Last Friday brought the latest US Employment data and Manufacturing ISM, both of which comfortably exceeded expectations in headline terms though with softer underbelly as far as inflation related sub-data was concerned. Despite the latter, bond yields reversed a chunk of their post-FOMC falls and equities struggled to key positively off the data as a result, albeit the S&P and the Dow ended up slightly on the day. Higher US yields failed to offer support to the US Dollar, which ended Friday virtually unchanged in Index terms and slightly lower on the week (DXY -0.2%). The AUD was the best performing G10 currency last week, up 1% even after Friday’s 0.3% drop.
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For anyone following my Platinum Service it made was flat on Friday which was the first trading session for February having made 1671 points in January, 2803 points in December, 1541 points in November and 2094 points in October. 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 Economic data saw the headline Non-Farm Payrolls number print 304k, almost double the 165k street consensus, though December was revised down by a hefty 90k to 222k. The Unemployment Rate in contrast ticked up to 4% from 3.9%, though this looks to have been on a combination of a higher labour participation rate (63.2% from 63.1%) and the fact the Unemployment Rate is drawn from the Household Survey where some displaced government workers would have deemed themselves unemployed, while the Establishment Survey that determined the payrolls number will have classified all furloughed government workers as still employed. The other key feature of the report saw Average Hourly Earnings rise by just 0.1% after a 0.4% December rise, to push annual growth in wages down to 3.2% from 3.3%.
Shortly after the payrolls report, the January Manufacturing ISM printed at 56.6, well up on the 54.0 consensus and 54.3 in December. The rise was driven by the strength in New Orders (58.2 from 51.3 albeit the separately reported export order index was down. But the Prices Paid sub-reading fell sharply, to 49.6 from 54.9. So together with the absence of any clear accelerating in earnings growth even if on a trend basis it is edging higher, it is the lack of inflation pressure than can justify the Fed’s new found ‘’patient’’ watchword.
Bond Markets showed a much bigger response than either equities or currencies to the payrolls and ISM reports, 10 year Treasuries finishing Friday 7bps higher and 2s up 5bps. This though still leaves 10s, 9bps lower on the week and 2s down some 10bps, largely reflecting the impact of Wednesday’s dovish FOMC outcomes.
Stocks saw the Dow end +0.26% the S&P +0.1% and the NASDAQ -0.25%. Within the S&P sub-sectors, the big movers were consumer discretionaries (-1.8% offset by a 1.8% rise in Energy, the latter aided by a near 3% rise in WTI crude (see below). That stocks did not go better overall was clear testament to the role that revised Fed expectations and in particular now the prospect of smaller than previously expected run-down of the Fed’s balance sheet, is having in supporting risk assets. As such, any further near term back-up in US yields would be expected to weigh on stocks.
FX had something of a mixed session on Friday. Most off the intra-day weakness in the AUD, which was ended as the second weakest G10 currency on the 24 hours through the NY close came after the Caixin manufacturing PMI came in at a lowly 48.3 (done from 49.7%). From there, it posted a very minor recovery in offshore trade to end around 0.7250. (-0.3%). AUD is nevertheless the strongest G10 currency on the week (+1%) closely followed but CAD, NOK (higher oil prices helping here and NZD. Yesterday the Caixin service sector PMI printed 53.76 from 53.9, so not nearly as grim as the earlier manufacturing version, but the Composite read is nevertheless 50.9 down from 52.2, so no let up here as yet from China growth slowdown concerns.
The Japanese Yen fared worse on Friday consistent with higher US yields (-0.5%) while on the week it is Sterling that has fared worse (-0.9%) thanks to the parliamentary votes earlier in the week and which have failed to eliminate the tail rise of a hard/’’no-deal’’ Brexit. Over the weekend Nissan has announced it will not now build the X-Trail in Sunderland given Brexit uncertainty, news that might provide an additional drag later today.
Commodities continued to display some extreme volatility, iron ore and oil in particular. Iron ore added another 3% on Friday and is now some 35% up on its late November lows. The rally predates the Brazilian mining disaster and so concerns about reduced seaborne shipments from Vale out of Brazil. To note is that the China steel PMI published last week rose to 51.5 from 45.6. So China demand still looks healthy, though bear in mind that Tangshan, China’s largest steel making area, is scheduled to scale back production in April through September. So some for the strength we are seeing in steel making commodities may well reflecting front-loaded production ahead of summer cutbacks.
On oil, the threat of new sanctions against Russia related to the detention of 24 Ukrainian sailors, with shipping in the firing line for sanctions, looks to have been an oil supportive factor Friday.In general, it was as good week for commodities, a softer US Dollar evidently helping, bar aluminium (-2%) but which did not prevent the LMEX Index ending with a 1% gain.
This morning on the Economic Front we have UK PMI and Euro-Zone Sentix Investor Confidence at 9.30 am. This is followed at 10.00 am by Euro-Zone PPI. At 2.45 pm we have US ISM New York. Finally at 3.00 pm we have Factory Orders.
March S&P 500
Unfortunately the S&P missed both my buy level and sell level before having nice moves away from each area and I am still flat. The S&P is overbought having rallied nearly 100 Handles since the lows of last Monday afternoon. The McClellan Oscillator is still overbought closing on Friday at +215 – definitely worth keeping an eye on this week. There is still one Open Gap left from December 5, 2018 at 2723.50 which may be filled before we see a more meaningful correction. Today I will lower my buy level slightly to 2672/2687 with a 2664 stop. I will also lower my sell level to 2720/2735 with a lower 2746 stop.
I am still flat the Euro which surprisingly traded in a narrow range given the movement in Bond Yields post the NFP release. Today I will leave my 1.1380/1.1420 buy level unchanged with the same 1.1345 stop.
March Dollar Index
No Change as still a seller on any rally higher to 95.80/96.25 with the same 96.55 stop.
The DAX just missed my buy level on Friday before having a small rally and I am still flat. Today I will again lower my buy level to 10970/11040 with a 10920 stop. Despite the weakness in the DAX I still do not want to be short the market at this time.
The renewed weakness in Sterling saw a decent rally in the FTSE with the market also missing my buy level before this rally commenced. Today I will raise my buy level to 6860/6900 with a 6815 stop.
Dow Rolling Contract
The Dow came close to my buy level before the release of the NFP. Subsequently the Dow rallied 150 points before erasing these gains in the last two hours of trading. Today In will also lower my Dow buy level to 24680/24850 with a 24590 stop.
Frustrating the NASDAQ missed my 6850 buy level by 10 points before rallying and I am still flat. The Nasdaq has strong support from 6730/6790 and today I will lower my buy level to this area with a 6685 tight stop.
I am still flat the Bund and today I will now lower my buy level to 164.60/165.00 with a 164.15 stop. Despite the late sell-off in the US 10 Year Treasury I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold traded in a sideways pattern on Friday and I am still flat. I will leave my 1295/1304 buy level unchanged with the same 1288 stop.
Silver Rolling Contract
Overnight Silver traded lower to my 15.83 buy level. I will now lower my T/P level on this position to 16.00 while raising my stop on this position to 15.35. Although Silver is tired after its nice move up from early December I am happy to be a buyer on dips believing that there is still more upside.