Yesterday’s ADP Employment Change came in very strong with 298,000 new jobs created. This number, that is an amalgam of historical trends, other macroeconomic indicators (such as Weekly Jobless Claims) as well as ADP’s own payroll processing data, is often a less than reliable guide to the official payrolls figures. It is nevertheless seeing economists lift their forecasts for tomorrow’s number. The consensus heading into ADP was for a gain of around 200,000. Chances are the median NFP forecast will move up to at least 225,000 but with the ‘whisper number’ for tomorrow likely to be closer to 250,000. In truth, I will be more interested in the earnings component of the report, though it’s hard to see even a below-expectations number here derailing a Fed hike next Wednesday. I and the market are already focussed on what the new ‘dot plots’ will reveal and therefore how comfortable the Fed now feels about its prior guidance that rates will likely rise three time this year and by the same again next year.
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 firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 81 points yesterday and is now ahead by 226 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.
Thank goodness for the strong ADP number, otherwise this column would be extremely hard to fill. As it is, this one data points sufficed to push US bond yields back up, to 2.58% at 10 years and 2.11% at 5 years, their highest levels since mid-December and so challenging the range highs in place since last November. An afternoon pullback looks to owe something to sharply lower oil prices (by around 5% or nearly $3). Here, comments from the Saudi Oil Minister have played a part, suggesting that Saudi Arabia would not bear the brunt of OPEC/nonOPEC supply reductions indefinitely and that ultimately intervention was futile. The absence to date of any big drop in inventories, alongside raised production estimated this week by the EIA for US crude production both this year and next, are also weighing.
In currencies, what’s noticeable is that the four commodity linked G10 currencies – AUD, NZD, CAD and NOK, sit at the bottom of the 24-hour league table, with AUD/USD – currently 0.7534 – the lowest since January 30th. It does appear that the typical negative correlation between the US dollar and commodity prices – interrupted in the immediate aftermath of Trump’s election win and where commodities received a fillip from the romantic thoughts about massive US infrastructure spending – is reasserting. This in turn means that commodity-linked currencies are flipping from outperformers on the crosses in late 2016 to underperformers now (and after the NZD had earlier led the way aided in part by lower dairy prices).
This morning on the economic front we have the OECD Euro-Zone Economic Outlook at 10.00 am. At 12.45 pm we will have the results from the latest ECB meeting, the backdrop to which is the recent sharp pick-up in inflation in the Euro Zone in aggregate and Germany in particular. Previously, ECB President Mario Draghi had said that the recent pick up in headline inflation reflected base effects from year-ago oil price weakness and was unlikely to be sustained (and he could support his view with the fact EZ HICP is still running sub-1%). In contrast, the rise in German inflation to above 2% has prompted various outpourings of angst from German officials who believe that the ECB should start to signal its preparedness to start winding back on its super accommodative monetary policy sooner rather than later. Several politicians have publicly lamented that negative interest rates were killing German savers and are politically very unpopular. My view is that it is premature to think Mr Draghi will signal that the end is nigh for its QE policy and -0.4% deposit rate and that the ECB needs to keep the pedal to the metal to ensure too-low inflation/inflation expectations are expunged once and for all. That said, there are question marks over how the ECB will deal with collateral shortages in order to accomplish its current €80bn per month QE buying programmer – reducing to €60bn per month from April through year-end – without adding further downward pressure to rates. We will also getting new ECB forecasts and where the extent of any upgrading of CPI forecasts may be more telling than what is likely to be a still-dovish Draghi at the post-meeting press conference which commences at 1.30 PM.
At the same time we will have the US Weekly Jobless Claims and the Import Price Index. Finally at 2.45 pm we have the Bloomberg Consumer Comfort Index.
March S&P 500
The supposed economic growth/inflation proxies – oil, the precious metals and copper- have all been declining together more or less over the past week as short liquidity appears to be seeping out of the markets. However despite the large loses for commodities yesterday, the S&P only closed down 0.23% as it is now over four months since we have had a fall of more than 1%. Interestingly the internals of the stock market continue to get crushed with the McClellan Oscillator closing deep in negative territory with a -231 print last night. To show how oversold the MO is, prior to the November low ahead of the US Presidential Election the MO was at -200. This is one of the main reasons why I have not been selling the S&P as I still believe we will get a decent rally ahead of the FOMC on Wednesday and the Quarterly Expiration for the March Futures and Options Contracts next Friday. If we get a rally which subsequently fails ahead of the 2401 high from last Wednesday then this will give us a better entry level with less risk to put on a meaningful short position. I am still flat the S&P and today I will raise my buy level slightly to 2348/2354 with a 2342 stop. My only interest in selling the S&P is if we rally next week to my 2394/2400 sell range where I will look to sell the market with a 2406 stop.
