What was meant to be a quiet trading session ahead of key risk events (US FOMC and Dutch elections today) turned out to be rather more exciting. The WTI Oil price fell 1.4%, on the back of an OPEC report that stated Saudi Arabia increased oil production in February with oil now back to late November 2016 levels at $47.85 a barrel before subsequently rallying $1 overnight. US Treasury yields initially fell up to 4.0 bps on the news driven by the inflation component, while the S&P500 fell 0.4% weighed down by energy stocks (-1.0%). OPEC reported Saudi Oil production rose 263.3k barrels a day in February to 10.001m. While the production figure is still below Saudi Arabia’s agreed OPEC-cut agreement target of 10.058m, it does mark a notable departure from recent rhetoric of being willing to cut beyond what is required to support the agreement. It also plays with the grain of comments by the Saudi Energy Minister Al-Falih that non-OPEC producers should not expect Saudis to take on the bulk of cuts or assume that they will extend the production cuts past May. Can OPEC keep the oil price in their stated $50-60 a barrel range – or will US shale oil producers play with their delirium given their breakeven sits at $40-$50.
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For anyone following my Platinum Service it made 112 points yesterday and is now ahead by 596 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.
US Treasury yields fell 2.9 bps to 2.60% (although was initially 4bps lower on the news) with the inflation component driving the moves – down 2.6bps. Bund yields were similarly lower, down 2.6 bps to 0.45%.
The US Dollar rose 0.3% across the board with much of the move happening yesterday afternoon. The big move yesterday was Sterling which initially fell up to 0.9% (though pared losses to -0.5%) alongside news that the UK Parliament signed off on Brexit bill which gives PM Theresa May the ability to formally start the Brexit process (unlikely to trigger before March 27) and news that the BoE Deputy Governor resigned for failing to disclose a conflict of interest. The Pound has rallied off yesterday’s lows to currently sit at 1.2219.
Aside from moves in the Pound and US Treasuries, yesterday’s trading session was fairly muted with little in the way of economic data. China monthly activity indicators overall came in slightly stronger than expected except for Retail Sales – but that was due to a decline in automobile sales which may be attributable to a sales tax increase on cars in 2017. US data was largely as expected, though the PPI beat expectations up 0.3% m/m against expectation of a 0.1% outcome – a signal inflation is picking up in the US. In Australia, the RBA hinted it was going to tighten macro-prudential measures, with Assistant Governor Michelle Bullock noting “we are continuing to monitor their ongoing effects and are prepared to do more if needed”. With the RBA Board already questioning the efficacy of current measures (the downgrading of the effectiveness to “some” strengthening in the March Board statement), it is probably an indicator that more is to come. For rates, this would argue the case for more macro-prudential measures to deal with risks in the housing market rather than any near-term contemplation of rate hikes as some had been advocating.
This morning on the economic front we have UK Employment and Average Earnings at 9.30 am. This is followed at 10.00 am by Euro-Zone Employment and US MBA Mortgage Applications at 11.00 am. Next we have the US Empire Manufacturing, CPI and Retail Sales at 12.30 pm. The NAHB Housing Market Index and Business Inventories are due at 2.00 pm. Finally at 6.00 pm we have the key event of the day namely the FOMC Rate Decision.
This month’s Meeting will include an update of the Fed’s dot points and a press conference by the Fed chair at 6.30 pm. Virtually all economists (96% on Bloomberg) expect the Fed to lift rates by 25bps and the OIS market prices a 93% chance. What is more uncertain and has the potential to move markets is the timing and magnitude of future rate hikes as embodied in the Fed’s dot points. The current medians have interest rates at 1.4% in 2017 (3 hikes), 2.1% in 2018 (3 rate hikes), 2.9% in 2019 (3 rate hikes) and a long-run value of 3.0%. Given the distribution of responses, the risk is the median could shift for 2019 since it requires only one Fed member to change their dot (but unlikely for 2017 and 3/17 dots would have to change to impact on 2018) which will be important for long-term rates. Finally, the balance sheet is likely to become more of a discussion point with many in the Fed stating it was appropriate to consider reducing the balance sheet (via stopping reinvestment) once rates were a comfortable distance from the lower bound – Kaplan and Harker suggested a figure of 1% earlier in the year and the Fed funds rate after this evening will sit at 0.75-1.00%.
