The markets like the idea of the Fed now sitting on their hands and letting the economy do the talking on the direction of Monetary Policy as the Fed also made clear that it is giving careful attention to the management of its balance sheet to ensure the size is consistent with an adequate level of bank reserves to manage the system’s liquidity needs. Stock Markets had a strong finish to the month on growing optimism of a Trade deal with China. The S&P and NASDAQ closing higher by 0.88% and 1.37% respectively. After the worst December since 1931, we have now had the best January since 1989, while the NASDAQ had its best month since 2011.
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For anyone following my Platinum Service it made 177 points yesterday to close January with a gain of 1671 points, having made 2803 points in December, 1541 points in November, 2094 points in October and 1279 points in September Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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After the US Dollar followed US yields lower on Wednesday, it has since largely been tracking sideways, despite a further pull-back in US Treasury yields across the curve. The AUD has been trading toward the lower end of its post-FOMC range, if still well supported at 0.7260/65 this morning. Elsewhere, G10 currency moves have been relatively contained with the Euro a touch lower.
Fed Funds Futures have further wound back rate expectations, the market further pricing toward Fed easing after Wednesday’s FOMC statement indicating that while the current state of the US economy is still positive the Fed highlighted that recent developments ‘’warrant patience’’, the picture is ‘’somewhat contradictory’’. The US 2 year Treasury yield has pulled back by a further 5 bps to 2.4556% inside the current Fed Funds target of 2.25%-2.50%.
Longer term bond yields were lower in Europe (from the soft/weakened economy), but US 10s and 30s have also rallied, perhaps taking some comfort from a market-attentive Fed from the wind down of its balance sheet. Or is there a little more residual worry about the economy creeping in?
Lower yields were supportive of risk assets, the VIX down 0.97 to 16.57, base metals higher (copper by 0.54%), also supported by post-FOMC dollar softness as is Gold and Brent. Independently, reflecting the supply news on Brazilian iron ore from Vale, iron ore was also higher in Asia yesterday, Dalian futures 2.3% higher as were Singapore futures and cash spot prices. Coal prices were little changed.
Equity markets have been mixed in Europe, taking in their stride an in-line soft print on Q4 Euro-Zone GDP of 0.2% for the second Quarter, taking growth over the course of last year down to 1.2%, the weakest growth for four years. Also as expected, the Italian economy was in technical recession in the second half of last year, notching up a contraction of 0.2% after -0.1% in Q3 (a tenth weaker than consensus), the economy overall flat-lining through last year at a barely-visible growth of 0.1% through 2018. At least part of this reflected their Budget and political woes and likely trade impacts as seems to have been the case in Germany that will release their GDP report the week after next (February 14).
While the Eurostoxx 600 index closed square, the S&P 500 closed higher by 0.88%, shaded by the Nasdaq that closed up 1.37%. Facebook shares are getting a nice 11.6% kick along after their earnings results, GE also getting support, shares up 12%. The Dow was lagging, closing flat.
US Jobless Claims jumped up in the week to Jan 26 to 253K from the lower than expected 200K last week when market had expected that might have been affected by the shutdown that could well be evident in this week’s higher figure. Despite the fact that US government were to get back pay as a result of legislation, some may have claimed, Claims also possibly affected by those laid off by contractors to the government. It is a figure to put to one side for now, a reading that could still be the takeaway also from this afternoon’s NFP Report.
Also released was the Chicago PMI for Jan that was 56.7 down from 63.8 (ahead of the national ISM today). Was this just regional factors or more? On the other side of the ledger, US New Home Sales, a series that prone to large revisions, surprised on the high side in November, Sales up nothing less than 16.9%, also coming with sizeable upward revisions, mortgage affordability assisted by the large bond market rally last year that has continued into this year.
This morning on the Economic Front we have French, German, Euro-Zone and UK Manufacturing PMI at 8.50 am, 8.55 am, 9.00 am and 9.30 am respectively. Next we have Euro-Zone CPI at 10.00 am. This is followed at 1.30 pm by US Non-Farm Payrolls. Headline Payrolls growth is expected to ease back from 312K to 165K with the Unemployment Rate steady at 3.9% and with Average Hourly Earnings growth back from 0.4% to 0.3% keeping annual growth unchanged at 3.2%. At 2.45 pm we have the ISM New York and Markit Manufacturing PMI. Finally at 3.00 pm it is Wholesale Inventories and ISM Manufacturing.
March S&P 500
The S&P rallied as expected with the market unfortunately just missing my 2674 buy level with a 2676 low print to currently sit at 2712 as I go to press. The S&P has strong resistance from 2725/2738 and today I will be a seller on any further rally to this area with a 2748 stop which is just above the 200 Day Moving Average which comes in at 2741. I will also move my buy level higher to 2678/2693 with a 2669 stop.
Late in yesterday’s session the Euro traded lower to my 1.1450 buy level. As I want to be flat ahead of the NFP this afternoon I emailed my Platinum Members to exit any long position at 1.1457. Today I will again look to buy the Euro on any dip lower to 1.1380/1.1420 with a 1.1345 stop. I still do not want to be short the Euro at this time.
March Dollar Index
I am still flat the Dollar and ahead of the NFP data I will now raise my sell level to 95.80/96.25 with a 96.55 stop.
My DAX plan worked well with the market trading the whole of my buy range for an average long position at 11090 before the DAX rallied to my 11170 T/P level and I am now flat. Today I will again look to buy the DAX on any dip lower to 11020/11090 with a 10960 stop.
No Change as I am still a buyer of the FTSE on any dip lower to 6810/6860 with a 6765 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
My Dow plan also worked well with the market trading lower to my 24860 buy level before rallying to my 24950 T/P level and I am now flat. Today I will again look to buy the Dow on any dip lower to 24740/24920 with a 24595 wider stop. The fact that the Dow has now closed over its 200 Day Moving Average for the second consecutive trading session is bullish. This rally will be enhanced further if we close over this key pivot point this evening which comes in at 24985.
The unrelenting rally in the NASDAQ continues with the market up close to 16% since its low on December 26. I am still flat and today I will now raise my buy level to 6800/6850 with a 6760 stop. Despite the overbought condition I still do not want to be short the market at this time.
Unfortunately the Bund just missed my 165.05 buy level before rallying and I am still flat. Today I will now raise my buy level again to 164.90/165.30 with a 164.55 tight stop.
Gold Rolling Contract
No Change as I am still a buyer on any dip lower to 1296/1306 with the same 1288 stop.
Silver Rolling Contract
I am still flat Silver and today I will raise my buy level slightly to 15.45/15.85 with the same 15.05 stop.