Just before the US Markets closed last night President Trump convened a meeting in the White House where he finalised his tariff proposal on steel and aluminium imports, with the hope of getting it signed into law overnight (though it could be later today or early next week due to legal/drafting considerations). What does now seem probable is that not just Canada and Mexico but also Australia will be exempted from the tariffs, based on the strong military ties between the US and Australia and, as Mr.Trump has explicitly noted, the fact the US runs a trade surplus with Australia. In the last couple of hours it has been announced that North Korea will stop any missile testing while Trump has accepted an invitation for a ‘’Miracle Meeting’’ with Kim.
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For anyone following my Platinum Service it made 26 points yesterday and is now ahead by 905 points for March, having made 2256 points in February, 879 points in January, 946 points in December, and 823 points in November. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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While the numbers involved are not huge (just over $200mn worth of Australian steel, and the same again of aluminium, are exported to the US each year) what such a move would confirm is that the US’s trade angst is really only directed at China (and Germany) not most of the rest of the world. While Australia would doubtless suffer significant collateral damage were the US and China and/or the US and EU) to get into a tit-for-trade war that further slows down global trade, largely via reduced commodity demand from China – this is more tail risk than something we should have as a central scenario.
That said, Mr Trump’s maths has been corrected. The White House has says it now wants to see a $100bn reduction in the bilateral US-China trade deficit- that is almost a third – not the $1bn he tweeted on Wednesday which, amounts to no more than a rounding error. That is a big challenge and keeps the threat of further US action against China very much on the table as we head toward the November mid-term US elections.
The other main news yesterday is the ECB, who as expected tweaked their policy guidance to drop the so called easing bias, meaning a willingness to increase the size and duration of the QE asset buying programme if necessary. But there was no guidance as to when the purchase programme would end (not before September at least) or when Interest Rates might start to rise (not until well after asset purchases cease). All as expected, with any guidance on these latter two matters not expected until June at the earliest.
In itself this was not market moving, but Mr. Draghi succeeded in talking the Euro (as expected) and Euro-Zone bond yields down in his ensuing press conference. Draghi down-played the removal of the easing bias, saying it was ‘’backward looking’’, noted that inflation remained subdued and that policy would be ‘’reactive not proactive’’, as well as warning that trade protectionism presents a new downside risk. Not really worth a big figure move lower on EUR/USD in my view, but the market spoke otherwise.
Post-ECB EUR/USD weakness has been the main driver of the 0.8% gain for the DXY Dollar Index but with this gain now being checked by a big move higher for the Canadian Dollar on incoming news headlines that Canada and Mexico will be exempted ‘’indefinitely’’ from steel and aluminium tariffs. USD strength is also evident elsewhere, pulling AUD/USD back down through 0.78 after spending much of yesterday above the figure (0.7790 now).
US equities closed higher across the board after another volatile trading session, US Treasury yields are fractionally lower while in commodities oil has had another bad day (WTI crude off nearly $1) while iron ore has lost another $1.50 and is now $5.50 a tonne lower than a week ago.
This morning on the Economic Front we already has the release of Chinese CPI which came in higher than the 2.5% expected with a 2.9% print. At 9.30 am we have UK Industrial Production and Trade Balance and this is followed at 1.30 pm by the US Non-Farm Payrolls Report. US non-farm payroll growth is seen at 200k, the unemployment rate down 0.1% to 4.0% (new cycle low) and more important than either, average hourly earnings is seen +0.2% on the month and so easing to 2.8% y/y from 2.9% in January.
The latter implies that last month’s drop in annual growth to 2.9% from 2.7% was partly an aberration (i.e. a weather related boost, with those unable to work because of the weather likely to have been lower paid workers, biasing up the average of those in work). If this fails to prove the case and earnings rise by 0.3% or more on the month expectations for a lift to the Fed’s median ‘’dots’’ out of the March 20/21 FOMC meeting will rise.
Finally at 3.00 pm we have Wholesale Inventories.
March S&P 500
Thankfully we had no sell levels in the S&P yesterday as despite the Dow having a wild trading session the S&P was calm to firm pulled higher by the rally in the NASDAQ which incredibly is now within a hair of all-time highs as yet again the ‘’buy the dip’’ prevails. With NFP at 1.30 pm I am going to stay flat until we get the announcement. If the S&P subsequently sells off I will be a buyer from 2715/2724 with a 2708 tight stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2685/2695 with a 2678 stop. A break and close above 2740 this evening is a further buy signal and I will then look to set long positions for a move higher to 2785, 2810 and p0ssibly 2900 over the coming weeks.
As expected Dragi talked the Euro lower to my 1.2320 buy level. I am still long and will now only add to this position on any move lower to 1.2270 with a 1.2240 stop. Meanwhile I will now use any rally in the Euro this morning to get flat ahead of the NFP release. If this happens I will be back with a new update for my Platinum Members.
June Dollar Index
Unfortunately the Dollar just missed my 89.35 buy level with a 89.45 low print and I am still flat. I am reluctant to chase this market higher and will only raise my buy level to 89.35/89.75 with a 88.95 stop.
Yesterday was a frustrating trading session with so many of my calls just missing my buy level before rallying. My DAX buy level was 12170 and the low was 12172 before the market rallied over 150 points and I am still flat. If any member bought in front of my buy range then you had a nice gain. Today I will move my buy level higher to 12180/12250 with a 12130 stop. I still do not want to be short the DAX at this time.
The FTSE rallied soon after I posted yesterday morning with the market not giving us a chance to get a long position on board and I am still flat. Today I will move my buy level higher to 7135/7175 with a 7105 tight stop. For now the threat of a break and close below the key 7060 support level as mentioned in yesterday’s commentary has been negated.
Dow Rolling Contract
What a frustrating trading session with the Dow just missing my 24695 buy level with a 24700 low print before rallying 200 points into the close and I am still flat. It is incredible that no matter what bad news is thrown at the US Stock markets they continue to be a buy on dips and as long as we can hold the February low at 23300 this will continue to be the case. Today I will move my buy level higher to 24600/24760 with a 24530 stop. I still do not want to be short the Dow at this time.
I am still flat the NASDAQ which even when the Dow was trading over 100 points lower yesterday afternoon the NASDAQ was still in positive territory as the market eyes new all-time highs. Today I will now raise my buy level to 6850/6910 with a 6805 tight stop.
My BUND plan worked well with the market trading lower to my 156.35 buy level before rallying 100 points off its 156.23 low print. Unfortunately I covered this long position too early at 156.61 as I wanted to bank some points for yesterday’s trading session and I am now flat. Today I will again look to buy the Bund on any dip lower to 156.40/156.80 with a 156.10 stop which is just below yesterday’s low print.
Gold Rolling Contract
Gold continues to trade sideways to lower in thin trading with very little movement. The 200 Day Moving Average for Gold is at 1290 and I would expect any test of this area to be followed by a decent move higher. As I am still long Silver I will now lower my Gold buy level to 1297/1307 with a 1287 stop.
Silver Rolling Contract
No change as I am still long Silver from Wednesday at 16.66 and will only add to this position on any move lower to 16.25 with the same 15.90 stop. My T/P level remains unchanged at 17.05 and if my second buy level is hit I will then lower my T/P level to 16.70.