News that US trade negotiators have asked for a stable Yuan policy as part of the China trade talks and a tentative agreement by China has triggered a broad US Dollar sell off with Euro and Sterling both benefiting from the move. US equities closed a bit higher on Walmart’s earnings, but European equities closed lower on car tariff concerns and banks. Sterling is the G10 outperformer amid Brexit speculation while US Treasury yields are tad lower notwithstanding solid housing data.
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For anyone following my Platinum Service it was flat yesterday and is still ahead by 568 points for February, having made 1671 points in January, 2803 points in December, 1541 points in November and 2094 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Currencies
The USD is weaker across the board with the selloff initially triggered by a Sterling rally following comments from a government minister (Harrington) saying if Prime Minister cannot get a deal then Parliament will take control and he doesn’t see a no deal Brexit. PM May meeting today with European Commission President Jean-Claude Juncker in Brussels has been described as a significant meeting by UK officials with many expecting/hoping for legally binding changes to the so-called Irish border backstop. Although EU officials have downplayed the prospect of a breakthrough, GBP is the G10 outperformer over the past 24 hours, up 1.14% and currently trading at 1.3065. Monday’s news of Labour defections are also supporting the Pound with the defections seen as lowering the chances of a possible Corbyn government in the event of new elections. UK data releases showed UK wage inflation growing at the fastest in a decade and strong employment leaving the unemployment rate at 4%, levels not seen since the 1970s.
Early yesterday the US Dollar came under additional downward pressure following news that US negotiators are asking China to keep the value of the Yuan stable as part of trade negotiations. The Bloomberg report also notes that both sides have tentatively agreed a stable Yuan will be part of the framework of any final deal to be approved by both Presidents. Although the AUD and NZD were already benefiting from the broad USD weakness sparked by the GBP rally, the stable Yuan news gave both antipodean currencies another leg up with both pairs more than erasing the losses recorded during Monday’s session. AUD now trades at 0.7170 (+0.52%) and NZD is at 0.6882 (+0.48%).
After initially trading down to an intra-day low of 1.1276, the EUR has also benefited from the Sterling rally and USD sell off. The pair now trades at 1.1348, in spite of mostly negative closes for major European Equity Indices. Europe’s Stoxx 600 declined 0.2% with the market wary over the potential of US tariff on EU cars while the prospect of a delay in ECB Interest Rate increases has weighed on the banking sector with the sub index falling 0.9%.
JPY and SEK have also had a volatile 24 hours. Sweden’s SEK is the weakest (-0.41%) with CPI data much lower than expected with core inflation at 2.0% y/y against 2.3% expected and 2.2% previously. That said, after trading up to 9.4180, the SEK has staged a decent recovery down to 9.3034 amid the softer dollar theme mentioned above and commentary by Sweden Riksbank Governor Ingves saying that he still favours rate increases and is not concerned about a weak inflation report. Meanwhile USD/JPY is little changed at 110.64,after an up and down move following dovish comments from BoJ Governor Kuroda. Speaking before the Diet, the Governor said the Bank would consider extra monetary easing if a stronger yen affected inflation and the economy. Options included lowering bond yields and increasing asset purchases. I see this as a bit of an empty threat, with Japan’s 10-year rate already below 0.1% and little to show for its massive balance sheet expansion and market reaction seems consistent with my view.
Equities
Walmart reported its best holiday sales quarter in at least a decade, assuaging fears that US retail spending had fallen into a hole, suggested by official Retail Sales data. The recent data showing a surprising plunge in December Retail Sales was brushed off by most at the time as unbelievable and likely reflecting seasonal adjustment and trading day issues. Walmart’s strong sales support that view. In other data, sentiment among US homebuilders rose in February for a second month, exceeding all forecasts, supported by lower mortgage rates. The S&P 500 closed in positive territory (+0.30% with Walmart share leading the gains within Consumer staples, +3.71%)
Bonds
US Treasury rates have drifted lower, despite the positive Walmart and housing market news. The 10-year rate sits 2bps lower at 2.64%. The Fed’s Mester said that she would be comfortable slowing or stopping the Fed’s balance sheet reduction programme by the end of 2019, supporting the view of the Fed’s Brainard and Daly.
Commodities
News of a trucker strike in Lima Peru has boosted copper prices given the prospect of delay in copper shipments as well as food and fuel supplies delays for Peru. Peru is the world’s second largest copper producer, as well as a major supplier of zinc, silver, gold and lead. Copper is up 2.62%, Gold is 1.59% and oil prices are little changed.
This morning on the Economic Front we have German PPI at 7.00 am and this is followed at 11.00 am by UK CBI Industrial Trends Survey. Next we have the US MBA Mortgage Applications at 12.00 pm. Finally we have Euro-Zone Consumer Confidence and the FOMC Minutes at 3.00 pm and 7.00 pm respectively.
March S&P 500
Unfortunately the S&P just missed my 2792 sell level with a 2789 high print before having a small sell-off into the close. The S&P is severely overbought and with strong resistance from 2794/2808 where I will continue to be a seller in this area with a 2819 stop. Meanwhile I will lower my buy level slightly to 2746/2758 with a 2737 stop which is just below the 200 Day Moving Average.
EUR/USD
The Euro continue to follow my bullish roadmap which is no surprise with the Daily Sentiment Index closing near single digits last Friday. Yesterday the Euro just missed my 1.1250 buy level and today I will now raise my buy level to 1.1230/1.1285 with a 1.1180 stop. I still do not want to be short the Euro at this time.
March Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 96.90/97.30 with a 97.65 tight stop.
March DAX
The DAX traded in a narrow range yesterday and I am still flat. Today I will leave my 11460/11560 sell level unchanged with a lower 11615 stop.
March FTSE
The FTSE missed my buy level by 8 points before rallying into the UK close and I am still flat. On the back of the stronger Pound I will now lower my buy level to 7020/7060 with a 6985 stop. Despite the weaker price action I still do not want to be short the FTSE at this time.
Dow Rolling Contract
Frustrating the Dow just missed my sell level by 15 points before selling off nearly 100 points into the close and I am still flat. Today I will raise my sell level slightly to 26010/26160 with a higher 26270 stop.
March NASDAQ
No Change as my only interest in buying the NASDAQ is still on a dip lower to 6930/6980 with a 6885 stop.
March BUND
The BUND traded in a narrow range yesterday and I am still flat. Today I will again leave my 166.95/167.35 sell level unchanged with the same 167.75 stop.
Gold Rolling Contract
After days of sideways price action Gold finally rallied over 1.6% and I am still flat. Today I will now move my buy level higher to 1312/1324 with a 1301 stop which is just below the recent 1302 low print.
Silver Rolling Contract
I am still flat Silver which is on the verge of a major move higher. Today I will move my buy level higher to 15.50/15.90 with a higher 15.15 stop.
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