Markets continue to tread water ahead of the more important risk events later this week – the ECB meeting tomorrow and US Payrolls on Friday. There was little in the way of significant movement in bonds or currencies, while equities were a touch lower after having had hit fresh highs last week. Economic data was mute with the most significant piece being the US January Trade Deficit which increased to $48.5bn – although at a near five year high it was as expected. If repeated in February and March, net exports would likely detract from US growth and the Atlanta Fed has downgraded its Q1 GDPNow forecast to 1.3% from 1.8%. The outcome is also likely to give further currency to protectionist policies, where Trump’s Trade Adviser Peter Navarro indicated the US would make a reduction in the Trade Deficit its top policy focus noting that the U.S. faced a growing economic and potential national security risk from major trading partners. In other political news, House Republicans have proposed an Obamacare replacement plan while Trump also signed an updated travel ban with little reaction.
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For anyone following my Platinum Service it made 110 points yesterday and is now ahead by 145 points for March, having made 1481 points in February, 1734 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.
In the FX space, the US Dollar (DXY) was up just 0.1% across the board. Other major currency pairs fell by a similar amount with the Euro and Yen both down 0.1%. The underperformers were the Pound (-0.3%) and the Kiwi (-0.5%).
The Australian Dollar rose 0.1% helped along by the RBA’s post meeting statement. Although the statement was mostly unchanged, it did act to re-emphasise the optimism coming from Martin Place and the Governor’s view (expressed in his recent Parliamentary Testimony) that “a period of stability of interest rates…is quite a reasonable one”. The RBA is currently balancing getting back to the inflation objective and lowering the unemployment more quickly against avoiding creating fragilities in household balance sheets. Two changes are worth highlighting: (1) the RBA upgraded its view on the boost from commodity prices on Australian incomes to “significant”; and (2) the RBA raised its concerns around the housing market making a less definitive statement on the success of supervisory lending standards than in the past. Overall that suggests a high bar to further easing.
The British Pound was the clear underperformer. Yesterday Prime Minister May suffered a defeat on her Brexit bill with the House of Lords voting to change the draft bill in order to give Parliament veto rights over the final Brexit agreement, as well as the power to stop the UK walking away from talks without a deal. The bill will need to be debated again in the House of Commons and it is unclear whether this will impact on the date PM May has given to trigger Article 50 – indicated to be sometime from March 15 to the 31st. Unofficial retail data in the UK was also weak with the Retail Consortium’s Survey stating retail trade fell 0.4% m/m in Feb – official figures out on March 23.
Movements in Sovereign bond yields were also mute. US Treasury yields rose 0.7 bps to 2.51% with the range being 2.49-2.51% overnight. German Bund yields declined 2.3 bps to 0.32% with a weak January Factory Goods Orders contributing (-7.4% m/m against an expected -2.5% outcome) along with reports that Swiss FX reserves increased by 24.2bn.
Equity markets also registered small moves. The S&P500 was down 0.29% while Euro-Stoxx was unchanged. A Trump tweet of “there will be competition in the drug industry. Pricing…will come way down!” weighed on Pharmaceuticals with the sub-index down 0.6%.
Finally, Chinese FX Reserves rose $6.9bn in February to be $3.0 trillion – the first increase since June 2016 – and beating expectations of a $29.2bn fall. SAFE said that capital outflow pressures would continue to ease and suggests tightening capital controls are working to alleviate outflow pressures.
This morning on the economic front we already had the release of German Industrial Production which came in strong at +2.8% versus +2.7% expected. This is followed by US MBA Mortgage Applications at 12.00 pm and the very important ADP Employment Change at 1.15 pm. Finally we have Non-Farm Productivity/Unit Labour Costs and Wholesale Trade Inventories at 1.30 pm and 3.00 pm respectively.
The UK Chancellor Harmond will present the UK Budget at 11.30 am with new Budget and Economy Forecasts. However most of these have been flagged already.
