The (repeat) lessons from Friday is that the US Dollar cannot go down if the EUR and Sterling are not going up and that the USD goes up when risk sentiment goes down. Thus a give-back of much of the recent Brexit Withdrawal Agreement-related optimism on GBP, related EUR slippage (currently a low beta GBP, but compounded by wider Italian BTP-German Bund spreads) and a renewed sell-off in US stocks (again IT-led) saw DXY briefly back on a 97 handle, so back close to its 97.20 November 1st high. It closed Friday at 96.90. AUD pulled back to 0.7226 at Friday’s New York close have briefly touched 0.73 last Thursday and is slightly weaker again at Monday’s open (just sub-0.7205 as I write). Meanwhile both Sterling and the EUR are opening nearly 0.5% lower from where they both closed in New York on Friday at 1.2875 and 1.1277 respectively.
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GBP, NOK and SEK fared worse, JPY and CHF both exhibited safe haven characteristics to be up on the USD while NZD was the least worse performing G10 commodity currency.
On the week, NZD is the clear winner, in large part due to Wednesday’s stellar labour market data, followed by AUD, both currencies higher despite an overall stronger USD and weaker Emerging Market FX. CAD fares worse in G10, a product of sharply lower oil and the emergence of some doubt as to whether the USMCA can necessarily get through Congress in current form.
Friday’s positioning data from the Chicago Futures Market (IMM) shows a pullback in net speculative positioning in AUD and NZD for the first time, more so in NZD than AUD, though the outstanding net short in both currencies remains significant.
Sterling – and with that EUR- has opened almost half a percent lower this morning amid reports of potentially more Cabinet resignations, as yet no ‘’breakthrough’’ on the Irish border backstop question that would satisfy the 10 Northern Irish DUP MPs who prop up the government, or whether the deal that looked to be getting closer to be ‘’done’’ last week (before Cabinet minister Jo Johnson’s resignation – he is a ‘’Remainer’’ by the way in contrast to his brother Boris- will be able to win parliamentary support). One thing’s for sure; GBP won’t be where it is now at the end of this week.
The poor showing for APAC stocks (led by Chinese bank names after reports that they were being instructed to meet targets for expand lending to China’s SME sector) fed into Europe and then the US, the latter hurt at the open by an big upside surprise on US Producer Prices, 0.6% headline, 0.5% ex-food and energy, versus 0.2% expected for both, though the ‘’core-core’’ measure, excluding trade service prices (i.e. profit margins) as well as food and energy, was 0.2% as expected.
The IT sector was once again under pressure, Apple losing another 1.9% (its admission of hardware problems in some iPhone X and MacBook Pro models one of the factors cited here). So the NASDAQ (-1.65%) again underperformed the S&P and Dow in a falling market.
It was notable though was that the US staged a decent rally in the last hour of trading and the Futures Market this morning are signaling a higher open for the three main US Indices.
In conjunction with weaker stocks and notwithstanding the unwelcome PPI surprise, Treasury yields were lower across the curve Friday, 2s by 4bps and 10s down 5.5bps. Helpful to the cause of lower nominals yields was a fall in break-evens (-2.3bps at 10 years) presumably linked at least in part to the further decline in oil prices.
On the week US curve flattening was the theme, 2s +2bps and 10s -3bps, while in Europe the BTP-Bund spread was 10bps wider, linked to the EU rejecting the growth assumptions behind Italy’s budget plans and Italy showing as yet no signs of backing down on its spending proposals and implied budget deficits:
According to press reports this morning (Reuters) citing government sources, Italy’s Economy Minister is looking to revise down the budget’s growth forecast for next year to try to reach a deal with the European Commission over fiscal policy. The Commission has given Rome until Tuesday to present a new budget and could start disciplinary steps against Rome later this month.
Steel making commodities continue to buck the trend of weakening oil and base metals, suggesting Chinese demand remains robust. Oil was weaker again in front of the weekend OPEC gathering which was to have the cartel contemplating scaling back output having earlier increased it in the face of rising prices. At $60.19 (-$0.50), WTI closed at its lowest since early March and in (-20%) bar market territory, Brent at $70.18 to its lowest since late March. Base metals were all lower, aluminium and copper leading the way, both off more than 1.8%. It is a similar picture on the week, coking coal and iron ore both up (steaming coal too) while both oil benchmarks and copper are all down by more than 4%:
In the last few hours, Saudi Arabia has indicated it will reduce its December output by 500,000 barrels, though agreement to a formal OPEC+Russia production cut for 2019 is currently being described by Saudi Arabia as ‘’premature’’. Whether Iraq and Russia would come on side here is crucial. Certainly the technical committee of the cartel that met on Saturday determined that on current production levels, the oil market was likely to be oversupplied in 2019.
