The market mood has turned cautious once again amid a flurry of trade headlines pointing to the prospect of a new round of trade tariffs ahead. European Equity Indices closed mildly in the red while US equities had a late rally to close in positive territory. The USD is stronger across the board with Brexit news weighing on Sterling while the kiwi is the sole USD outperformer on no news. US Treasury yields are unmoved and for a change softness in the commodity complex has been led by copper and zinc with oil relatively stable. There was little reaction to Fed speakers with both Fed Clarida and Bullard noting policy is now ‘’much closer’’ to a neutral.
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Currencies
The USD is still the king. After yesterday’s Trump threat to impose more tariffs on China if a deal is not agreed at the G20 summit this weekend, early in the European session the market mood briefly turned positive following a headline from China’s Foreign Ministry noting China and the US had agreed to reach mutually beneficial agreements (on trade), but then the mood quickly unwound when China clarified this was a reference to Trump and Xi’s call early in November. Then we had German headline (Wirtschaftswoche) citing “EU sources” as saying a U.S. Department of Commerce investigation report was on Trump’s desk, adding: “Trump will possibly decide on tariffs as early as next week after the G20 meeting in Buenos Aires.”
So the market seems to be jumping at shadows at the moment and against this backdrop of uncertainty the US Dollar remains the prefered option for weathering the storm. The narrower DXY Index now trades at 97.35 (+0.28%) and it is just 20pips below the YTD highs reached half way through November. BBXD is up 0.18% and is also close to its YTD highs.
The Pound is at the bottom of the G10 pile, not helped by a flurry of mostly negative Brexit headlines. a) President Trump’s comments yesterday that Prime Minister May’s proposed deal could threaten a bilateral trade deal with the US did not help, b)DUP leaders have again confirmed that they won’t support May’s Brexit plan, c) PM May could quit soon after Brexit day on March 29 would help to pacify Tories and d) according to senior Labour sources, Corbyn is close to agreeing that shortly (days) after the loss of the meaningful vote by May, he would formally make his party the champion of another referendum or People’s Vote – on the basis that if there is no consensus in parliament on what comes next, the question has to go back to the people’. So after all that Sterling now trades at 1.2750 about one big figure lower on the day. All that said there appears to be a consensus growing on a willingness to avoid a hard Brexit. So if a hard Brexit is avoided, a deal or referendum outcome suggest either way Sterling is more likely than not to be higher in a few months time. The EUR was 0.3% lower to 1.1294, in sympathy with the moves in the Pound.
Equities
US equities have traded in and out of positive territory and before a late rally saw the major equity Indices close up between 0.20% and 0.30%. Trade tariffs headlines not helping sentiment with industrial and material shares the underperformers including Caterpillar and 3M.
Early in the session, the Euro-Zone’s STX 600 Index closed 0.26% lower while its auto sub index fell 2.52% not helped by the Wirtschaftswoche headline suggesting US car tariffs could be on their way next week.
Bonds
Moves in US Treasuries have remained pretty subdued with Fed Vice Chair Clarida’s much-anticipated speech having little impact 10y UST yields now trade at 3.057% while the 2y rate is at 2.831%.
Clarida highlighted the robust fundamentals of the US economy but said that policy would need to be more data-dependent going forward given the Fed Funds Rate is ‘’much closer to the vicinity’’ of neutral. In contrast to his speech earlier this month, he did not mention risks to the global growth outlook, nor did he discuss recent market volatility. A December rate hike by the Fed is still very likely (the market prices upwards of 80% chance), if for no other reason than it reaffirms the Fed’s independence in light of the criticism coming via the President’s Twitter feed. But the Fed policy outlook in 2019 is more uncertain. Fed Chair Powell’s speech this evening will be closely watched.
Commodities
For a change oil prices are relatively stable ( Brent -0.15% and WTI +0.06%). Meanwhile Lead, Zinc and Copper are down between 2.1% and 1.5% dragging the rest of the complex into negative territory.
Economics/Politics
– The US Conference Board’s Consumer Confidence Index fell to 135.7 from 137.9, in line with the consensus. The Index remains at an elevated level with softness largely reflecting recent fall in equity prices.
– Fed’s Bullard (dove) who becomes a voter next year observed that we are “already at or near neutral” and that “slower growth over next two years, making it tougher for Fed to continue rate increases”
– US economic advisor Kudlow Says USMCA Trade Deal to Be Signed in Argentina.
This morning on the Economic front we have Euro-Zone Money Supply at 9.00 am and this is followed at 12.00 pm by US MBA Mortgage Applications at 12.00 pm. Next we have Wholesale Inventories and GDP at 1.30 pm. Finally at 3.00 pm we have the Richmond Fed Manufacturing Index and Fed Chair Powell’s speech on Monetary Policy at the Economic Club in New York from 5.00 pm. Powell’s speech will be followed by an audience Q&A session and undoubtedly market participants will be looking for any hints on whether the Fed will lower its guidance for hikes in 2019 given recent turmoil in equity and oil markets couple with a slowdown in the housing market and tighter financial conditions.
December S&P 500
Overnight the S&P traded higher to my 2692 sell level. As I wanted to be flat ahead of writing today’s commentary I emailed my Platinum Members to cover any short position at 2690.50 and I am now flat. After a successful test of the October lows last week the S&P has now rallied nearly 70 Handles since the low of last Friday’s shortened trading session as we wait for Fed Chair Powell’s speech late this afternoon. I will now raise my buy level in the S&P to 2662/2674 with a wider 2649 stop. The S&P has strong resistance from 2715/2725 and I will now be a seller on any rally to this area with a 2733 tight stop. A break and close below 2650 would be the first signal of a move lower to my 2560/2585 aggressive buy level.
EUR/USD
No change as I am still long at 1.1320 with the same 1.1340 T/P level. I will continue to add to this position on any further move lower to 1.1270 which has just been filled for a now average long position at 1.1295. I will now lower my stop slightly to 1.1239 while also lowering my T/P level to 1.1310. If any of the above levels are hit I will be back with a new update for my Platinum Members.
December Dollar Index
I am still flat the Dollar and I will again move my sell level higher to 97.70/98.10 with a 98.45 stop. Given how overbought the Dollar is trading I still do not want t be long the market at this time.
December DAX
No change as my only interest in buying the DAX is still on a dip lower to 11160/11230 with a 11105 stop.
December FTSE
Frustratingly the FTSE missed my 6980 buy level by 4 points yesterday before having a strong rally into the close and I am still flat. Today I will now raise my buy level slightly to 6950/6990 with the same 6905 stop. Given the weakness of Sterling I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow finally traded higher to my 24850 sell level earlier this morning before having a small sell-off. Even though the Dow continues to trade heavy I still feel that the market can trade higher especially as we have some ‘’Open Gap’s’’ above the market and I covered this short position at my revised 24840 T/P level and I am now flat. Today my only interest in selling the market is on a further rally higher to 25100/25300 with a tight 25395 stop.
December NASDAQ
The NASDAQ has rallied the most over the last few days which is understandable given how severely oversold the market had got. The NASDAQ has strong resistance from 6860/6960 and I will be a seller on any rally to this area with a 7010 stop.
December BUND
No change as the boring action in the Bund shows no signs of ending. I am still a seller on any rally higher to 161.50/161.90 with the same 162.25 stop.
Gold Rolling Contract
Gold sold off yesterday with the market falling short of my 1210 initial buy level. As I am still long Silver I will now lower my Gold buy level again to 1194/1202 with a lower 1187 stop.
Silver Rolling Contract
I am still long at 14.20 with the same 13.75 stop. I will now lower my T/P level on this position to 14.30 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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