Equity markets are a sea of red amid a wary mood by investors with soft US data releases not helping the mood either. All three main US Indices closed over 2% lower with the lack of liquidity a major problem. Ahead of the FOMC tomorrow President Trump had another go at the Fed and expanding US stockpiles have weighed on oil prices with WTI settling below $50 for the first time since October 2017. After trading to an 18 month high on Friday, the USD drifted lower with safe haven bid favouring JPY, CHF and EUR.
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For anyone following my Platinum Service it made 295 points yesterday and is now ahead by 2150 points for December, having made 1541 points in November, 2094 points in October, 1279 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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Equities
A combination of company specific news, Friday’s news that Obamacare could be unconstitutional and soft US data releases contributed to a wary market mood with European equity indices closing lower across the board while US equity indices also got slammed loosing over 2% across the board. A decline in oil prices in the last two hours of trading into the New York close have not helped energy shares either.
Retailers led declines in the Stoxx Europe 600 Index after Asos shares collapsed by 39% following the company’s warning that its Christmas sales got off to a terrible start. Asos’s warned that revenue growth would reach only 15% in the year through Aug. 19, well below the 20-25% medium-term target. The Stoxx Europe 600 index closed Monday at -1.14% with the consumer discretionary the worst performing sector, down 1.67%.
US healthcare shares have remained under pressure as investors continue to assess the implications form a Texas court ruling that the Affordable Care Act (Obamacare) is unconstitutional. Meanwhile Johnson & Johnson extended its recent losses, down more than 2%, after reports that it had worried about the potential for asbestos contamination in its Johnson’s Baby Powder for decades.
Finally US data did not do much to appease concerns of a global growth slowdown with the NAHB Housing Index falling to its lowest level since mid-2015 while the NY Empire Manufacturing Index printed a sharp drop in December.
Currencies
Ahead of the FOMC meeting tomorrow, President Trump had another go at the Fed with a Tweet saying ‘’It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!’’ The market expects the Fed to defy Trump by raising rates but to drop its reference to ‘’further gradual increases’’ in the Fed Funds Rate, signalling that monetary policy will be more data-dependent next year. With rates at the lower-end of the Fed’s neutral rate estimates, the hurdle for additional hikes will be higher than previously. I expect Fed officials median interest rate forecast for next year to decline from three hikes to two hikes, which would reinforce the notion that Fed might ‘’pause’’ its tightening cycle in March (the market prices a 30% chance of a March hike).
Trump’s tweet did not elicit a big market reaction but the souring in US equities along with disappointing US data releases have weighted on the USD. After trading to an 18 month high on Friday, major USD Indices are down around 0.35% with DXY currently trading at 97.099, so still pretty close to it ytd highs.
For a change the safe haven bid has favoured JPY, CHF and EUR. JPY has led the gains against the USD with USD/JPY down 0.57% to 112.75. Declines in equities along with a 3bps decline in 10y UST yields to 2.85% have helped the yen performed. EUR is 0.44% higher and currently trades at 1.1348. News from Italy in regards to the government budget helped the Euro with the populist coalition government announcing that the coalition had settled on a 2.04% fiscal deficit target for 2019. That is all well and good, but the European Commission still needs to formally agree to the proposal, but the watered-down deficit target should reduce the risk of financial penalties for Italy.
Sterling has also managed to make some inroads on the USD, up 0.31% to 1.26225. After pressure from Labour Leader Jeremy Corbyn threatening to call a parliamentary vote of no confidence, if the PM did not confirm what date the meaningful vote on her Brexit deal would take place, Theresa May said the parliamentary vote on her Brexit deal would be held in the week of the 14th January.
Bonds
US Treasury yields have drifted lower amidst the fall in equities and softer oil prices. UST yield fell in an almost parallel fashion with all major tenors down over 3bps relative to Friday’s closing.
Early in the session levels, Bunds gained less than one basis point closing at 0.255% and gilts rose 3bps to 1.266%.
Commodities
Oil prices have come under pressure again with WTI (-3.6%) settling below $50 for the first time since October 2017 following news that Genscape Inc. was said to report a jump in inventories at the biggest American storage hub in Oklahoma. Copper is down 0.71% while Gold (+0.72%) and aluminium (0.83%) bucked the trend.
Economics
– US Housing Market Index (HMI) in the homebuilders’ survey fell to 56 in early Dec from 60 in Nov, below the 61 consensus.