US PPI +0.6% (0.2%E, 0.2%P); yr/yr 2.9% from 2.6%
US PPI ex-food and energy 0.5% (0.2%E, 0.2%P); yr/yr 2.6% from 2.5%
US PPI ex-food, energy, trade services (???core core???) 0.2% (0.2%E, 0.4%P); yr/yr 2.8% from 2.9%
University of Michigan October prelim. Consumer sentiment 98.3 (98.0E, 98.6P)
UK Q3 GDP 0.6% (0.6%E, 0.4%P)
This morning on the Economic Front we have no data of note on either side of the Atlantic. Although the US is closed for the Veterans Day Holiday the Stock Market is open.
December S&P 500
My S&P plan worked well as no matter where you bought the market in Friday’s range you should have made a nice gain. After the S&P hit my initial buy level at 2780 we quickly rallied to my 2788 T/P level and I am now flat. Overnight the S&P has traded above 2794 before selling off to currently trade at a price of 2786. As we know all ‘’Open Gaps’’ for the S&P get filled. Following last week’s aggressive move higher for the S&P, the 2758/2775 Open Gap came close to being filled on Friday with the S&P hitting an intra-day low of 2764 before rallying into the close. Today I will again look to buy the S&P on any dip lower to 2760/2772 with a 2752 tight stop. I still do not want to be short the market at this time.
Initially my Euro 1.1320 buy level worked well with the market rallying 25 points. This rally enabled me to cover my long position at my revised 1.1327 T/P level as emailed earlier to my Platinum Members and I am now flat. This morning the Euro is opening below the key 1.1301 Double Bottom from both the August and October lows which is a concern. The 1.1100/1.1300 is key support for the Euro which must hold or else there is a good possibility of an eventual move lower to the 1.0300/1.0500 over the coming months. Today I will be a small buyer on any further dip lower to 1.1180/1.1220 with a 1.1150 stop. 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 1.1080/1.1120 with a 1.1045 tight stop.
December Dollar Index
I am still flat the Dollar which is closed for the Veterans Day Holiday. The DSI is back to the 90/95% bulls for the Dollar which should ensure that we are close to making at least an interim top. With the market closed until this evening I will stay flat the Dollar until tomorrow’s commentary.
Frustratingly the DAX just missed my initial 11380 buy level on Friday morning before having a strong rally into the close. With the Euro opening weaker this morning the DAX is back trading above the key 11400/11500 support level. Today I will now raise my buy level to 11360/11420 with a tight 11315 stop. I still do not want to be short the market at this time.
The FTSE missed my 7045 buy level with a 7050 low print on Friday before rallying over 100 points this morning, helped by the renewed weakness in the Pound. I am still flat and today I will now raise my buy level to 7040/7080 with a 6995 stop.
Dow Rolling Contract
The Dow also missed my 25860 buy level with a 25862 low print before rallying 200 points overnight and I am still flat. I am not going to chase my buy level higher and today I will leave my 25700/25860 buy range unchanged with the same 25580 stop. I will still be a seller on any rally higher to 26330/26500 with a 26640 tight stop.
It took a while but finally after the NASDAQ traded the whole of Friday’s buy range for an average long position at 7055 the market rallied to an overnight high of 7103 and this move higher enabled me to cover my long position at my revised 7080 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 6940/6990 with a 6895 stop. If the NASADAQ rallies back above 7300 over the coming days I will then look to set up a short position.
After the Bund traded higher to my 160.00 sell level on Friday I emailed my Platinum Members to exit any short position at 159.96 as I did not want to hold a short position over the weekend and I am now flat. Today my only interest in selling the Bund is on a further rally higher to 160.80/161.20 with a 161.55 stop.
Gold Rolling Contract
Gold had a weak close on Friday with the market trading lower to my 1209 buy level. I am not happy with the fact that we broke and closed below the key 1212 support level. I am still long and today I will now lower my T/P level to a breakeven. I will only add to this position on any further move lower to 1193 with a 1187 stop. If I am taken long a second time I will then lower my T/P level to 1202.
Silver Rolling Contract
Thankfully we exited any long Silver position last week at 14.70 especially with the market getting hit hard since. On Friday Silver traded lower to my 14.20 buy level. I am still long and I will now lower my T/P level on this position to 14.35. For now I will leave my stop unchanged at 13.55 which is just below the December 2015 low print of 13.62.