After a good Argentinian steak and a glass of Malbec, a trade truce has been reached between Presidents Trump and Xi at the G20 meeting over the weekend (no increased in tariffs for 90 days), setting up the stage for a risk positive start to the new week. The Euro has jumped higher at the open and the USD has lost ground across the board. Price action on Friday was fairly muted as markets awaited the highly anticipated meeting.US equities closed higher, capping a very strong week, 10y UST yields closed below 3%, flattening the curve and USD Indices ended stronger. NZD was the G10 outperformer and AUD was a tad softer. Oil prices were lower again. On Saturday night President Trump and President Xi agreed to put the trade war on ice for 90 days allowing time for the two countries to discuss their differences in regards to forced technology transfer, intellectual-property protection, nontariff barriers, cyberintrusions and cybertheft, services and agriculture. As a concession to the US holding off another round of tariffs, China has also agreed to purchase a ‘’very substantial’’ amount of agricultural, energy and industrial goods from the US. President Xi Jinping said he would consider again the previously unapproved merger between Qualcomm Inc. and NXP Semiconductors NV should the deal be presented. If no agreement is reached after 90 days, then the previously proposed increase in tariffs will proceed. It also looks like China agreed to put some pressure on North Korea that sets the scene for another historic Trump-Kim meeting.
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For anyone following my Platinum Service it made 28 points on Friday to finish November with a gain of 1541 points, having made 2094 points in October, 1279 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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As evident by the price action in currencies this morning the d’tente between the two strongest economies in the world has been treated as a positive news and this good mood is likely to be reflected with a positive start to equity markets and upward pressure in core global yields. But given the strained US-China relationship and thorny issues that still need to be resolved, market optimism is likely to be tempered somewhat until there is evidence of progress. A three month d’tente is good news, but the threat of more tariffs should still be a concern.
AUD closed last week at 0.7303 and now trades 67pips higher at 0.7373. NZD was the outperformer on Friday, closing the week at 0.6875 and now trades 43 pips higher at 0.6915. Overall, this morning we have seen G10 currencies outperform the USD across the board, reflecting the improvement in risk appetite following events over the weekend.
Looking at last week’s price action, in spite of a Powell induced sell-off mid-way through the week, USD Indices ended Friday stronger and little changed on the week and the month.
EUR was the weakest of the majors, down 0.7% to 1.1315. Core Euro-area inflation slipped back down to 1.0% y/y in November while the Unemployment Rate held up at 8.1% against expectations of a nudge down. The soft data are the last key indicators before the ECB meets next week. The asset purchase programme will still draw to a close at the end of the year, but it is hard to see the Bank becoming more hawkish about the outlook as it is likely to reiterate that policy will remain extremely accommodative, with rates on hold through the summer of 2019.
Sterling was modestly weaker, closing the week at 1.2750.Another Minister resigned over the weekend and the media reported that a number of MPs, including Cabinet Ministers, are secretly discussing pivoting towards a Norway-style plan B should PM May’s deal get rejected by Parliament. On current numbers a first round defeat in Parliament looks the most likely scenario
US and Chinese equities closed higher on Friday (all major Indices up around 0.8%), the Nikkei was also up (+0.40), European shares were little changed and our S&P/ASX 200 was the big loser, down 1.58% (consumer staples leading the decline with Coca Cola Amatil down 14.46% while Coles -5.46% and Woolworths -3.05% did not have a good day either). The VIX Index closed the month at 18.07, after trading to a monthly high of 23.82 a week ago.
The Nikkei led the recovery in global equities in November (1.96%), US equities also managed to close up, but European, Chinese and Australian equities closed with negative returns for the month.
The 10y tenor led the decline in UST yields on Friday, falling 4.2bps on the day and closing the week at 2.9879%. The first time it has closed below 3% since mid-September this year. The 2y rate fell 2.3% to 2.787% and as a result the 2y10y curve closed the week at 20bps, quite remarkable given the curve was trading at 42bps on the 7th of November.
Italian BTPS were the big performers in November with the 10y tenor rallying 21.5bps, ending the month at 3.207%. On Friday Italian Finance Minister Tria said he is confident he can avoid the excessive deficit charge by the EC. Papers report willingness to reduce the target to -2.0% of GDP.
News that OPEC’s Economic Panel recommended a 1.3m b/d oil production cut in order to balance the market ahead of the OPEC and Friends meeting on the 6th–7th of December did not really help oil prices on Friday. It seems that there is a lot of uncertainty on who would support the plan and how quickly the production cut would take to implement. WTI closed -1%,(@$50.93) and Brent was -1.3% (@ $58.71). Iron ore edged up a little on Friday (0.97% @$64.77)) while Lead and Zinc were the big winners, up 2.07% and 2.91% respectively.
November oil prices were the big underperformers, down 22%, but the decline in iron ore prices that began half way through the month was also notable. Iron ore closed the month 11% lower. Reports of steel makers’ profits declined along with a slowing Chinese economy not helping iron ore in November.
– The US, Mexico and Canada signed their new trilateral trade agreement which replaces NAFTA. The new agreement, known as USMCA, is a tweaked version of NAFTA with changes for automakers, new labor and environmental standards, intellectual property protections, and some digital trade provisions. Politicians from each country will still need to ratify the USMCA before it can take effect.
