A somewhat bitty, non-descript market on Friday with asset markets not all marching to the same tune. The approach of Monday’s US Vets. Day holiday looks to have contributed to the malaise. The main feature was US Treasury yields pushing higher, back testing 2.40%. Tailwinds from higher European yields helped and (maybe) hedging of corporate bond issuance. This did not help the US dollar much, where Sterling and EUR strength – the former aided by strong Industrial Production data and some suggestions the ‘hard Brexiteers’ were amenable to raising the UK divorce bill offer, and the latter on higher Bund yields – held down the DXY (-0.06%, for a 0.6% fall on the week).
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For anyone following my Platinum Service it made 52 points on Friday and is now ahead by 271 points for November, having made 657 points in October, 447 in September, 1560 in August, 1096 in July, 1023 in June, 1076 in May, 1375 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
Of note, and as was the case on Thursday, the mildly more risk averse tone is proving to be a US dollar negative. The VIX is back above 11 (11.29). As low as this still is historically, it is up from 9.14 a week ago. This also did the Australian Dollar no favours Friday, with the 0.25% drop to 0.7661 meaning it was the worst performing G10 currency, even though it had earlier more than fully recovered from the immediate dip that followed the RBA’s lowered inflation forecasts in Friday’s SoMP.
Limited market reaction to the latter reflected the fact the RBA was at pains to point out that the adjustment largely reflected the recently announced CPI reweighting and did not change the Bank’s assessment of how inflationary pressures were likely to evolve (the CPI re-weighting was estimated to take 0.4% off headline inflation and 0.3% off underlying inflation this year).
On the week, Sterling is the best performer. True or not, reports Friday were that some of the hitherto Brexit hardliners in the UK cabinet were amenable to improving Britain’s divorce settlement offer, amid indications from the EU that in the absence of tangible progress in the next two weeks, it would be March next year before negotiations resume in earnest. But since Friday, we have reports of 40 Conservative MPs now supportive of a no-confidence motion in PM May (48 are required for a vote to go ahead) and the EU’s chief Brexit negotiator Barnier has been out saying that the EU is preparing technically for the risk of ‘no-deal’. This is not a good look for all things Sterling at the start of a new week.
The Canadian Dollar was next best performer last week, with obvious assist from the 2%+ rally in oil prices. USD/JPY was pulled up a little Friday by the recovery in Treasury yields, but held down by the less risk-positive global market tone from mid-week. NZD’s 0.43% gain owes much to the less dovish RBNZ MPS on Thursday and a little to the softer USD. Overall, it was a nothing week for the AUD, back firmly ensconced in the 0.7625-0.77 range.
The S&P500 lost 0.1% Friday and is 0.2% lower on the week (first weekly decline for 6 weeks). The Dow was off 0.2% Friday while the NASDAQ was flat.
In US Interest Rates, Friday’s yield back-up (5.7bps at 10 years) contributed most of the entire week’s gains and which amount to a modest bear-steepening. 10 year spreads to Bunds widened by 2bps on the week, despite which EUR/USD is 0.5% higher on the week, testament to there being not a lot of rhyme nor reason to Friday’s market, but perhaps too evidence that the EUR is a currency that does well when risk appetite sags, if to a lesser extent than JPY and CHF.
In commodities, Gold took a 1% dive in the space of 10 minutes when someone sold 40,000 contracts (equivalent to 4 million ounces) at mid-morning NY time. Gold lost $12 on the day but is still $6 on the week.
In oil, WTI and Brent were off 20 and 30 cents respectively, but still up $1.26 and $1.62 on the week. The latest Baker Hughes US oil rig count, showing an increase of 9 operating rigs last week, looks to have helped take the top off the rally. Last week’s total of 738 rigs is 286 up on a year ago, though I would note that while US crude production is some 800,000 barrels more than a year-ago, this is still less than the 1.2million barrels OPEC has taken off the market.
This morning on the Economic Front we have no Economic data from either the UK or the Euro-Zone, while most US banks are closed today for the Veterans Day Bank Holiday meaning we have no US data either. The stock market has it’s usual trading hours.
