Markets continue to jump at shadows. News, just after I posted yesterday morning, that China was planning to cut US car tariffs provided a positive start to the European proceedings, but later in the session sentiment was dented again following President Trump’s renewed threat to shut down the government if he does not get funding for building a wall in the Mexican border. Reports of the Trump administration preparing a report calling out China’s stealing of US technology did not help sentiment either. Against this backdrop European equities closed in positive territory and the initial gains recorded by US equities have essentially been eroded into the close. 10y UST yields are little bit higher, but the curve is flatter and the US Dollar has remained strong, amid souring in sentiment and Brexit developments that continue to weigh on Sterling and EUR.
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Equities
Good trade vibes yesterday morning provided a positive start to the session and helped European equities close in positive territory. Yesterday morning, the Chinese Ministry of Commerce said that US Treasury Secretary Mnuchin and Chinese Vice Premier He had spoken on trade to ‘’push forward with next steps in a timetable and roadmap’’. There have also been reports that China’s Cabinet was reviewing a proposal to cut the tariff on imported US cars from 40% to 15%, as Trump had claimed after his G20 meeting with President Xi. Trump seemed to foreshadow such an announcement, tweeting ‘’Very productive conversations going on with China! Watch for some important announcements!’’
All major European equity Indices closed in positive territory with the Stoxx Europe 600 index ending the day at 1.53%. US equities enjoyed had a positive start with the S&P 500 jumping over 1.30% at the open, but the positive mood did not last too long with Trump headlines threatening a government shutdown plus news over a soon to be released US government report over China stealing of US technology souring sentiment. Following a tense exchange with Nancy Pelosi and Chuck Schumer, Mr Trump said he would be “proud” to shut down the government over border security. If a government shutdown is to be avoided, a spending bill needs to be passed by December 21st, so both parties have plenty of time for a few shouting matches, before a deal is reached.
The Washington post has reported that Trump administration is preparing a series of actions this week calling out Beijing for what it says are China’s continued efforts to steal America’s trade secrets and advanced technologies and compromise sensitive government and corporate computers. The report adds that the Justice Department is expected to announce the indictments of multiple hackers suspected of working for a Chinese intelligence service and participating in a long-running espionage campaign that targeted U.S. networks. So while on the one hand it seems that trade talks are going somewhere, the focus of the US administration is also shifting towards issues around technology and theft of intellectual property, this is a theme I believe will gather momentum in the new year. A trade truce could be in the offing, but we are only at the beginning of a US-China technology war and this emerging theme looks set to be a source of market volatility in 2019.
Currencies
The USD lost a little bit of ground early in the session, but then as sentiment turned defensive the big dollar climbed higher yet again. DXY is +0.24% on the day and at 97.426 is trading close to its year to date high, similarly BBDXY is +0.12% and currently trades at 1211.71. Trade tensions and the threat of a US government shut down has boosted the USD, amid its safe haven attribute, but Brexit developments weighing on GBP and EUR have also played their part.
Sterling has remained under pressure over the past 24 hours, following conflicting reports that there would be an imminent leadership challenge to PM May. Sky News reported that the European Research Group (a Brexit-supporting group of Conservative MPs) believed it had reached the hurdle for a leadership challenge (48 MPs submitting letters). According to Sky, the Chairman of the 1922 Committee of backbenchers, Graham Brady, would wait until PM May is back in the country before making the announcement. Other media outlets, including the BBC and Sun, however do not believe that threshold has been met yet. The Pound fell below 1.25 on the Sky News reports, with the market concerned that May could be replaced by a Brexit-supporter, increasing the chance of a no-deal scenario.
Sterling is down 0.21% on the day and after trading to an overnight low of 1.2475, the pair now trades at 1.2490. Meanwhile, PM May’s mission impossible in Europe is not yielding any surprises. The PM is hoping to win some concessions -legally-binding assurances on the Irish backdrop, but EC President Juncker said the EU would only offer ‘’clarifications’’, but that the full legal text was not up for negotiation. Meanwhile the BBC reports that Downing Street has said a Commons vote will be held on the deal before 21 January and Brexit minister Robin Walker told MPs he hoped it “would be sooner than that”. So with no resolution within sight, the Pound is likely to remain volatile for at least a few more weeks, if not months.
