Chicken little would have been in his element yesterday. The sky may not be falling, but plenty else is, be it the latest Euro-Zone inflation prints and Bond Yields, incoming US economic data, or China’s Reserve Requirement Ratio. The latter was cut by 50bps to 17% for big banks after I posted yesterday morning. Given fears that RRR cuts would compound pressure on capital flows, making it harder for the authorities to keep the RMB relationship stable, the move does hint that these pressures are abating. Either that or we will shortly see a resumption of more pronounced USD/CNY appreciation.
To mark my 1000th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Daily Commentary which includes ¼ updated emails throughout the trading day. This offer is open to both existing and new members and if anyone is interested please email me bryan@tradernoble.com for details.
For anybody following my Platinum Service it made 180 points yesterday and ended the month of February with a 2265 point gain following on from the 3365 points gain in January. Since I started this service last June it has made over 20,500 points.
The other big news yesterday, though not really a shock after Germany’s latest CPI prints last Friday was the February pan-Euro-Zone inflation data. Coming in at -0.2% against the 0.0% expected prior to the German downside surprise. Inflation is now negative throughout the big four Euro-Zone economies (Germany, France, Italy and Spain) with the core measure also slipping to 0.7% from 1.0% and 0.9% expected. That is seen to mandate a strong response from the ECB on March 10th, a fact not lost on the Bond market where 10 year cash Bund Yields have fallen to a low of 10bps. This is still a fraction over last April’s 4.9bps low and which preceded the ‘7-stigma’ melt up to 80bps two weeks later. However this time things are different in so far as inflation dynamics are so much weaker now than back then.
US data, while heavily top drawer, also showed unexpected weakness. The ever volatile Chicago PMI slumped to 47.6 from 55.6 and 52.5 expected, while Pending Home Sales fell by 2.5% in January against the +0.5% expected. US equity markets took the data in its stride to post morning gains, but got hit hard in the last hour of trading as reality hit home. That trend continued overnight following comments from New York Fed President Dudley who said that the balance of risks to the US economy has ‘a slight tilt to the downside’ which saw the March S&P trade below 1921 but has since rebounded after both the Shanghai and Nikkei posted small gains.
In Currencies. The Yen is the standout winner of the past 24 hours. Curious in so far as it has not been a big ‘risk-off’ start to the week, but probably explained by the needs of some offshore Fund Managers to lighten their currency hedges on Japanese equity exposure given the 7% fall in the Nikkei in February. After the NZD, which remains the biggest G10 loser after yesterday’s data prints, the Euro is the next weakest following the aforementioned CPI data.
Hard Commodities are mostly firmer with Oil up over $1 while Iron Ore rebounded $1.3 after Friday’s sell-off. Gold and Silver both finished yesterday stronger with Gold having hit a low at $1211 on Friday now trading at $1240.
Today is also known as ‘Super Tuesday’ where we may up knowing the identities of both the Republican and Democratic Presidential Election Nominees following the outcome of 13 State Caucuses or Primaries. This has not yet impacted markets, but could be about to, in particular if Donald Trump looks increasingly like a shoo-in to win the Republican Nomination.
This morning on the economic front we have German Unemployment and Manufacturing PMI at 8.55 am. This is followed by Euro-Zone and UK Manufacturing PMI at 9.00 am and 9.30 am respectively. At 10.00 am we have Euro-Zone Unemployment. The US will release its PMI data at 2.45 pm. Finally at 3.00 pm we have ISM Manufacturing and Construction Spending.
March S&P 500
It took a while but finally overnight the S&P traded lower to my average buy level at 1924 before having a nice rally since the European Markets opened this morning with the S&P currently trading at 1942 which enabled me to cover my long position at my 1932.50 T/P level and I am now flat. Today shows yet again that if you are short you only have a small window to cover your position before the market rallies again. As I have mentioned countless times over the past two weeks I still expect the market to run into trouble over the coming weeks but the two huge ‘Open Gaps’ from early January at 1994/2010 and 2012/2035 will get at least partially filled before we head lower. I am not sure about the second gap but the 2000 level is too near an attraction not to get tested in my opinion and this is why I have been so stubborn in buying dips over the past few weeks. This morning I will again look to buy the S&P on any dip lower to 1925/1931 with a 1920 stop which is just below the overnight low print. I still do not want to be short the market at this time.
EUR/USD
Following the awful CPI data yesterday the Euro traded lower to my 1.0865 buy level. Unfortunately the Euro missed my 1.0895 T/P level overnight with a 1.0894 high print and I am still long. Today I will leave my stop at 1.0815 while at the same time lowering my T/P level to 1.0890.
March Dollar Index
The Dollar traded higher to my 98.35 sell level after I posted yesterday before thankfully the Dollar hit my 98.10 T/P level overnight and I am now flat. Today I will again look to sell the Dollar on any rally higher to 98.60/98.90 with a 99.30 stop. Remember the key level to watch in the Dollar is the double top high at 100.39 and 100.65 from last April and December respectively, a break and close above will be very positive.
March DAX
It took a while but finally after a few tests below my initial 9360 buy level in the DAX the market rallied which enabled me to cover this position at my 9410 T/P level and I am still flat. Since I covered my position the DAX traded higher to 9550 before falling 200 points overnight only to rally 300 points and is currently trading at 9640 as yet again all the ‘short positions’ get taken out. This move higher has now confirmed how strong the support at the 9200/9300 area is. Today I will again look to buy the DAX on any dip lower to 9460/9510 with a 9420 stop. I still do not want to be short the DAX at this time.
March FTSE
Unfortunately the Dow just missed my 5990 buy level by 12 points before having a subsequent 100 point rally and I am still flat. As I mentioned last week the weaker Sterling is helping the market coupled with new monies coming into the market for the beginning of the month. Today I will raise my buy level to 6030/6060 with a 5995 stop which is just below the overnight low print.
Dow Rolling Contract.
Just Like the FTSE above the Dow missed my 16440 buy level with a 16448 low print before having a nice near 200 point rally and I am still flat. Today I will raise my buy level slightly to 16460/16520 with a 16415 stop. I still do not want to be short the Dow at this time despite the McClellan Oscillator closing at +215
March BUND
Thankfully by the time I posted yesterday morning the Bund was trading at my 166.55 sell level and after opening lower this morning I covered this position at my new 166.35 T/P level and I am now flat. Today I will be a more aggressive seller on any rally higher to 166.65/166.95 with a 167.30 stop.
Gold Rolling Contract
I am still flat Gold and today I will raise my buy level slightly to 1218/1225 with a 1210 stop which is just below last Friday’s low print.
Silver Rolling Contract
No change as I am still long at 14.70 with the same 14.25 stop.
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