My Euro plan worked well with the market trading lower to my 1.0540 buy level before bouncing to a 1.0565 high. Given how little volatility we are seeing in currencies so far this year you have to take whatever points are available and move on to the next trade. Following this move higher I emailed my Platinum Members to exit this position at 1.0556 and I am now flat. As usual I will stay flat until we get the ECB and Dragi press conference out of the way. If the Euro continues to fall I will look to buy the market from 1.0470/1.0510 with a 1.0430 stop. I still do not want to sell the Euro unless we break and close below the January 3, low at 1.0341.
March Dollar Index
My Dollar plan worked well with the Dollar trading higher to my 102.15 sell level before falling 25 points and this sell-off enabled me to cover this position at my revised 102.02 T/P level and I am now flat. As I have been saying over the past number of weeks the Dollar needs to break and close over 102.45 for the market to continue its rally following the 5% decline for the Dollar in January. Today I will again look to sell the Dollar on any rally higher to 102.45/102.85 with a 103.15 stop.
Unfortunately the DAX just missed my 11910 buy level yesterday after I posted before rallying 100 points and I am still flat. Subsequently the DAX sold off a little but as I mentioned yesterday the price action for the DAX continues to be bullish in comparison to the US Indices. Today I will lower my buy level to 11790/11850 with a 11745 stop especially as we have the ECB Meeting and Dragi press conference this afternoon. I still do not want to sell the DAX at this time.
My long 7310 FTSE position worked well as we got the expected rally ahead of the UK Budget and this move higher enabled us to cover this position at my 7335 T/P level and I am now flat. The FTSE looks heavy this morning which is surprising given the weakness of Sterling. However the FTSE has strong support at 7250 and today I will again look to buy the market on any dip lower to 7235/7270 with a 7210 tight stop.
Dow Rolling Contract
Very late in the US trading session the Dow hit my 20845 buy level with a 20833 low print before rallying to an overnight high at 20880. Given the lateness of my buy range getting hit I emailed my Platinum Members to exit this position at 20855 and I am still flat. The Dow has strong support from 20740/20800 and I would expect the market to have difficulty in breaking this range initially especially given how oversold the McClellan Oscillator is after last night’s -231 close. Today I will be a buyer in this area with a 20680 stop. As I expect a rally to ensue ahead of next week my only interest in selling the Dow is to wait an hope the market hits my 21140/21200 sell range with a 21260 stop.
My Bund plan is not working out as I go to press as after the I bought the market at 160.95 early yesterday morning I added to this position at 160.65 for an average buy level at 160.80. I will leave my stop unchanged at 160.35 and if I am stopped out of this position I will be a more aggressive buyer on any further dip lower to 159.75/160.15 with a 159.45 stop. Given how oversold the Bund is trading I do not want to be short the market at this time despite the negative price action
Gold Rolling Contract
Gold continues to sell-off with the market hitting my 1207 buy level before rallying back above 1211. As I am already long Silver I emailed my Platinum Members to exit this position at 1208.50 and I am now flat. Gold is severely oversold both short term and on the Daily chart and has support from 1195/1203. Today I will be a small buyer in this range with a 1187 stop. Just to note the 500 Day Moving Average for Gold comes in at 1202 and as a result I would expect my buy range to hold on the first test.
Silver Rolling Contract
Since Silver topped last week at 18.49 and we had covered our remaining long positions at 18.40, yesterday was the first venture back into the market when I bought Silver at 17.32. Today I will add into this position on any further move lower to 17.00 with the same 16.80 stop. Remember Silver has very strong support at 16.60 from late January from which we had the Upside Key Day Reversal.
Following our successful live trading sessions over the US Non-Farm Payrolls in 2016, Paul Wallace and I are hosting are next event in London for the April NFP data on April 7th. All details of this event are on the following link and if any of my members would like to attend please click on the £150 link which is £100 off the main rate.