Strong European data failed to excite markets – the exception being equities – as the upcoming French Presidential elections take centre stage. Betting markets now ascribe Eurosceptic Le Pen a 34.2% chance of winning, while a poll by Elable for L’Express Magazine puts her within striking distance in a run-off with Fillion with 44% of the vote. The uncertainty is being reflected in Government Bond yields, particularly the shorter end. The German Shatz two year yield made a new record low, down 2 bps to -0.86%, while French two year yield rose 2 bps to -0.41%. It’s also showing up in the currency market where the Euro was down 0.6% despite strong European data.Equity markets in contrast are more positive, with the EuroStoxx up 0.8%, driven largely by German names with the DAX up 1.2%, while the CAC40 was up 0.5%.
To mark my 1275th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 107 points yesterday and is now ahead by 1240 points for February having made 1734 points 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.
European data was very strong yesterday with the Euro PMI surging to its highest level since 2011 at 56 and beating expectations of a 54.3 print. Importantly, the strength is coming from the big two economies of France and Germany. The French composite was at 56.7 (from 54.1) – the highest since 2011, while the German Manufacturing numbers continue their move higher to 57 – the highest in almost three years. Importantly for the ECB, average input costs rose at the steepest rate since May 2011. The only cautionary component was average selling prices which were lower for service firms, but importantly for manufacturers were sharply higher – the highest since June 2011.
On the other side of the Atlantic, the Fed’s Harker (hawkish) reiterated that a rate hike at the March FOMC Meeting was a possibility, helping lift the US Dollar over the past 24 hours. Harker said he “would not take March off the table” and that while the Fed was not behind the curve “it is something I am worried about”. He still sees three rate hikes in 2017 as appropriate, and importantly his forecasts are yet to encompass additional fiscal policy changes – so if Trump did implement his fiscal policies that could be an upside risk. To argue for a March rate hike, Harker is looking for inflationary pressures in wages which puts the focus firmly on Average Hourly Earnings out of the Non Farm Payrolls report. The Fed’s Kashkari (dovish) was also out, but played down prospects of an impending rate hike arguing the Fed is still a little short of its inflation goal.
The net of the comments saw pricing for March rate hike broadly unchanged at around 42% with 2.2 rate hikes priced in for 2017. US Treasury yields were also were little changed, up 1 bps to 2.43%. A soft Market PMI for the US may have also contributed to the subdued moves. Moves in other major sovereign yields followed with German Bunds up 0.5 bps to 0.30% and UK Gilts up 0.8% to 1.24%.
In the FX market, the US Dollar was up by around 0.5% across the board. Other currency pairs were broadly lower by a similar magnitude with the Euro -0.6% and Yen -0.4%. Commodity currency outperformed, with the Aussie and Norwegian Krone down just 0.1% respectively – helped along by moves higher in iron ore and oil.
Equities were buoyant with the S&P500 up 0.5% and again a new record high. Financial globally underperformed following the results of HSBC and the FTSE was down 0.3%, with financials down a staggering 2.8%.
The oil price rose 0.9-1.2% on the day with Brent at $56.67. The rise comes as OPEC notes it intends on achieving full compliance with supply cuts. Importantly, Russia also said it will abide by its cuts. In terms of Australia’s major commodities, iron ore rose 2.7% to $94.9 a tonne – its highest level since mid-2014. Higher steel prices are driving and it is speculated that Chinese steel mills are seeking to accelerate production ahead of likely production cuts in the lead up to the National Party Congress. In contrast coal prices were largely unchanged.
In terms of other news, BoE Governor Carney spoke in Parliament declining to give forward guidance on interest rates – playing into the view that the Bank of England is uncertain ahead of Brexit. The BoJ’s Kuroda implied Japan would keep its long-run yield target of around zero, even as global rates rise – “it is premature for Japan to raise short or long-term interest rate targets, even if interest rates are raised overseas”.
This morning on the economic front we have German IFO Business Climate and Current Assessment/Expectation at 9.00 am. This is followed at 9.30 am by UK GDP, Index of Services and Total Business Investment. At 10.00 am we have Euro-Zone CPI. Next we have US MBA Mortgage Applications and Existing Home Sales at 12.00 pm and 3.00 pm respectively. Finally at 7.00 pm the focus will be on the Fed Minutes to see whether anything can be gleaned on the possibility of a March rate hike (currently 41% priced according to the OIS market).
The Fed’s Powell (voter, dovish) also speaks on the economic outlook and monetary policy in New York at 6.00 pm.
