A rising commodities tide lifted all boats yesterday, with an improved tone in risk evident in equities, bonds, and currencies. The AUD outperformed after the RBA stood pat yesterday. It is a very busy day ahead. Following the no change to Monetary Policy, the Board wrote, “the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. AUD’s squeeze higher did not simply come courtesy of the unchanged rate decision (markets had priced near-50% for a cut), but also the peppier language on activity data. The Board added the phrase “the prospects for an improvement in economic conditions had firmed a little over recent months”. We only expect the Bank’s newfound ‘scope’ to only be utilised should the outlook deteriorate to the point the Unemployment fails to fall.
For anybody following my new Platinum Service it made 205 points yesterday, following Monday’s 70 point loss and is now ahead by 135 points for November. The previous five months saw gains of 1600, 2833, 2195, 1810 and 3045 points respectively.
I expect to see the RBA leave Inter Rates unchanged at 2% for an extended period. NZD underperformed the majors after another soggy dairy auction, where prices fell by 7.4%, after the 3.1% decline previously. This was within the range anticipated, but some of the details are suggestive of a softer outlook for dairy prices than I had anticipated.
Across markets more broadly, there does seem to be a firmer risk tone, helped considerably by the ~4% jump in Oil prices. Speculation on improved demand by refiners drove that move. Commodity producers led gains on the major equity bourses. High-yielding currencies sit atop currency leaderboards (notwithstanding NZD) and funding currencies at the bottom, reflecting a continued appetite for carry amid this volatility lull.
US factory orders were the only significant piece of data released, and fell in line with expectations (-1.0% m/m).
In comments made late last night, ECB President Draghi said that “degree of monetary policy accommodation will need to be re-examined”, hewing closely to the tone he took in the Il Sore interview over the weekend. The market shrugged this off, still very convinced that the ECB will ease in some dimension or another come December. I tend to agree, but this does highlight the risk of extreme disappointment (and a nasty short squeeze) if Draghi does not deliver.
This morning on the economic front we have German, Euro-Zone and UK Services/Composite PMI’s at 8.55 am, 9.00 am and 9.30 am respectively. At 1.15 pm we have the US ADP Unemployment Change and this will be closely watched by the markets for any hints ahead of Friday’s Non-Farm Payroll data. Next up we have the US Trade Balance and Services PMI at 1.30 pm and 2.45 pm respectively. This is followed at 3.00 pm by the ISM Non-Manufacturing Composite. Finally at 8.15 pm we have the Wards Total Vehicles Sales.
But it’s the clutch of Fed speakers this afternoon that will hold our attention. As noted yesterday, Fed Chair Yellen’s appearance on the roster at the House Panel is a bit of a red herring, as her testimony will focus on bank regulation. We’re instead looking toward NY Fed President Dudley’s comments at a Q&A session. Fed Board of Governors Member Brainard will also be on the wires. Her views will be interesting, given that she weighed in on the dovish side in mid-October.
As I go to press the Equity markets are rebounding after China reported its Services PMI data which printed 52.2 versus 51.4 last month.
December S&P 500
Unfortunately the S&P again missed my 2087 buy level with a 2089 low print and I am still flat. On what turned out to be a really busy trading day the S&P was the only market that did not generate or hold on to an existing position in yesterday’s trading session. As noted above, today is really busy for economic releases which have the potential to move markets. This morning I will raise my sell level in the S&P slightly to 2116/2122 with a 2126 stop. I will also raise my buy level to 2092/2097 with a 2086 stop which is just below yesterday’s low print. Remember a break and close over 2130 opens up the possibility to a move higher to 2200 before finally we may see the end to this incredible near seven year rally.
EUR/USD
Despite ECB President Dragi’s comments late in the New York trading session the Euro closed below 1.10. Yesterday’s move lower led to me going long at my 1.0945 buy level. The fact that I was already long Gold, Silver and short the Dollar Index I emailed all my Platinum Members to exit this long position at 1.0970 and I am now flat. Today I will again look to buy any dip lower to 1.0900/1.0930 with a 1.0875 stop. If I am taken long and subsequently stopped out of any long position I will be a more aggressive buyer in front of 1.0830 with a 1.0780 stop. I still do not want to be short the Euro at this time.
December Dollar Index
The move higher in the Dollar eventually led to me going short at 97.55. I am still short and today I will lower my stop on this position to 97.90.
December DAX
The DAX having opened lower finally had a late day rally to follow on from Monday’s upside Key Day Reversal. Shortly before lunch the market traded lower to my 10880 buy level before having a nice rally which enabled me to cover this position at my 10940 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 10840/10890 with a 10795 stop. I still do not want to be short the DAX at this time.
December FTSE
For the first time since I have started writing my Daily Commentary nearly four years ago both my buy and sell levels got hit in the FTSE. Shortly before lunch the market traded lower to my 6330 buy level before the market rallied which enabled me to cover this position at my 6365 T/P level. Just before the New York close the FTSE spiked higher to my 6410 sell level. I am still short and today I will lower my stop on this position to 6440. To me the price action in the FTSE continues to be heavy especially with the Mining Stocks getting slammed again in yesterday’s trading session.
Dow Rolling Contract
The Dow plan worked well yesterday as the market eventually hit my 17960 sell level before having a nice sell-off into the close which enabled me to cover this position at my 17905 T/P level and make up for the loss sustained in the Dow on Monday and I am now flat. Today I will again look to go short on any rally higher to 17995/18060 with an 18110 stop. Incredibly the Dow is now nearly 2000 points higher since the reversal day of the October Non-Farm Payrolls.
December BUND
My long 156.68 BUND position from Monday finally worked out yesterday as the market had a nice rally after the European Markets opened which enabled me to cover this position at my 156.98 T/P level and I am now flat. Today I will look to go short on any rally higher to 157.20/157.50 with a 157.80 stop. Given the price action I do not want to be long the BUND at this time.
Gold Rolling Contract
Gold continues to press the downside with the market hitting an intra-day low at 1114 in yesterday’s trading session. It was only early last week that Gold was trading at 1185 as the effects of last Thursday’s Key Day Reversal are felt by the Gold bugs. The move lower yesterday has led me to go long at 1120. Gold is now trading at the bottom of its Bollinger Band and Williams Index and is due at least a short-term rally to correct its recent sell-off.
Silver Rolling Contract
I am still long from last week at 15.60. The fact that I had such a good trading day yesterday I am going to lower my stop on this position to 14.95.
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