March S&P 500
My S&P plan worked well yesterday with the S&P trading to an initial low at 2365.75 which put me long at 2367 before rallying to a subsequent 2374.75 high print. This rally enabled me to cover this position at my revised 2370 T/P level especially as I had lower buy levels in both the Dow and FTSE which were eventually filled overnight. The S&P again sold off into the close resulting in last week’s large ”Open Gap” getting filled. Incredibly after just a 40 Handle sell-off since the 2401 high made last Wednesday, the S&P is getting near levels where it is oversold as shown by the McClellan Oscillator which closed deep in negative territory with a -178 print last night. The S&P has very strong support from 2347/2353 and today I will be a buyer on any dip to this range with a 2342 stop. Given how oversold the MO is plus the fact that we have Non Farm Payrolls on Friday, I still do not want to be short the S&P at this time as I patiently wait for a test of 2395/2400 again.
My Euro plan worked well with the Euro trading to a low at 1.0558 which put me long at an average rate of 1.0568. Subsequently the market rallied to a 1.0592 high and given how little was happening in currencies I emailed my Platinum Members to exit this position at 1.0588 and I am still flat. I am going to keep with my strategy of buying the dip in the Euro as in my opinion all the risk is on the topside for the Euro as shown by the large move higher late on Friday. Most traders are short ahead of next week’s FOMC Meeting but with economic growth and inflation picking up in the Euro-Zone I prefer to keep buying the dip before subsequently taking any available points and then move on to the next trade. Remember the EUR/USD has hardly moved in net terms over the past 2 years despite two rate hikes in the US and massive QE by the ECB. For me to turn bearish the Euro needs to break and close below its January 3, low at 1.0341. Today I will look to buy the Euro on any dip lower to 1.0510/1.0540 with a 1.0470 stop.
March Dollar Index
Initially the Dollar traded to a 101.90 high print thus hitting my 101.85 sell level. As the Euro also hit my buy level I emailed my Platinum Members to exit this short position at 101.72 and I am still flat. As I have said over the past two weeks the Dollar needs to break and close over its late January resistance level at 102.45 for the bulls to regain some control. Today I will again look to sell the Dollar on any rally higher to 102.15/102.55 with a 102.80 tight stop.
I am still flat the DAX and today I will again raise my buy level slightly to 11860/11910 with a 11815 stop. The DAX has important trend line support from 11870/11900 and I would expect the market to having difficulty in breaking this level initially. Interestingly the price action in both the DAX and FTSE has been strong over the past week despite the large sell-off in the US Markets. I still do not want to be short the DAX ahead of the ECB Meeting tomorrow.
Overnight the FTSE traded lower to my 7310 buy level. With the UK Budget due later this morning I am going to stay long in anticipation of the market rallying ahead of Hammond’s speech. With Sterling so weak it is difficult to be short the FTSE and today I will now raise my stop on this position to 7270.
Dow Rolling Contract
Overnight the Dow finally hit my 20870 buy level with a 20858 low print. In keeping with my theme of banking points when available plus the tact that I prefer to stay long the FTSE. I have now cut this position for a small gain at 20992 and I am now flat. With the MO trading deep in negative territory this indicator is pointing to a rally in the Dow and goes in line with my thinking ahead of next week’s FOMC Meeting. The Dow has strong support at 20835 and today I will again look to buy the market on any dip lower to 20795/20850 with a 20735 stop. As I have mentioned over the past few days my only interest in selling the Dow is still on a rally to 21140/21200 with the same 21260 stop.
My long 160.90 Bund position from late Tuesday worked well yesterday with the market hitting my 161.15 T/P level shortly after I posted yesterday morning.. The Bund is selling off again as I write this commentary with the Bund hitting my second buy level as indicated in yesterday’s commentary at 160.95. I will only add into this position on any move lower to 160.65 with the same 160.35 stop. In keeping with my theme of banking points when available and as I want to try and get today off to a positive start I will now look to cover this position on any move higher to 161.10. If I manage to T/P at 161.10 I will again look to buy the Bund on any dip lower to 160.50/160.80 with a 160.20 stop. Given the huge differential in roll between the March and June Contracts I still do not want to be short the Bund at this time.
Gold Rolling Contract
The price action in Gold has been very poor since we made the high at 1265 last week. The subsequent $50 fall sees Gold trading at the bottom of its Bollinger Band and Williams Index. This move lower makes it easier to buy Gold especially ahead of key support at 1195/1205. Today I will lower my buy level to 1200/1207 with a 1193 stop.
Silver Rolling Contract
I am delighted to see Silver trading lower over the past week as we have been largely on the sidelines of this large move lower thus protecting the large gains made in Silver since the end of last year. Today I will leave my buy level unchanged at 17.10/17.40 with the same 16.80 stop.