US Treasury Yields have led the sell-off in core Global Bond Yields and for a change the US Dollar has responded to the UST led rise in yields and outperforms across the board. Meanwhile equities have started the week on the back foot and notably the rate sensitive sectors (utilities and real estate) are the underperformers in both Europe and the US. 10y UST yields jumped higher shortly after I posted yesterday morning (from 2.6544% to 2.6879%) and then the move gathered further momentum during the London trading session. The 10y note climbed above 2.70% for the first time since April 2014, it traded to an overnight high of 2.7254% and now it has settled just under the 2.70% mark. Meanwhile 10y Bunds briefly traded above 0.70% and 5y Bunds briefly traded in positive territory for the first time in 5 years.
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There were no major news behind the move higher in yields, but given the recent break of key resistance levels core yields now have more freedom to move higher. Ahead of the FOMC meeting tomorrow the move higher in yields also suggest investors are seemingly more sensitive to potential policy changes. Although there is a general consensus view that the Fed will stand pat this week, the FOMC is likely to take the opportunity to set the stage for a hike in March and many would argue that solid data releases along with the ease in financial conditions and softer USD are enough ammunition for the Fed/Yellen to highlight the risks of a fourth hike this year. Meanwhile, supporting the move higher in Bunds, ECB Governing Council member Klaas said on Sunday that there is not a single reason anymore to continue with the Central Bank’s QE programme, raising question on the potential for an earlier than expected end to the programme.
For a change the USD has responded to the UST led rise in yields with BBDXY and DXY up 0.33% and 0.35% respectively. The USD has also outperformed against EM and Asian currencies with ADXY down 0.20%. In G10, Sterling is the underperformer, down -0.90% and currently trades at 1.4025, political pressure is seemingly building on PM Theresa May amid news that the UK is seeking powers to scrutinize new EU laws agreed by the rest of the bloc during the transition period, but Europe is unlikely to approve such terms. The AUD (-0.16%) and NZD(0.38%) have also succumbed to the USD, but both remain comfortably just under their respective recent highs. AUD currently trades at 0.8058 and NZD trades at 0.7307. Of note as well USD/JPY is trading just below the 109 mark, amid the BoJ’s Yield Curve Control policy 10y JGBs have lagged the move higher in core global yields and closed at 0.079%. Given the higher yield environment, the recent strength in Yen suggest the market may be looking for the BoJ to adjust its 10y yield target, but unless we see weaker yen it is difficult to envisage the BoJ making a move anytime soon.
The rise in the US Dollar has also resulted in softer commodity performance with oil price down between 1% (Brent) and 1.7% (WTI). Gold (-0.8%) and Aluminium (-1.7%) have also followed the trend, but iron ore and coal prices are little changed. I think the inverse relationship between the USD and commodity prices is a theme worth keeping an eye on, particularly given the extreme sentiment measures as mentioned at length in yesterday’s commentary. Early days of course, but a change in fortunes for the USD could be a double whammy for the AUD if commodities underperform.
This morning on the Economic Front we have UK Net Consumer Credit/Mortgage Approvals at 9.30 am and this is followed at 10.00 am by Euro-Zone Business Climate Indicator and GDP. At 1.00 pm we have German CPI. Finally at 3.00 pm we have US Conference Board Consumer Confidence.
March S&P 500
My S&P plan worked well yesterday with the S&P initially falling in a straight line from a high of 2866 to 2855 and this move lower enabled me to buy the S&P at my 2858 buy level before the market reversed and rallied to my 2865 T/P level and I am now flat. Having traded sideways for a number of hours the market sold off into the close and that sell-off continued overnight with the S&P trading to a 2831 low print before rallying in the last couple of hours. As I mentioned yesterday a break and close below 2836 is a short-term sell signal. So far we are holding this key support. Today I will again look to buy the S&P on any dip lower to 2829/2835 with a 2823 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 2795/2805 with a 2787 stop. Given how close we are to important support I do not want to be short the market at this time.
EUR/USD
The Euro came close a couple of times to my buy level yesterday before rallying and I am still flat. Today I will lower my buy level slightly to 1.2260/1.2300 with a 1.2220 stop. My only interest in selling the Euro is still on a rally higher to 1.2470/1.2510 with the same 1.2545 stop, which is just above last Thursday’s high print.
March Dollar Index
I am still flat the Dollar and today I will now raise my buy level to 88.65/89.05 with a 88.30 stop. I still do not want to be short the Dollar at this time.
March DAX
Overnight the DAX traded the whole of my buy 13170/13240 buy range which had me long at an average price of 13205. In keeping with my theme of banking points when available I emailed my Platinum Members to cut this position at 13230 and I am now flat. The 13100/13200 is key support for the DAX as a break and close below here is another sell signal. Given the strength of the Euro I am surprised how well the DAX has held in over the past few weeks. Today I will again look to buy the market on any dip lower to 13080/13150 with a 13035 stop.
March FTSE
Yesterday after I posted I realised that I put the wrong big figure on my FTSE buy range. Just as I posted the market was trading near the bottom of my incorrect buy range and hopefully if you did buy the FTSE you were able to catch some points as we had a nice rally shortly after to a high of 7634. Overnight the FTSE traded lower to my second buy level at 7540 as emailed to my Platinum Members before rallying to my 7565 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7480/7520 with a7445 stop. The FTSE has strong resistance from 7650/7700 and today I will be a seller in this area with a tight 7730 stop.
Dow Rolling Contract
With sentiment at extreme levels after a 2000 point rally in January it is no surprise that the Dow has had a small wobble. Internally the market has been weak with the McClellan Oscillator closing in either negative or slight positive territory for most of this last rally. Last night the MO closed with a negative 115 print and we have to keep a close eye on this indicator to see if we hit the -250 extremes over the coming days. Overnight the Dow traded to a low of 26140 which is over 560 points lower than we were on early Monday morning. This is a huge move. The Dow has strong support from 26000/26120 and today I will be a buyer in this area with a 25920 stop. I am trading in smaller size with larger stops given the volatility.
March NASDAQ
No change as I am still a buyer on any dip lower to 6840/6885 with the same 6805 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 6695/6735 with a 6660 stop.
March BUND
The Bund sold off after I posted yesterday morning with the market trading lower to my 158.95 buy level. I will only add to this position on any further move lower to 158.60 with the same 158.30 stop. I have now lowered my T/P level on this initial position to 159.20 and if my second buy level at 158.60 is hit I will then lower my T/P level to 158.90.
Gold Rolling Contract
The Daily Sentiment Index is a fantastic tool for forecasting the price of Gold especially when we get sentiment at extreme levels either bullishly or bearishly. With the latest DSI at 91% which is a six year high there was only one way gold was going and that was lower with the market now $30 lower than late Friday. I am still flat the market and today I will now lower my sell level to 1358/1368 with a 1375 stop. I still do not want to be long Gold at this time.
Silver Rolling Contract
Earlier this morning Silver traded lower to my 17.10 buy level. I will only add to this position on any move lower to 16.70 with the same 16.40 stop. I will now lower my T/P level on this position to 17.20 and if my second buy level at 16.70 is filled I will then lower my T/P level to 16.95.
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