The other key event today is the Dutch Election. While markets aren’t necessarily focused on how easily a government will be formed from the disparate parties that make up Dutch politics, it is focused on how well Geert Wilders’ Euroskepic Freedom Party (PVV) does. Recent polling puts the Freedom Party at 15.7% of the vote which would give it 20-24 seats (similar to the 2010 election) – anything higher would likely start to weigh on European markets and cause some reassessment of how Le Pen would go in the upcoming French Presidential election (currently a 30% chance)
March S&P 500
The beauty of my Platinum Service is the updated emails sent throughout the day as events happen and positions get hit. The whole idea of my service is try and gain as many points as possible on a Daily basis for the minimum risk. Yesterday after the S&P hit my 2366 buy level I emailed my Platinum Members to exit this position at 2368.75 mainly because I had a lower buy level in the Dow which subsequently got filled. For those members who did not exit this position it still worked out fine as the S&P traded to a low at 2357.75 before rallying strongly overnight to sit at 2371 as I post this commentary. With the FOMC Rate announcement due at 6.00 pm I will as usual stay flat until we get this key decision in which I expect the Fed to lift rates by 25 basis points. After we have the Statement the market’s attention will then turn to see what Fed Chair Janet Yellen has to say in her press conference. The S&P has very strong support from 2353/2359 and I will be a buyer on any dip to this area with a 2348 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 2338/2343 with a 2333 stop. My only interest in selling the S&P is still on a rally higher to 2395/2401 with a 2407 stop. I am looking for one more test of the March 1 highs which will then give us a better chance to get short with a higher risk/reward.
Yet again the Euro tried to break lower but so far the 1.0600 level is proving to be very strong support. In yesterday’s commentary I had bought the Euro at 1.0638 in small size and I said to add to this position only on a dip to 1.0610 which was filled just before the New York close last evening. I am now long at an average rate of 1.0624 with the same 1.0585 stop. As I want to be flat ahead of the FOMC, I will now lower my T/P level to 1.0640 as I try to get today off to a positive start. If the market does not hit my target level I will be back with an update to my Platinum Members to get flat ahead of 6.00 pm. Subsequently after we get the rate decision I will again look to buy the Euro on any dip lower to 1.0545/1.0585 with a 1.0515 tight stop. I still do not want to be short the Euro at this time.
June Dollar Index
As I was already long the Euro I covered my short 101.50 Dollar position at my revised 101.37 T/P level as I did not want to have two short Dollar positions open overnight and I am now flat. As I have mentioned over the past few weeks the Dollar has very strong resistance at 102.45 and today I will look to sell the Dollar on any rally higher to 101.90/102.30 with a 102.65 stop. Given the extent of January’s 5% fall in the Dollar on what turned out to be a rare Downside Key Month Reversal I do not want to be long the Dollar at this time.
Unfortunately the DAX just missed my 11910 buy level with a 11924 low print before the market rallied back above 12,000 and I am still flat. I would expect some late volatility in the DAX especially after the results of the Dutch Election start to come in. Today in anticipation of some late volatility I will leave my buy level unchanged from yesterday at 11860/11910 with the same 11815 stop. I still do not want to be short the DAX at this time.
The FTSE having initially hit my 7345 buy level subsequently rallied back above 7360. As I had too many open positions at the time I emailed my Platinum Members to exit this position at 7357 and I am now flat. Today I will again look to buy the market on any dip lower to 7310/7340 with a 7280 tight stop which is just below the key 7290/7310 support level. This support should hold any initial test before having a decent rally. If I am taken long I will have a T/P level at 7370.
Dow Rolling Contract
My Dow plan worked very well with the market hitting my 20790 buy level before trading higher to my 20850 T/P level and I am now flat. As usual I will stay flat the Dow until we get the FOMC Rate Decision out of the way at 6.00 pm. With the McClellan Oscillator closing with a -188 print last night I believe the downside for the Dow to be limited at this time. Today I will again look to buy the Dow on any dip lower to 20720/20790 with a 20670 stop. My only interest in selling the Dow is still on a rally higher over the coming days to 21140/21200 with the same 21260 stop.
The Bund rallied as I posted yesterday thus missing my buy range and I am still flat. The Bund is oversold despite its low yield and if we get any surprises from the Dutch Election this evening then money will flow back into the Bund again for safety reasons. Today I will now raise my buy level to 158.80/159.15 with a 158.50 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 158.25 with a 157.90 stop. Given how oversold the Bund is trading I do not want to be short the market at this time.
Gold Rolling Contract
Unfortunately Gold just missed my 1195 buy level with a 1197 low print before rallying back to 1204 this morning and I am still flat. Given the day that is in it I will now just raise my Gold buy level slightly to 1189/1196 with a 1183 stop.
Silver Rolling Contract
No change as I am still long at 17.10 with the same 16.45 stop which is just below the key late January low at 16.60. I will still look to add this long position on any dip lower to 16.75.