Bonds
After trading up, down and then up again. UST yields are now higher with the curve flattening again amid a 4bps rise in the 2y rate to 2.77%. The 2y10y curve is now at 10.7bps and the 10y rate now trades at 2.88%, close to its overnight high of 2.89% after trading down to 2.845% early in the session.
Commodities
Copper was the big mover yesterday, gaining 1.89% while oil prices also moved a little bit higher ( WTI +1.39% and Brent +0.57%). US oil production to average 12.1m b/d in 2019, up from the 10.8m b/d in 2018 according to the EIA. Current US production is around 11.5m b/d. Overall suggests US production to continue at high levels and impedes OPEC’s ability to lift prices via production cuts
Economics
NFIB small business survey weaker than expected at 104.8 against 107.0 expected (107.4 last). The dip was driven by lower expected business conditions and lower expected sales, though these do tend to correlate with the stock market which has been lower over the past month.
German ZEW mixed with Expectations slightly better -17.5 against -25 expected, but Current Situation worse than expected at 45.3 against 55 expected.
This morning on the Economic Front we have Euro-Zone Industrial Production at 10.00 am. This is followed by US MBA Mortgage Applications at 12.00 pm. Finally at 1.30 pm we have CPI.
Just as I go to press Reuters are reporting that a Leadership Challenge against Theresa May has been triggered with the Ballot to be held after 6.00 pm this evening.
December S&P 500
My S&P plan worked well with the market trading higher to my 2678 sell level before trading lower to my too early 2673 T/P level and I am now flat. The S&P made a low of 2621 before rallying back above 2657 only to fall hard into the close on the back of the threatened government shutdown. However overnight the market has rebounded to sit at 2650 as I go to print. I still believe that we put in a tradeable low on Monday at 2585 and today I will now raise my buy level slightly to 2608/2625 with a 2598 stop. My only interest in selling the S&P is on a further rally to 2685/2701 with a 2712 stop which is just above last Friday’s post Payrolls high print.
EUR/USD
Thankfully the Euro rallied to a high of 1.1400 after I posted yesterday morning which gave everyone time to exit any long position at my 1.1391 T/P level and I am now flat as I had no re-buy level in the market. The Euro has solid support from 1.1100/1.1300 while the 1.1425/1.1450 area is proving to be formidable resistance at this time. Today I will be a buyer on any dip lower to 1.1200/1.1240 with a 1.1160 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 1.1095/1.1125 with a 1.1055 stop.
December Dollar Index
I am still flat the Dollar and today I will now raise my sell level further to 97.80/98.20 with a 98.55 stop.
December DAX
The DAX rallied after I posted yesterday morning with the market managing to close over the key 10800 resistance area. As a result I will now raise my buy level to 10680/10740 with a 10630 stop.
December FTSE
With a leadership challenge to PM May just announced we have seen little reaction to either the FTSE or Sterling Markets. There is no doubt that most of the bad news is already in the Sterling price especially with EUR/GBP trading above 0.9060 this morning. The severely sold Sterling is helping the FTSE from falling. I am still flat the FTSE market and today I will now raise my buy level to 6710/6760 with a 6665 stop.
Dow Rolling Contract
My Dow plan worked well with the market falling from a high at 12.00 pm of 24805 to hit my 24230 buy level. Subsequently the Dow rallied over 300 points. Unfortunately as my S&P buy level was close by I covered this long Dow position at 24265 as I incorrectly thought that my S&P buy level would get filled and I am now flat. The Dow has strong resistance from 24750/24900 and today I will be a seller on any rally to this area with a tight 25020 stop. I will also be a buyer on any dip lower to 23950/24100 with a 23850 stop which is just below last Monday’s low print.
December NASDAQ
I am still flat the market which just missed my 6610 buy level. Today I will lower my buy level slightly to 6510/6570 with a 6475 stop. The NASDAQ has strong resistance from 6795/6845 and today I will be a seller on any rally to this area with a tight 6905 stop.
March BUND
No change as I am still a seller on any rally higher to 163.80/164.10 with the same 164.45 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1224/1232 with the same 1215 stop. If I am taken long I will have a T/P level at 1238.
Silver Rolling Contract
My Silver plan worked well with the market trading higher to my 14.70 T/P level on my latest 14.50 long position and I am now flat. Today I will again look to buy Silver on any dip lower to 14.15/14.50 with a 13.85 tight stop. If I am taken long I will have a T/P level again at 14.70.
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