Favourable sentiment in regards to prospects for a Sino-US trade deal remain intact after talks ended yesterday following a third day of discussions. Though the official word from the Office of the US Trade Representative was fairly bland (a formal statement is promised this afternoon) the Wall Street Journal reports that the two sides are making progress toward an agreement but leaving the thorniest issues to be resolved in higher-level talks. The two sides made progress on issues such as additional Chinese purchases of US goods and services, as well as opening China’s markets further to American capital, but remain divided on thornier issues including a reduction of Chinese subsidies to domestic firms and protection of intellectual property, according to sources.
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Yesterday Bloomberg reported that President Trump is increasingly eager to strike a deal with China soon in an effort to perk up financial markets, according to people familiar with internal White House deliberations.Trade deal vibes have kept risk sentiment in the ascendency, with US equity indices closing 0.5-1.0% higher, but Bond yields are lower thanks to the raft of fresh Fed speak and the released FOMC minutes. The IT and energy sectors lead the charge, the former on a fresh jump in oil prices, now judged to be in a bull market (see Commodities below)
FOMC Minutes released last evening reveal that ‘’Many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming.’’ Though the vote to hike rates was unanimous, the minutes showed ‘’a few participants’’ favoured no change, with the committee evidently attentive to recent financial-market volatility and risks to the outlook. ‘’Participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier,’’ the Minutes said.
Bottom line here is that neither the post-meeting statement nor Fed Chair Jay Powell’s post-meeting press conference adequately conveyed the essence of the committee’s discussions last month. Had they, the sharp post-meeting sell-off in US stocks could probably have been avoided.
Yesterday we have heard from no fewer than four FOMC officials, all of whom have echoes the more cautious sentiments expressed by Jay Powell and before than Bob Kaplan:
Atlanta Fed President Raphael Bostic: ‘’A patient approach to monetary policy adjustments in the coming year is fully warranted in light of the uncertainties about the state of the economy and about what level of policy rates is consistent with a neutral stance’’
Chicago Fed President Charles Evans: ‘’Because inflation is not showing any meaningful sign of heading above 2%…I feel we have good capacity to wait and carefully take stock of the incoming data and other developments’’.
Boston Fed President Eric Rosengren: Weakening growth in China, trade tensions and market volatility all counselled the Fed to be ‘’flexible and patient.’’ Short end pricing rate cut ‘’catches my attention’’
St Louis Fed President James Bullard (uber dove): Fed is ‘’bordering on going too far and possibly tipping the economy into recession’’ if rates are lifted further.
The above Fed speak has meant that Treasury yields are flat to lower despite the latest push higher in stocks, 2s -2bps to 2.56% and 10s flat at 2.73%, while in Euro the Bund closed unchanged..
The AUD has already recovered most of its post-Building Approvals fall-back and has pushed further ahead on the positive risk vibe, generally weaker US dollar and jump in oil prices, making a high of 0.7194. The NZD has fared even better recouping much of its recent underperformance versus other commodity-linked currencies to break above 0.68 for the first time since December 19th. It has just exceeded the gains chalked up by NOK, the second best performing G10 currency (latter +1.1%).
EUR/USD is up almost 1%, its 1.1557 high the best since mid-October last year. All G10 currencies are firmer against a USD than in narrow DXY index terms is almost 0.75% lower at 95.2. The broader BBDXY is -0.7%.
CAD was little affected by an unchanged Bank of Canada rates decision, with BoC expressing a cautious attitude but still seeing the need for some further gradual rate increases.
Despite a somewhat smaller than expected draw on oil inventories last week reported by the EIA and a jump in gasoline and diesel stocks, oil has surged by over $2.5 for both Brent and WTI; this puts both blends up more than 20% since their Christmas Eve, 19-month lows. Confidence in reduced Saudi, Russia and other OPEC+ member shipments, the positive trade vibes and a weaker US dollar are all contributing to the rebound.
Base metals are mixed with aluminium down and copper up. Iron ore is marginally lower and gold $7 higher, again a weaker USD helpful here.
This afternnon on the Economic Front the ECB will publish its Minutes from last month’s meeting at 12.00 pm. This is followed at 1.30 pm by US Weekly Jobless Claims and Wholesale Inventories at 3.00 pm. Finally we have Fed Chair Powell speaking to the Economic Club in Washington at 5.00 pm while Members Bullard and Bostic are also speaking at 5.30 pm and 6.00 pm respectively.
March S&P 500
The S&P rallied for the fourth consecutive trading session ( up 9 of the last 10 ) and this helped the McClellan Oscillator to close at one of its highest ever levels with a print of + 354 from Tuesday’s +340 print. Remember it was only on Christmas Eve that the MO closed at near record lows with a print of -327. This morning we are finally seeing some profit-taking in the S&P after it’s 265 Handle rally over the last two weeks. Yesterday after the S&P traded higher to my 2596 sell level I unfortunately covered this position too early at 2593 and I am now flat. The main reason was the fact that my sell level got hit so late which is frustrating when you see the S&P trading at 2563 this morning. Today I will now raise my buy level to 2543/2555 with a 2536 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 2512/2528 with a 2502 stop. I will again look to sell the S&P on any further rally to 2597/2612 with a 2620 stop. If I am taken short and subsequently stopped out of this position I will be an aggressive seller in front of 2635 with a 2652 stop.
The Euro rallied to a 10 week high yesterday and I am still flat. The Euro has strong resistance from 1.1580/1.1620 and today I will be a small seller in this area with a tight 1.1650 stop. Ahead of Fed Chair Powell’s speech this evening I will leave my 1.1370/1.1410 buy level unchanged with the same 1.1335 stop.
March Dollar Index
It is frustrating to have the correct view in a weaker Dollar without been able to get a short position on board. The Dollar closed at its lowest level since October with support coming in from 93.90/94.30 where I will be a buyer with a 93.55 tight stop.
The DAX just missed my 10995 sell level with a 10955 high print before following the US Indices lower to trade at 10820 this morning. Today I will lower my buy level slightly to 10630/10690 with a 10570 stop. Meanwhile I am not going to chase the DAX lower and I will leave my 10995/11065 sell level unchanged with the same 11110 stop.
I am still flat the FTSE and today I will lower my buy level slightly to 6720/6765 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 23350/23500 with a 25230 higher stop. The Dow has strong resistance from 23970/24150 and I will be a small seller on any rally to this area with a 24230 tight stop.
The idea of selling rallies above 6600 in the NASDAQ has worked well with the market trading at 6560 this morning. Personally I sold the market at 6610 before covering this position at my revised 6600 T/P level. Subsequently I emailed my Platinum Members to sell the NASDAQ again at a price of 6640 before unfortunately covering this position at 6628 and I am still flat. Today I will again look to sell the market on any rally higher to 6620/6670 with a 6715 stop.
My Bund plan worked well with the market trading higher to my 164.10 sell level before selling off to my revised 163.96 T/P level and I am now flat. Having traded below 163.80 the Bund is back at 164.20 this morning on the back of the weaker equity markets. Today I will again look to sell the Bund on any further rally to 164.55/164.95 with a 165.25 stop.
Gold Rolling Contract
The weakness in the US Dollar helped Gold to close over 1290 which is just shy of the key 1300/1310 resistance level. I am still flat and today I will now raise my buy level to 1267/1276 with a 1259 stop.
Silver Rolling Contract
I am still flat Silver and today I will now raise my buy level slightly to 15.15/15.50 with a 14.80 stop.