– The US Empire State Index dropped to a 19-month low of 10.9 from 23.3 in November, well below the consensus, 20.0.
This morning on the Economic Front we have the German IFO Business Climate/Current Assessment at 9.00 am. Finally we have US Housing Starts/Building Permits at 1.30 pm.
December S&P 500
The S&P is on course to record its worst ever December with the market again getting slammed yesterday on a number of concerns as mentioned above. The S&P tested it’s February low of 2532 before the market rallied nearly 20 Handles into the close and that rally has continued overnight. The 2580 support level held the market for two hours with two tests of the 2600 resistance area before falling 70 Handles in another brutal day for the stock Market. The S&P has now fallen over 400 Handles off it’s late September high of 2942. Finally we are seeing some internal weakness with the McClellan Oscillator closing with a reading of -202. Yesterday my S&P plan worked well with the market trading the whole of my buy range for an average long position of 2583.50 before rallying back above 2600. This move higher enabled me to cover this long position at my revised 2592 T/P level and I am now flat. The S&P has trendline support at 2545 going back to 2011 which is just ahead of the February low of 2532. The S&P should now trade in a range between 2500 and 2620 over the coming days. If the S&P closes below 2600 for a few weeks then we can say we have an Intermediate Top in the market. The S&P has initial support from 2528/2540 and today I will be a buyer on any dip to this area with a 2520 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2498/2515 with a 2488 stop. Given the significance of the 2600 level which should now act as strong resistance I will be a small seller from 2595/2610 with a 2622 stop.
EUR/USD
I am still flat the Euro and today I will now raise my buy level slightly to 1.1260/1.1300 with a higher 1.1225 stop.
March Dollar Index
I am still flat the Dollar and I will now lower my sell level to 97.00/97.40 with a 97.75 stop.
December DAX
With four of my 5 Indices getting hit at the same time I emailed my Platinum Members to exit any long 10740 DAX position at 10755 and I am still flat. As it turns out the DAX did not see much follow through selling despite the rout in the US Indices and is currently trading at 10745 this morning. Today I will again look to buy the DAX on any dip lower to 10580/10650 with a 10510 stop.
December FTSE
The FTSE did trade lower to my 6765 buy level. As I had a large pen position in both the S&P and NASDAQ I covered this position for a breakeven and I am still flat. The FTSE has support from 6610/6660 and my only interest in buying the market is on a dip lower to this area with a 6570 stop.
Dow Rolling Contract
At 4.00 pm yesterday the Dow was trading at 24050 before falling over 600 points in another brutal day for the Bulls. The key 23800 support area finally got broken after putting in a dramatic fight for a few hours. After the Dow traded lower to my initial 23950 buy level I emailed my Platinum Members to exit any long position at my revised 23995 T/P level and to re-buy the market on any dip lower to 23840 with a 23930 T/P level. Both of these trades were filled and thankfully we had no more buy levels in any of the Indices as I just watched the markets into its dramatic close. Before I turn bearish I need to see a convincing break of the 23800/24000 area. This morning the Dow is trading just shy of the 23800 level after rallying over 300 points in the last 10 minutes of trading and again overnight. With the FOMC Meeting tomorrow I would expect some sideways to higher prices hence my reluctance to go short. On top of this we have the December Contracts expiring on Friday. Today I will be a small buyer on any dip lower to 23380/23520 with a wider 23250 stop. I still do not want to be short the market at this time. If the Dow can build value and settle above 24000 then I will look to reset a long position.
December NASDAQ
My NASDAQ plan worked well with the market trading the whole of my buy range for an average long position of 6550 before rallying to my revised 6610 T/P level and I am still flat. However the NASDAQ had a weak close with the market settling below 6480. The 6480/6525 area is key. If we settle below here for a few days then the next target level on the downside is 6100 ahead of a possible move lower to 5775/5850 and possibly as low as 5325. However if the market can build value above 6600 I will look to reset a long a position. Given how oversold the NASDAQ is trading at this time I will be a small buyer on any further dip lower to 6380/6430 with a 6330 tight stop.
March BUND
I am still flat the Bund and today I will again raise my sell level slightly to 163.70/164.10 with a 164.50 stop.
Gold Rolling Contract
I am still flat Gold which rallied yesterday on a combination of a weaker Dollar and plunge in equity markets. Today I will now raise my buy level to 1225/1233 with a 1217 stop.
Silver Rolling Contract
I am still long Silver at 14.60 with the same 14.75 T/P level and 14.25 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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