It’s also a big week for central bank speak – most of those who sit round the FOMC table are speaking at some point this week, including Janet Yellen. Patrick Harker speaks in Tokyo today. Last week he made clear one reason for continuing to raise rates is to give the Fed more scope to cut them again when the next downturn hits (as it inevitably will). China October activity readings are tomorrow. Meanwhile this morning at 9.00 am the ECB’s Constancio is speaking in Frankfurt.
December S&P 500
Although the S&P at one point last Thursday was off 1%, before rallying to close down small, the S&P has now gone 49 trading sessions without a 1% closing drop which is the longest streak since 1968. The reason I mention this fact is that also on Thursday we got another confirmed Hindenburg Omen after the second HO. This is all setting up for a major move lower but as I keep saying we have to wait for a sell extreme first before putting on a major short macro position. It is interesting that internally this market continues to struggle with the McClellan Oscillator closing with a -110 print. On Friday after the S&P traded lower to my 2575 buy level I emailed my Platinum Members to cover this position for a small gain at 2577 and I am still flat. There is now doubt Thursday’s 2563.50 low print is key as a break and close below here should see a quick move to the strong 2545 support level ahead of the major support from 2505/2515. With this in mind I will again look to buy the S&P on any dip lower 2565/2572 with a 2560 stop.
I am still flat the Euro which continues to act well. Today I will now move my buy level higher to 1.1570/1.1605 with a 1.1535 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any subsequent dip lower to 1.1395/1.1450 with a 1.1355 stop.
December Dollar Index
My view that the Dollar would weaken all week has proved to be correct but unfortunately I have not been able to get a short position on board as the market keeps missing my sell range. Given the extent of last week’s sell-off I am reluctant to chase this market lower form here and today I will leave my sell range unchanged from 94.85/95.20 with a 95.50 stop.
The DAX technically had a bad week especially as it closed below the key 13150/13200 previous support level and really this area should now act as resistance. As we had a good week I cancelled my buy level on Friday for my Platinum Members and if you did buy you should have made some points especially as the market had a small rally into the close. The next support level for the DAX is at 13030 and today I will only be a buyer on any dip lower to 12970/13030 with a 12920 stop. Even though the DAX should have strong resistance at 13200 I am reluctant to chase the DAX lower especially with the S&P opening stronger last night. Remember we are still in a global bull market.
My FTSE plan worked well with the market trading lower to my 7420 buy level before bouncing 20 points. Again as I wanted to be flat ahead of the weekend I covered this position at my revised 7430 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7360/7390 with a 7330 stop. Just like the DAX above I am not comfortable in going short the market as yet.
Dow Rolling Contract
The Dow continues to be a buy on dips. I am still flat as the market unfortunately just missed my buy level on Friday. Today I will now raise my buy level slightly to 23270/23345 with a 23215 stop.
My NASDAQ plan worked well with the market trading lower to my 6285 buy level before rallying 30 points. I used this rally to exit my long position at my revised 6294 T/P level as so many of my positions hit at the same time and I had to reduce my risk. Presently, the NASDAQ is the strongest of the US Indices and as long as we can stay over 6240 then this market is bullish. With this support in mind I will now look to buy the market again on any dip lower to 6260/6290 with a 6225 stop.
My Bund plan also worked well on Friday but you had to be quick. After the market hit my initial 161.35 buy level we traded 15 points lower before bouncing to a 161.50 rebound high. I used this rally to email my Platinum Members to exit this position at 161.48 and I am now flat. Just like the DAX above, the Bund also had a weak close as some key technical levels were broken. Today I will be a seller on any rally higher to 161.75/162.10 with a 162.35 stop. My only interest in buying the Bud is on a further dip lower to 160.25/160.60 with a 159.95 stop.
Gold Rolling Contract
As mentioned in my Economic Commentary above, Gold fell 1% in 10 minutes shortly after the US Markets opened after someone sold 40,000 contracts. As I have been saying for a number of weeks that the price action in Gold is not positive plus everyone that I talk to is long. This market could be an accident waiting to happen. I am still flat and today I will now lower my buy level to 1242/1250 with a 1235 stop.
Silver Rolling Contract
It took a while but finally Silver traded lower to my 16.90 buy level. I am still long and will only add to this position on any move lower to 16.60 with the same 16.30 stop. Given my concerns with Gold above, I will now lower my T/P level to 17.00. If any of the above happens I will be back with anew update for my Platinum Members.