The cautious mood evident since the start of the new month continued yesterday and again overnight not helped by softer US data releases. US equities closed lower for a third consecutive day while US Treasury yields are lower across the curve with the 10y tenor back below 2.70%. The USD is little changed and remains close to the top of its year to date range. Both the Australian Dollar and Canadian Dollar are weaker following yesterday’s soft Australian GDP and a less hawkish Bank of Canada This has been partly offset by a stronger Japanese Yen with the latter benefiting from the cautious mood in US equity markets.
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For anyone following my Platinum Service it made 30 points yesterday and is now down 194 points for March, having made 1013 points in February, 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 equities closed lower for end a third consecutive session as the market takes back some of the exuberant gains recorded since early January. Lack of new news on US-China trade negotiations has been one factor for the current cautiousness while softer US data releases pointing to downward revision to Q4 GDP and a soft US Payrolls outcome (ADP 183k vs 190k exp.) on Friday have not help the cause either.
The US trade deficit hit a 10 year high in December, printing a bigger than expected negative number ($59.8bn vs 57.9bn exp.) and up by almost $10bn relative to November. The record print has done little favours to President Trump with the data suggesting his trade policy has been one factor contributing to the increase in the deficit. The President would of course argue that this is part of pain needed in order to achieve the gains of a better and more even trade relationship with China. That said, softness in the US equity market and a record trade deficit adds to the pressure on the US to seal a deal with China.
NY Fed President Williams, in a speech late yesterday, reiterated the party line that the Fed can afford to be flexible and wait for the data to guide its approach. He added that the current Fed Funds rate of 2.4% ‘’puts us right at neutral’’. I would that previous indications from the Fed suggested that the current rate was at the lower end of the range of neutral. If estimates of the neutral rate have fallen again, then there is less reason to expect the Fed to hike rates again this cycle.
So against a cautious equity backdrop, softer US data releases and a Fed that is more than happy to sit on the sidelines, UST yields have continued their steady downtrend evident since the start of the week with the 2y and 10y rate down another 3bps over the past 24 hours. Of note after closing last week at 2.76%, overnight 10y UST yields have moved below the 2.70% mark and now trade at 2.6897%.
In spite of the move lower in UST yields, the USD has remained buoyant in Index terms with both DXY and BBDXY Indices trading close to their year to date highs. From a relative basis the move lower in UST yields has been more than matched by larger declines in other core benchmark yields (10y UK Gilts -6 bps to 1.22% and 10y Bunds down 4bps to 0.1124%). Softer commodity currencies have also helped the USD while risk aversion in the air and lower UST yields have played into a stronger JPY. USD/JPY now trades at 111.70.
The AUD is at the bottom of the G10 scoreboard, down 0.85% over the past 24 hours and currently trading at 0.7028. Much of the AUD decline came after yesterday’s softer than expected Q4 GDP print and after breaking through key support around 0.7050, the pair now has found some stability just above 0.7020. Yesterday’s Australia’s Q4 GDP growth printed at 0.2% vs. 0.3% pre-release downward revised consensus, details in the report were not that encouraging either with private consumption coming in at a subdued 0.4% (0.2 ppts GDP contribution). Earlier speech from Governor Lowe failed to move the dial on either RBA pricing or the currency. The Governor stuck to the view that the outlook has a balance of upside and downside scenarios even though much of their analytical work seems to have been devoted to downside risks, notably housing and consumption.
The Bank of Canada left its policy rate unchanged and softened its tightening bias. The previous language of seeing the need for rates to rise over time was replaced by a comment that borrowing costs will remain below neutral for now and there is increased uncertainty about the timing of future rate increases. A softening in the tightening bias was expected by the market but CAD still weakened after the announcement, with USD/CAD up 0.64% to 1.3425.
Bloomberg reported that the ECB, at its policy update this afternoon, is poised to cut its economic forecasts by enough to justify another round of concessionary loans to banks, according to unnamed sources, although a full announcement on new loans may not come until a later meeting. Inflation and GDP forecasts will be extensively cut for 2019, while the inflation outlook will be cut through 2021. The report aligns with market expectations but caused a spike down in EUR to as low as 1.1286, before bouncing back. EUR now trades at 1.1300.
Commodities were led lower by oil after a bigger-than-expected rise in US crude stockpiles. The American Petroleum Institute reported US inventories increased by 7.29m/b last week.
This morning on the Economic Front we have UK Halifax House Price Index at 9.30 am and this is followed at 10.00 am by Euro-Zone GDP and Employment Change. At 12.45 pm we have the ECB Rate Announcement and Dragi press conference at 1.30 pm. Also at 1.30 pm we have US Weekly Jobless Claims, Unit Labour Costs and Non-Farm Productivity. Finally the Fed’s Brainard is speaking at 5.15 pm followed by Consumer Credit at 7.00 pm.
March S&P 500
My S&P plan worked well with the market trading lower to my 2773 buy level before rallying back above 2780. This move higher enabled me to cover this position at my revised 2776 T/P level and I am now flat. Subsequently the S&P closed lower at 2771 before selling off again overnight to sit at 2760 as I go to press. The 200 Day Moving Average comes in at 2751 and should offer some support. As a result I will be a buyer on any further dip lower to 2743/2753 with a 2737 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2723/2733 with a 2716 stop. Ahead of the ECB Meeting today and Non-Farm Payrolls tomorrow I do not want to be short the market at this time.
I am still flat the Euro which again traded in a narrow range as we wait for the key Dragi press conference at 1.30 pm. There is no doubt the recent slowdown in the Euro-Zone weill play a key part in Dragi’s speech later. Today I will leave my 1.1210/1.1260 buy level unchanged with the same 1.1165 stop. Remember a break and close below the key 1.1200 area is bearish.
March Dollar Index
No Change as I am still a small seller on any rally higher to 97.20/97.60 with the same 98.05 stop. I no longer want to be a buyer of the Dollar at this time.
I am still flat the DAX and today I will again lower my buy level slightly to 11400/11460 with a 11345 tight stop.
No Change as I am still a buyer on any dip lower to 7060/7100 with the same 7035 stop.
Dow Rolling Contract
The Dow has continued to sell-off overnight with the market just hitting my 25570 buy level. I will now lower my T/P level on this position to 25630. I will also add to this position on any further move lower to 25400. I will leave my stop unchanged at 25330. If my second buy level is filled before my 25640 T/P level is hit I will then lower my T/P level to 25530. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Just before I went to press the NASDAQ traded lower to my 7085 buy level. I will now lower my T/P level on this position to 7100 with a 7045 stop. If this T/P level is hit I will then look to buy the market again on any further dip lower to 6985/7035 with a 6945 stop.
Shortly after I posted yesterday the Bund sold off to a low of 163.06 giving anyone who did short the market on the re-open yesterday morning time to exit this position before the market rallied to new highs above 163.65. I am still flat the Bund and today I will now raise my buy level to 162.80/163.25 with a 162.45 stop.
Gold Rolling Contract
Gold closed lower for seven consecutive sessions through Tuesday’s close which is the longest streak in two years since March 2017. The DSI which had hit 91% bulls at the recent 1347 high as only fallen to a reading of 51% which is neutral. I am still long Gold at 1296 with the same 1297 T/P level and 1273 stop. I will continue to add to this position at 1279 and if this trade is executed I will then lower my T/P level to 1290.
Silver Rolling Contract
No Change as I am still a buyer on any dip lower to 14.60/14.95 with the same 14.20 stop. If I am taken long I will have a T/P level at 15.15.