time below the 200 Day Moving Averages when penetrated. Yesterday the S&P has left a massive ‘’Open Gap’’ from Tuesday’s 2756 close to the Chicago afternoon low print of 2776, with the rally accelerating into the close to hit a 2816 high print. The 200 Day MA comes in at 2763 and this level will now act as strong support especially as it comes in the middle of aforementioned ‘’open Gap’’ Today I will be an aggressive buyer on any dip lower to 2765/2780 with a 2755 wider stop. The S&P has strong resistance at its 2833 50 Day MA and today I will leave my sell level unchanged from 2826/2840 with the same 2852 wider stop.
EUR/USD
I am still flat the Euro which ran into strong resistance at the 1.1500 area yesterday. Today I will now raise my buy level to 1.1320/1.1365 with a 1.1275 stop. I still do not want to be short the Euro at this time especially as the Daily Sentiment Index is still pointing to higher prices over the coming weeks.
December Dollar Index
The DSI is still above 90% bulls and I am still flat. Today I will now lower my sell level to 96.60/97.00 with a 97.40 stop.
December DAX
The DAX continue to trade between 11400 and 11600 and so far has failed to mount any meaningful rally despite the 2000 rally in the Dow over the last 10 days. I am still flat and today I will now raise my buy level to 11400/11470 with a 11330 stop.
December FTSE
I am still flat the FTSE which finally played some catch-up with the US Indices despite the stronger Pound. Thankfully we had no sell levels in the market and are still flat. The break and close over 7090 is short-term positive. As a result I will now raise my buy level to 7030/7070 with a 6975 stop.
Dow Rolling Contract
Thankfully we have had no sell levels in this market over the past few weeks especially as I always feared that we would get a melt-up in this market. The Dow closed with 750 points of its all-time high after a 2000 point rally in the last 10 days as yet again anyone short and holding these positions have got slammed. The VIX fell nearly 20% yesterday which is another short-term positive. The Dow has strong resistance from 26330/26500 and today I will be a small seller on any rally to this area with a 26640 tight stop. The 50 Day MA comes in at a price of 25868 and this level should act as initial short-term support. For this reason I will be a buyer on any dip lower to 25700/25860 with a 25580 tight stop.
December NASDAQ
After weeks of weak price action the NASDAQ bounced back with a vengeance yesterday. I stayed out of this market yesterday and I am still flat. Today I will now look to buy the market on any dip lower to 7050/7110 with a 6995 tight stop. I still do not want to be short the market at this time.
December BUND
I am still flat the Bund which again closed below the key 160 pivot point. As a result I will now lower my sell level to 159.90/160.30 with a 160.75 stop.
Gold Rolling Contract
No Change as I am still a buyer on any dip lower to 1205/1214 with the same 1198 stop.
Silver Rolling Contract
Silver continues to trade in a narrow pattern with little or no movement in either direction. Silver needs to break and close over 15.20 for the market to turn positive. I am still flat and today I will now raise my buy level to 13.95/14.35 with the same 13.55 stop.
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