Following five up days in a row commencing on Friday 4th January, the US equity rally ran out of steam Friday, the main Indices all ending (just) in the red, albeit the NASDAQ is still showing a 5% year to date gain and the S&P500 is up over 3.5%. The VIX is nevertheless continuing to leak lower, off more than a point Friday and now back on an 18 handle, half the level seen either side of Christmas Day. This, together with a generally weaker dollar and smartly higher Chinese Yuan, has driven gains of about 1.5% in both the AUD and NZD over the course of last week We can only speculate whether the ongoing US government partial shutdown, now in its 24th day, the longest in history and with no signs of early resolution, is starting to gnaw at otherwise positive sentiment. The latter has been driven by the soothing words from Fed officials in the last week or so and rising optimism that the US and China will resolve a chunk of their trade differences before the 90-day moratorium on further US tariff action kicks in (March 1st). Encouraging in this respect was news Friday that China’s Vice premier, Liu He, will be visiting Washington on Jan 30-31st for further trade talks.
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For anyone following my Platinum Service it was flat on Friday and is still ahead by 749 points for January, 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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US CPI came in as expected in both headline and core terms on Friday (headline -0.1% on lower oil prices, core at 0.2% for an unchanged 2.2% annual rate) and was not a market factor.
The US dollar closed slightly higher Friday despite modestly low US Treasury yields, mainly thanks to more poor Euro -Zone Economic data, this time courtesy of Italy’s November Industrial Production, -1.6% and following similar sized falls in both Germany and France in the last week or so, the latter undermined by the ongoing Gilet Jaunes protests in France and which appear to have ratcheted up a notch over the weekend.
NZD/USD and GBP/USD were the star turns in G10 FX on Friday, both up about 1%, following by the AUD/USD, where the 0.4% gain brings its rise on the week to 1.43% (just pipped to first place by the NZD, +1.49%). The key driver last week was not so much a softer USD dollar, albeit that helped with the DXY and broader BBDXY Indices both off by more than 0.5%, as the strengthening in the Chinese Yuan. The CNY rose by over 1.5% on the week and intra-day rises in AUD earlier in the week and NZD later on seemed to follow the falling USD/CNY almost tick for tick.
The Pound’s good showing Friday came despite negative UK economic surprises in the form of Industrial and Manufacturing Production figures, which at -0.4% and -0.3% respectively undershot expectations for gains of 0.2% and 0.4% respectively. Helping the Pound higher was a report that UK Foreign Secretary Jeremy Hunt was warning Brexiteers that rejection of PM May’s Withdrawal Agreement this week could mean no Brexit and other reports that a request for an extension of the Article 50 deadline (March 29) was likely (something to which the EC is only likely to accede in the context of the possibility of a 2nd referendum).
The UK Guardian reported Friday that EC President Junker is to issue a letter today ahead of Tomorrow’s vote – offering further assurances to UK MPs that the Irish backstop, should it be triggered, would keep the UK in a Customs Union only temporarily. If so, it is unlikely this will make a lot of difference to the vote, where May’s deal is set to be comprehensively rejected.
US Treasury yields were lower across the board Friday, by between 3 and 4 basis points (2s -3.5bps to 2.543% and 10s -4.1bps to 2.702%). On the week though yields are higher, someone ironically on the improvement in risk sentiment brought about in large part by the Fed’s assurance that Interest Rates are not going up again in a hurry (albeit China trade optimism is also a factor here).
On Friday, Fed Vice Chair Clarida noted the softening in global growth and tightening in financial conditions and said ‘’if these crosswinds are sustained, appropriate forward-looking monetary policy should seek to offset them to keep the economy as close as possible to our dual-mandate objectives of maximum employment and price stability’’. Some interpreted the reference to ‘’offset’’ as implying a willingness to cut rates. Meanwhile, Chicago Fed President Evans noted that the Fed ‘’can easily wait six months to kind of look at the data and see how things come in’’, reinforcing the notion that the Fed is unlikely to hike rates in the first half of this year, if at all.
Oil gave back over $1 (WTI) and $1.20 (Brent) of its strong intra-week gains on Friday, but this still left WTI crude up over 7.5% on the week and Brent +6%. Evidence of reduced OPEC+ shipments and improved sentiment toward demand on prospects for Sino-US trade deal look to be the main supportive influences, and too lower US yields and what that is doing to the US dollar.
Aside from coal, with both grades off over 1% last week, it was generally a good week for other commodities. The LMEX index of base metals is up by 0.6% and iron ore 1.5% higher. Gold ended the week $4 higher, consistent with the slightly weaker USD.
This morning on the Economic Front we have Euro-Zone Industrial Production at 10.00 am. We have no date of note from either the U.K. or the U.S.
March S&P 500
The S&P which traded in a narrow range on Friday is opening weaker this morning on the back of the Chinese Trade Figures released overnight. I am still flat the S&P. The market is due a correction as indicated by the McClellan Oscillator which continues to trade +300 as shown by Friday’s +321 close. Meanwhile Breath and Volume have waned notably over the past two trading sessions. Today I will now lower my buy level slightly to 2549/2564 with a 2540 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2512/2528 with a 2499 stop. My only interest in selling the S&P is still on a rally higher to 2612/2628 with the same 2641 stop which is just above the 50 Day Moving Average.
I am still flat the Euro and today I will also lower my buy level slightly to 1.1370/1.1410 with a 1.1335 stop. The Euro has resistance from 1.1550/1.1590 and today I will lower my sell level to this area with a 1.1630 tight stop.
March Dollar Index
It is no surprise that the Dollar has risen given its 2% fall from its October high. I am still flat and today I will now raise my buy level to 94.20/94.60 with a higher 93.85 tight stop. I still do not want to be short the Dollar at this time.
The DAX traded in a narrow range as the market again rejected the key 11000 resistance area. I am still flat and today I will now lower my sell level to 10960/11030 with a 11080 stop. I will also lower my buy level to 10650/10730 with a 10585 stop.
As we wait for the UK ‘’Brexit’’ vote tomorrow we are bound to see a pick- up in volatility. The stronger Pound saw the FTSE sell-off from where I marked prices on Friday morning and I am still flat. Today I will now lower my buy level slightly to 6725/6765 with a 6680 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
No Change as I am still a buyer on any dip lower to 23370/23520 with a higher 23240 stop. The Dow continues to have strong resistance at the 24100 area. I am reluctant to chase this market lower despite the severely overbought market as indicated by the McClellan Oscillator’s +300 print. Therefore I will leave my 24090/24230 sell level unchanged with the same 24310 tight stop.
No Change as I am still a seller on any rally higher to 6655/6695 with a tight 7035 stop. The NASDAQ has strong support from 6360/6300 and I will be an aggressive buyer on any dip to this area with a 6240 stop.
No Change as I am still a seller on any rally higher to 164.90/165.30 with the same 165.75 stop.
Gold Rolling Contract
Gold again traded sideways with the market again unable to penetrate the key 1300/1310 resistance area. I am still flat and today I will leave my 1267/1276 buy level unchanged with the same 1259 stop.
Silver Rolling Contract
Silver traded lower to my 15.58 buy level on Friday afternoon. I am still long and I will now lower my T/P level on this position to 15.75 with a now higher 15.25 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.