March S&P 500
The rally in the US stock market shows no signs of faltering as yet again the S&P closed at yet another record high. This rally saw the S&P hit my average sell level at 2362.50 with a 2365 high print before selling off to its afternoon low at 2356 and this sell-off enabled me to cover this position at my revised 2358 T/P level and I am now flat. Yesterday’s move higher as left another ‘’Open Gap’’ from last Friday’s close at 2347.50 to yesterday afternoon’s Chicago low at 2356. The McClellan Oscillator improved slightly to close with a positive 56 print but as I have consistently said this reading should be on the 200’s especially with the stock market making new highs nearly every day. For me to turn bearish we need to see a sell extreme that lasts for more than a few days or a break and close below 2298. The next resistance level for the S&P is from 2370/2376 and today I will again look to sell in this area with a 2381 stop. Despite that fact how overvalued this market is until we see the aforementioned sell extreme we can only try and short this market for a small time. Today I will now raise my buy level to 2345/2351 with a 2340 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 2330/2336 with a 2325 stop.
EUR/USD
One rule that I learnt many years ago when I prop trading in a major bank is that a market than cannot rally on good news has to be respected. This certainly was the case yesterday with the Euro getting hit hard despite the much better than expected PMI data out of Europe and in particular both Germany and France. There is no doubt the French Elections are weighing on the Euro and that the market is telling me that I am wrong to have a long Euro position on board. Yesterday the Euro sold off to my second buy level at 1.0540 which now puts me long at an average rate of 1.0560. Subsequently after I was filled a second time I emailed my Platinum Members to lower our stop to 1.0515. I am still long but unfortunately I expect to get stopped out of this position today. I will now use any rally back to 1.0545 to exit this trade for a small loss. However the Euro does have strong support from 1.0450/1.0490 and if I am stopped out of this position I will again look to buy the market in this area with a 1.0420 tight stop. I will also lower my sell level to 1.0620/1.0650 with a 1.0685 stop.
March Dollar Index
I am still flat the Dollar which just missed my 101.65 sell level yesterday before selling off. Today I will now raise my sell level in the Dollar to 101.90/102.30 with a 102.60 stop. Remember as mentioned yesterday the Dollar has strong initial resistance at 102.45 and a break and close above here will be short-term positive.
March DAX
Finally the DAX broke the key 11850 resistance level and quickly as forecast yesterday traded higher to my next resistance level at 11940 to currently trade at 12,000. Thankfully we had no sell level yesterday and that you may have been able to buy this break at 11850 for my target level. Today I will now raise my buy level to 11870/11930 with a 11825 stop. Despite the overbought nature of the DAX I still do not want to be short the market at this time.
March FTSE
No change as I am still a small seller on any rally higher to 7280/7310 with the same 7335 tight stop. A break and close over 7300 will also be short-term bullish.
Dow Rolling Contract
The idea of selling into rallies in the Dow continues to pay dividends but you have to be quick. Yesterday after the Dow hit my average sell level at 20735 the market having made a new high at 20755 quickly sold off 80 points to a 20675 low print and this sell-off enabled me to cover my short position at my revised 20685 T/P level and I am now flat. My ultimate target on this move higher is 20950/21100 and if we do break 21,000 this will have been one of the quickest 1000 point rallies in history. Today I will again look to sell the Dow on any further rally to 20795/20850 with a 20910 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller in front of 20985 with a 20110 stop. Given how overbought and over extended this market is I do not want to be long the Dow at this time. For new members please read my last few Daily Commentaries to show how over extended the sentiment readings are at this time.
March BUND
My Bund plan worked well with the market hitting my 164.10 buy level with a 164.09 low print before rallying 50 points. Unfortunately as I wanted to get yesterday off to a good start I emailed my Platinum Members to exit this position at 164.22 and I am still flat. Today I will again look to buy the Bund on any dip lower to 163.70/164.05 with a 163.35 stop. I will still look to sell the market on any rally higher to 164.95/165.25 with the same 165.55 stop.
Gold Rolling Contract
Unfortunately Gold just missed my 1224 buy level with a 1225.70 low print before rallying $12 and I am still flat. Today given the stronger US Dollar plus the fact that I am long Silver I will now reduce my buy level in Gold to 1215/1222 with a 1208 stop.
Silver Rolling Contract
Thankfully after I posted yesterday morning Silver traded to a new low on the day at 17.80 which hopefully gave everyone a better entry level than my 17.96 latest long position. I am still long and I will leave my stop unchanged at 17.65.
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