Equity Markets have rebounded this morning despite the evident failure of The Trump-Kim bromance and the US President’s previous declaration that he had fallen in love with the North Korean dictator, to yield progress in the US’s efforts to get N. Korea to denuclearise and N. Korea’s evident desire to have US sanctions lifted. Market impact of the Summit failure was limited and why not given the limited impact last year’s Summit and which marked the start of the Trump-Kim love affair had on global markets? In contrast, yesterday’s better than expected Q4 US GDP outcome of 2.6% annualised growth could not be ignored. It is almost wholly responsible for the re-strengthening in the US Dollar after an earlier fall and higher US Treasury yields, averaging 2-3bps.
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For anyone following my Platinum Service it made 32 points yesterday to close February with a gain of 1013 points, having made 1671 points in January, 2803 points in December, 1541 points in November and 2094 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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US stocks though are not finding much comfort in the GDP figures, the main indices closing down 0.2%, weighed down in particular by weakness in the Energy and Materials sub-sectors. However this morning on the first trading day of a new month sees equity markets higher after better than expected Chinese PMI and German Retail Sales with the DAX opening 0.5% higher.
The US GDP outcome of 0.65% in Q/Q terms – 0.1% better than expected – contrasts with equivalent outcome for other major developed economies of 0.2% for both the Euro-Zone and UK and 0.3% for Japan, once again confirming the US as the least ugly duckling in the global growth pecking order. The breakdown shows some support from inventories (0.1%) but a 0.2% drag from net exports. In annualised terms, consumption was a respectable if relatively subdued 2.8%, business investment a strong 6.2% led by a 13.1% gain for ‘’intellectual property’’ while residential investment contracted by 3.5%.
The PCE deflators were 1.8% in headline terms and 1.7% for core, the latter up from 1.6% in Q3 and above the 1.6% expected, but still nothing to write home about save that it further validates the Fed’s new found ‘’patient’’ approach to policy.
On the latter, Dallas Fed President Robert Kaplan said he was an advocate for the Fed’s current pause and patience (at least through June, he says) and that the inversion of the 2yr/5yr part of the US Treasury curve is a cautionary signal. Kaplan says he does not want Fed policy to invert the curve.
The other main news event worth has been commentary from President Trump’s Chief Economic Adviser Larry Kudlow, which has gone some way to reversing the creeping pessimism about the likelihood of a comprehensive Sino-US trade deal being ready to sign by the two countries’ Presidents later this month.
‘’The progress has been terrific,’’ Kudlow told CNBC. ‘’We have to hear from President Xi and the Politburo of course, but I think we are headed toward a remarkable historic deal.’’ The Chinese have pledged to ‘’significantly’’ reduce subsidies to state-owned firms as part of a potential deal, as well as to disclose when the nation’s Central Bank buys and sells foreign currency. China has also pledged to ‘’de-emphasize’’ its plans to dominate in emerging technologies, outlined in its Made-in-China 2025 plan, he added. Kudlow cautioned that the U.S.-China accord still needs to be approved at the highest levels of the Chinese government.
In currencies it has been a mixed last 24 hours but with AUD and NZD currently sitting at the bottom of the G10 scoreboard, both 0.6% lower at 0.7095 and 0.6809 respectively. Sterling and JPY are both 0.3% lower, with no fresh Brexit related news sufficient to allow this week’s strong Sterling rally to extend and the Yen softer on higher US Treasury yields. All up the DXY Dollar Index is flat versus Wednesday’s NY close at 96.1, but back up from a pre-GDP data low of 95.8.
AUD was hurt yesterday by the combination of a weaker than expected reading for the Equipment, Plant and Machinery component of the Q4 Capex report ((just 0.7% against the 3% we had pencilled) and then the further falls in the official China PMIs for both manufacturing and services. USD gains have added to the pressure overnight, ahead of what will be the next big local test for the Aussie next week with the remaining GDP partials (in particular Inventories on Monday, Net Exports on Tuesday) then the RBA (Tuesday) followed by GDP itself on Wednesday.
Crude oil prices narrowly mixed, as too industrial metals. However both Gold and Silver have continues to weaken from their recent highs. Meanwhile Iron Ore Futures are up another $1.50 or nearly 2% (not quite sure why).
This morning on the Economic Front we already had the release of Chinese PMI and German Retail Sales which both comfortable beat expectations. At 8.55 am we have German Unemployment and Markit PMI. This is followed by Euro-Zone Markit Manufacturing PMI at 9.00 am. At 9.30 am we have UK Consumer Credit, Mortgage Approvals and Net Credit. Next we have Euro-Zone Unemployment and CPI at 10.00 am. At 1.30 pm we have Canadian GDP and US Personally Income/Spending. This is followed by US Markit PMI Manufacturing at 2.45 pm. Finally at 3.00 pm we have the University of Michigan Consumer Sentiment Index and ISM Manufacturing.
Meanwhile at 5.50 pm the Fed’s Bostic is due to speak on the US Economy.
March S&P 500
Just when it looked like the S&P was going to sell-off further the buy the dip has again won with the S&P now trading 15 Handles higher than where it was at 11.00 pm last night. I am still flat and today I will now raise my buy level to 2772/2784 with a 2763 stop. Again 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 2742/2758 with a 2734 stop. I no longer want to be short the S&P especially ahead of a weekend.
The boring action in the Euro continues with little or no net movement over the past few months. I am still flat and today I will again leave my 1.1270/1.1310 buy level unchanged with the same 1.1225 stop.
March Dollar Index
The Dollar has continued to rally in small off the key 95.50 support level and I am still flat. Today I will be a buyer on any dip lower to 95.20/95.60 with a 94.80 stop. My only interest in selling the market is on a further rally to 96.60/97.00 with a higher 97.35 stop.
On the back of the much netter than expected German Retail Sales the DAX opened higher at my 11600 sell level. Subsequently I emailed my Platinum Members to exit any short position at 11580 which has now been filled and I am now flat. Today I will raise my buy level to 11450/11520 with a 11380 stop. I no longer want to be short the DAX at this time.
Unfortunately the FTSE just missed my 7010 buy level before rallying, helped by the small 0.4% fall in Sterling and I am still flat. Today I will raise my buy level to 7010/7050 with a 6965 stop.
Dow Rolling Contract
I am still flat the Dow which has traded in a narrow range all week. Today I will raise my buy level to 25700/25860 with a 25620 tight stop. My only interest in selling the Dow is on a further rally higher to 26180/26320 with the same 26390 stop.
I am still flat the market and today I will now raise my sell level to 7200/7250 with a 7290 stop. I will also raise my buy level to 7010/7060 with a 6970 stop.
The BUND has continued to sell-off and I am still flat. Today I will now lower my sell level to 166.10/166.50 with a 166.85 stop.
Gold Rolling Contract
Earlier this morning Gold traded lower to my 1308 buy level before rallying to my revised 1309.20 T/P level as emailed to my Platinum Members and I am now flat. Gold is now $40 lower from its recent 1348 peak on low volume. Gold has support from 1287/1296 and today I will be a buyer on any dip to this area with a 1279 stop.
Silver Rolling Contract
Unfortunately Silver just missed my 15.85 T/P level with a 15.82 high print after I posted yesterday morning and I am still long at a price of 15.70. Today I will add to this position on any further move lower to 15.30 with a now lower 15.10 stop. If my second buy level is executed I will then lower my T/P level to 15.65.