Davos kicked off formally this morning, (now in its 47th year), with President Trump to speak Friday at a reception for CEOs, an event that seems to be drawing as much interest as any from the press. Trump is the first President at Davos since President Clinton in 2000. Meanwhile it has been another quiet trading session for first tier data. We had the German/Euro ZEW Investor Surveys for January, the January monthly UK CBI Trends survey and quarterly CBI Business Optimism, and Euro-Zone Consumer Confidence survey. Notwithstanding their second tier status, these readings have generally been very good still suggesting that the last year’s momentum seen in the Euro-Zone economy from a confidence and investor viewpoint has very much carried over into the New Year.
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For anyone following my Platinum Service it made 12 points yesterday and is now ahead by 191 points for the month of January, having made 946 points in December, 823 points in November and 657 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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European consumer confidence printed at its strongest level since 2000 and even the UK CBI Industrial trends survey revealed order levels at near record levels in January, only marginally below last month that was a record high. Even the UK Public Borrowing Report for December was better than expected on record VAT receipts and a credit from the EU, ostensibly on better EU budget finances from an improving economy. There was only the Richmond Fed ManufacturingRreport out of the US that was only slightly weaker than expected, following other US regional partials a little lower ahead suggesting a lower tilt risk for the national Manufacturing ISM Feb 1.
From an FX standpoint, yesterday in the latter part of the Asian session and into London trading, some support for the USD emerged, but it has proved to be rather short-lived. The announced US tariffs from the White House on solar panels and washing machines has so far come and gone without material market impact, though the market will be paying attention to what President Trump says later in the week at Davos. In the event, the USD has not been able to sustain Monday’s attempt to move higher, emerging market currencies and its ‘’major’’ counterparts re-taking some lost ground.
US stocks closed with minor changes (the Nasdaq doing better, helped by Netflix), while US bond yields closed down 2bps across the curve.
The AUD/USD was one cross that was seeing some selling back below 0.80 yesterday, coming when there was some intra-day pressure on Chinese iron ore futures, providing a reason to sell the Aussie, coming on the heels of the US tariff news. Though still closing down for the day, iron ore futures closed somewhat above their intra-day lows, the AUD also garnering some respite from renewed USD selling. The AUD/USD trades around the 80 figure as I go to press this morning. LME base metals were mostly lower overnight, while oil and gold prices rose.
The US Senate Banking Committee had its confirmation hearing for Fed Governor nominee Marvin Goodfriend. He is currently Professor of Economics at Carnegie Mellon, thought to market-oriented and sceptical about the use of unconventional monetary policy such as QE. He was the head of research at the Richmond Fed for 12 years from 1993, having earlier worked as an economist at the White House in 1984-85 (during the Reagan years). Broadly seen as a safe candidate with a hawkish tilt.
His hearing and views were uncontroversial. He said that inflation is rising slowly, the Fed is on the right path and he has every reason to believe inflation could be at 2% in a year or so. He said that low growth was more corrosive than low inflation, hinting at not being too hawkish. He did say that his job would entail worrying about financial stability. There was no sign of the idea the Fed needs to study its inflation mandate or consider other measures such as price level targeting.
This morning on the Economic Front we have German and Euro-Zone Manufacturing PMI at 8.30 am and 9.00 am respectively. This is followed at 9.30 am by UK Unemployment and Average Earnings. At 12.00 pm we have the US MBA Mortgage Applications, followed by the House Price Index at 2.00 pm. Finally we have Manufacturing PMI/Services PMI and Existing Home Sales at 2.45 pm and 3.00 pm respectively.
March S&P 500
This market is getting pretty crazy as we have now rallied over 165 Handles in just three weeks with the S&P running uncomfortably away from its long-term Moving Averages. Of course this is not sustainable but until we get a sell-extreme it is very difficult to be short as we have seen so far this month. I am still flat and today I will leave my sell range unchanged from 2858/2868 with the same 2874 stop. I will now raise my buy level slightly to 2818/2825 with a 2811 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 2797/2805 with a 2791 stop.
EUR/USD
The Euro continues to rally as expected with the Euro making new highs for the year earlier this morning. With the ECB Meeting and Dragi press conference tomorrow I would expect Dragi to try and talk down the Euro somewhat as he cannot be happy with the Euro’s strength since his last press conference five weeks ago. Today I will now raise my buy level to 1.2230/1.2275 with a 1.2190 stop.
March Dollar Index
The Dollar traded lower to my 90.00 buy level yesterday morning. I will leave my T/P level unchanged at 90.15 on this position. I will only add to this position on any move lower to 89.40 with the same 89.25 stop. If I am taken long at my second buy level I will then lower my T/P level on this position to 89.85.
March DAX
Unfortunately the DAX just missed my 13490 buy level with a 13510 low print before rallying strongly and I am still flat. Given the renewed strength of the Euro I will now lower my buy level slightly to 13400/13465 with a 13350 stop. I still do not want to be short the Euro at this time.
March FTSE
The FTSE continues to lag the other main Indices and I am still flat. I still do not want to chase this market higher and today I will leave my buy level unchanged from 7600/7630 with the same 7575 stop.
Dow Rolling Contract
Just like the S&P above we have to wait for a sell extreme to develop before we finally see a sell-off that lasts for more than a few hours. As I mentioned yesterday this is the most under-loved bull market in history with very few believers. Internally the market is weak as shown by the McClellan Oscillator which closed in negative territory last Friday and is only showing a reading of +39 last night. Today I will continue to be a seller on any rally higher to 26520/26750 with a 26850 stop. My only interest in buying the Dow is still on a dip lower to 25810/25950 with the same 25740 stop.
March NASDAQ
The NASDAQ continues to make one new high after another as we close in on the 7000 next resistance level. I am still flat as thankfully we have had no sell levels in this market over the last 10 days. However given how overbought we are trading I am now going to chase this market higher and today I will leave my buy level unchanged from 6825/6865 with a 6790 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any dip lower to 6695/6735 with a 6660 stop.
March BUND
I am still flat the Bund market and nervous as we wait for the ECB Meeting tomorrow. The Bund has traded in a narrow range for the last two weeks and is due to breakout, probably to the downside. In yield terms the Bund has massive resistance at the 67 basis points level which is a 55 month moving average since October 2008, a break and close for a few days could be significant. However until we take out some key levels I am not comfortable in going short the Bund at this time. Today I will now lower my buy level slightly to 159.70/160.10 with a 159.30 stop.
Gold Rolling Contract
Gold rallied strongly yesterday with sentiment levels for now being ignored. Gold has strong resistance at 1370 and I just cannot see this level being broken anytime soon. However I still do not want to be short the Gold market and today I will now raise my buy level to 1320/1328 with a 1312 stop.
Silver Rolling Contract
My Silver plan worked well with the market trading lower to my 16.75 buy level. Given the extreme sentiment towards Silver plus the narrowness of the trading range over the past few weeks I unfortunately covered my long position at my revised 16.87 T/P level and I am now flat. Today I will look to buy the market again on any dip lower to 16.60/16.90 with a 16.25 stop.
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