– Fed Williams discussed potential future frameworks for monetary policy and raised concern over the current status quo. Maintaining the basic strategy of inflation targeting and relying on a combination of aggressive conventional and unconventional policy actions when facing economic downturns’ carries with it the risk that inflation expectations become anchored at too low a level, he said. The Fed plans to hold a review on its policy framework in 2019
– UK Science and universities minister Sam Gyimah resigned following Mrs. May’s decision to withdraw the UK out of the EU’s Galileo sat-nav system. Mr Gyimah – who voted remain – urged Mrs. May not to rule out another referendum if she loses the 11 December vote.
– Buenos Aires G20 Summit culminated with a joint statement which in itself was deemed a positive outcome, given the recent failure to do so at the recent APEC forum. The joint statement upholds the importance of the multilateral trading system, but as a concession to the U.S .there was no call against protectionism and as a concession to China there was no reference of unfair trading practices.
The compromise text acknowledges that trade and investment are ‘’important engines of growth, productivity, innovation, job-creation and development.’’’ But it adds that ‘’the system is currently falling short of its objectives and there is room for improvement. We therefore support the necessary reform of the WTO [World Trade Organization] to improve its function and we will review progress at our next summit.’’
References to climate change and migration that the U.S. strongly objected to were also watered down, while China stood its ground against calls from the U.S., Canada, Europe and Australia to make firm commitments to reduce its steel overcapacity.
– The November Chicago PMI jumped to 66.4 from 58.4, well above the consensus, 58.5. The Chicago PMI and the national ISM Manufacturing Index trend together, but they can diverge substantially in the short-term, so Friday’s reading does not guarantee a rebound in the ISM.
This morning on the Economic Front we have German, Euro-Zone and UK Manufacturing PMI at 8.55 am, 9.00 am and 9.30 am respectively. Also at 9.30 am we have the Euro-Zone Sentix Consumer Confidence. Next we have US Manufacturing PMI and the ISM Manufacturing at 2.45 pm and 3.00 pm respectively. Finally at 6.00 pm the Fed’s Kaplan is speaking.
December S&P 500
The S&P just missed my 2723 buy level before rallying hard in the last hour of trading. As I did not want to have a short S&P position over the weekend I emailed my Platinum Members to cancel and sell level and I am still flat. If you did sell the S&P at my initial 2760 sell level which hit at 9.00 pm the market subsequently had a quick sell-off to 2754 before rallying back to 2761 into the Futures close and this should have enabled you to cover for a gain as no one would want to hold a position over the weekend. This morning the S&P has again gaped higher with the market now trading at 2800. It is incredible that last week’s S&P rally of 4.82% was the highest weekly gain in nearly seven years. As I have been saying all-year it is so difficult to be short the market as the snap-backs are ferocious and it is only a matter of time before the S&P makes new all-time highs in my opinion. This morning the S&P has regained both its 200 Day MA (2761) and 50 Day MA (2775) and if the market can close over these levels this evening then we should see a test of the next resistance area from 2800/2820. Today I will now raise my buy level to 2760/2770 with a 2748 stop. I will also be a seller on any further rally to 2820/2832 with a 2839 stop.
Late on Friday the Euro traded lower to my 1.1320 buy level. I am still long and I will now lower my T/P level to 1.1350 on this position. I will also raise my stop to 1.1275. If any of the above levels are hit I will be back with a new update for my Platinum Members.
December Dollar Index
Just before the close on Friday the Dollar traded higher to my 97.20 sell level. I am still short and I will now raise my T/P level on this position to 96.90 with a now lower 97.65 stop.
Thankfully we have had no sell levels in the DAX over the past week. I am still flat and today I will now raise my buy level to 11250/11330 with a 11180 stop.
On Friday afternoon the FTSE traded lower to my 6980 buy level before rallying to my revised 6993 T/P level and I am still flat. With Sterling again under pressure given the worsening political situation in the UK it is difficult to be short the market. Today I will again look to buy the FTSE on any dip lower to 6970/7005 with a 6960 stop.
Dow Rolling Contract
Very late on Friday the Dow traded higher to my initial 25580 sell level before having a small sell-off. As I did not want to have a short position over the weekend I emailed my Platinum Members to exit any short position which I did at a price of 25565 and I am still flat. After I posted on Friday morning the Dow traded lower to just above 25200 before again rallying into the close. This rally has continued this morning with the Dow now trading over 26000 which is 1800 points higher since last Friday week as yet again anyone shorting the market gets slammed. The Dow has resistance from 26130/26280 and I will be a seller on any rally to this area with a 26370 stop.
The NASDAQ gaped above my sell range and stop on the re-open last night and I am still flat. Today I am going to stay flat given the massive ‘’Open Gap’’ as I want to see how the US Markets react when they open this afternoon.
No change as I am still a seller on any rally higher to 161.85/162.25 with the same 162.55 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1204/1212 with the same 1197 stop.
Silver Rolling Contract
Silver traded lower to my 14.15 buy level on Friday. I am still long and I will now lower my T/P level to 14.30 with the same 13.55 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.