Two big stories yesterday, another cathartic clean out in oil prices and more pressure from President Trump on the Fed after the Wall Street Journal suggested the Fed should pause. Stocks were down in Europe after the soggy session in Asia, while the US market was showing green but has reversed into the red into the last hour of trade before a late rally saw a sequence of four losing days broken. Treasury yields are lower again, helped along the way by lower oil, led at the front end, perhaps with a degree of caution ahead of this evening’s FOMC Meeting. Among currency pairs, the CAD and NOK have been the underperformers, followed by the AUD while the Euro closed unchanged. The market wants to take oil lower and news of recent days seems to have given traders the ammunition to sell it lower. The EIA reported earlier this week that it expected US shale production to rise in January while the WSJ reported that Russian production reached a record in December. I also note that US oil production has risen more than 15% this year and that rig count numbers have, so far, been relatively resilient. Oil closed $4 lower for a fall of 8%.
To mark my 1725th issue of TraderNoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day To demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 220 points yesterday and is now ahead by 2370 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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Bonds
The WSJ published an editorial headed ‘’Time for a Fed pause’’, arguing the case for the Fed not to hike rates so soon again. What to do? The right answer is to ignore the politics, inside and outside the Fed, and follow the signals that suggest a prudent pause in raising rates at today’s meeting. President Trump jumped on that opportunity and tweeted ‘’I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake’’ Feel the market Good luck!’’.
While the market is pricing in a dovish hike, an expectation for the Fed to then pause, were they to pause, it could be viewed as bowing to political pressure and of course markets could fret over ‘’what does the Fed know that we don’t or have not priced for’’. The Fed can engineer a market-supportive response but hiking but scaling back underscoring that further ‘’gradual’’ increases are nowhere near certain. Two year Treasury yields have rallied by 4bps to 2.65% as the market has further scaled back rate hike expectations, though somewhat surprisingly a little less so at the very front end of Fed Fund Futures.
Economics
The German IFO Survey for December missed expectations slightly. All three components were lower than expected, but not remarkably so, the Current Conditions Index at 104.7, close to last year’s average of 105 when the economy grew by 2.2%. It is still a relatively solid number in level terms, if off its highs from early this year.
US Housing Starts and Permits were better than expectations, signifying a degree of resilience in US housing activity, which should get some support from post-disaster reconstruction and the rally in bonds and thus mortgage rates. The Atlanta Fed shaved their estimate of Q4 GDPNow to 2.9% from 3.0% on a net downscaled estimate of fourth-quarter real residential investment growth from -2.4 percent to -4.2 percent after the data, including revisions.
China ‘’defiant’’ but a trade deal still likely as they recalibrate growth and reform
On the 40th anniversary of Deng’s market opening and reform, in a strong political speech yesterday, President Xi Jinping vowed to push` ahead with China’s “reform and opening up” but warned that ‘’no one is in a position to dictate to the Chinese people what should or should not be done’’. It was the latter element of defiance that has captured most of the press since, a read through being that this revealed an element of defiance to the US.
Such an interpretation looks like it could be an over-reach. This was the prelude to the coming setting of economic goals, was more political in nature, ceremonial, messages intended to reinforce the Party’s position, and his leadership. Cooler analysis including in his strong political speech – suggest that he still wants to get a deal done with the US. In his address he spoke of reforms importance, noting that ‘’opening brings progress while closure leads to backwardness’’.
The main elements and goals for the economy and economic reform will be thrashed out in the remainder of this week starting today at China’s three day Central Economic Working Conference (CEWC) meeting to reset growth and reform objectives. The economic leadership will decide on their growth target for 2019 (pulled back slightly from 5.5% this year), the main elements of macroeconomic policy (growth-supportive fiscal policy), structural change/reform, such reform to include measures that will be the essence of a deal during the 90 day truce, carrots likely on market access and reform of intellectual property rights. Chinese lawmakers are also set to meet before the end of the year, including on such reforms.
This morning on the Economic Front we have UK CPI, PPI and Retail Price Index at 9.30 am. This is followed at 12.00 pm by US Mortgage Applications. At 1.30 pm we have Canadian CPI. Finally we have the FOMC Statement and Powell press conference at 7.00 pm and 7.30 pm respectively. Key watch points are rates decision (one of 88 in Bloomberg survey picks a no change; not me); forward guidance (to dial back on ‘’expected further gradual rate rises’’); rate and economy forecast refresh (to likely reduce the median expectation of rises for next year from three to two; retain a 3% expected long term neutral rate and not materially change economy forecasts; tone of Powell presser- to play a pretty straight bat and reinforce increasing importance of decisions being data dependent.
December S&P 500
This will be the last day for trading December Contracts which all expire on Friday. It took a while but finally on the rumours of a Government shutdown the S&P sold off to my 2539 buy level before rallying to my 2549 T/P level and I am now flat. After the close the S&P sold off again on the back of the weaker earnings from Fed EX before recovering these losses overnight. I would expect the market to go on hold ahead of the FOMC Statement. Three times the market has tested the February low of 2532 and rebounded strongly each time. Today I will again look to buy the S&P on any dip lower to 2522/2532 with a 2514 tight stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2495/2510 with a 2485 stop. My only interest in selling the market is still on a rally higher to 2595/2610 with the same 2622 stop.
EUR/USD
I am still flat the Euro and ahead of the FOMC I will leave my 1.1260/1.1300 buy level unchanged with the same 1.1225 stop. Remember a break and close over 1.1425 this evening is a buy signal.
March Dollar Index
No change as I am still a seller on any rally higher to 97.00/97.40 with a 97.75 stop.
December DAX
The DAX is holding in well and I am still flat. Today I will continue to be a buyer on any dip lower to 10580/10640 with a 10510 stop.
December FTSE
It took a long time but finally my FTSE plan worked well with the market trading lower to 6660 buy level before rallying overnight to my 6690 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 6610/6660 with the same 6570 stop. I till do not want to be short the FTSE at this time.
Dow Rolling Contract
My Dow plan also worked well with the market hitting my 23520 buy level before rallying to my 23610 T/P level and I am now flat. Just like the S&P above the Dow fell after the close on the weaker than expected earnings from Fed EX before recovering these losses overnight. As I mentioned yesterday the Dow needs to break and close back above 24000 for me to turn bullish. Today I will again look to buy the market on any dip lower to 23300/23480 with a 23210 stop. If the Fed do not hike rates this evening (unlikely) then we will have a massive move higher. For this reason I do not want to be short the Dow at this time.
December NASDAQ
The NASDAQ just missed my 6430 buy level with a 6435 low print and I am still flat. For now I see a trading range of 6400 to 6750. Today I will move my buy level higher to 6390/6440 with a 6350 stop. I will also be a small seller on any rally higher to 6730/6780 with a tight 6815 stop.
March BUND
I am still flat the Bund and today I will continue to be a seller on any rally higher to 163.80/164.20 with a 164.50 stop.
Gold Rolling Contract
Gold continues to build value above the key 1230 support level. Remember Gold has rallied strongly for the last three Decembers and is on course to repeat this scenario this year. I am still flat and I will continue to be a buyer on any dip lower to 1227/1235 with a 1218 stop.
Silver Rolling Contract
No change as I am still long Silver at 14.60 with the same 14.75 T/P level. I will now raise my stop on this position to 14.35 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
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