In what has been a slow past 24 hours for news, the outstanding feature of financial markets has been further gains for the US Dollar, now sitting at its strongest level of 2019 in DXY terms albeit still comfortably inside the range that has held since mid-2018. This is largely by default, USD again looking like the cleanest dirty shirt in the laundry. Elsewhere equities have ended the day narrowly mixed, while US Treasury yields are higher by between 2 and 3bps.
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There has been little by way of tangible developments on any of the big uncertainties currently clouding markets. Namely whether or not a fresh government shutdown will be avoided by Friday’s deadline when the continuing resolution funding some departments expires; whether this week’s trade talks, featuring Lighthizer, Mnuchin and Liu He will yield anything substantive;while whether Brexit discussions (if indeed there are any just at the moment) will do anything to prevent the clock just ticking down toward the March 29th Brexit date.
No word here on when or whether PM May will be back before parliament with another attempt to get her Withdrawal Agreement passed. At the moment there is nothing new with respect to the Irish backstop to vote on – or whether her offer to discuss the Labour opposition proposal for the UK to remain within a Customs Union will do anything other than alienate some members of her own party, including in the Cabinet.
On Sino-US trade, the one positive development that we first heard courtesy of Axios was that Presidents Trump and Xi could meet in Trump’s Florida resort of Mar a Lago in mid-March. US officials have suggested that the absence of a meeting before 1st March is because of logistics (Trump going to Vietnam to meet Kim, etc.) and say that the two could talk by phone this month. We also had White House spokesman Kellyanne Conway out saying it is likely the US and China will make a trade.
In FX, every G10 currency is weaker against the USD, pushing the DXY Index up to 97.1, its first time above 97 this year. Of the DXY components, Sterling is the biggest loser, -0.64%, after a pretty dire set of UK economic statistics, including weaker than expected Q4 GDP (0.2%), a sharper 0.4% drop in monthly (December) GDP with Industrial and Manufacturing Production down by 0.5% and 0.7% respectively. None of this is being put down to Brexit uncertainty directly, though the FT’s lead story at the moment is about a raft of US companies warnings about the disruptive/negative impact on their business from a hard Brexit.
The Euro is 0.42% weaker, so in itself account for just over half of the 0.44% rise in the DXY. Nothing really new to report here, though some note to be taken of the possibility of Spain’s PM Sanchez being forced to take his country back to the polls in April (failure to so far win the support of Catalan parties for his budget is one of the key issues here).
US equities traded sideways for most of Yesterday in what turned out to be the quietest trading session so far this year. Within nothing notable in any of the S&P sub-sectors (Communication Services are +0.7%, Industrials +0.4% and Health Care -0.3%, but not much else changed with the overall S&P500 closing flat. This follows a generally positive day for European stocks (+/-1%) and a good day for Shanghai upon its return from last week’s Lunar New year holidays (+1.8%).
US bond yields are higher across the curve, 2 and 10 year Treasures up a little over 2bps with Bund Yields also rallying 2 bps after Friday’s record 7bp low.
Commodity markets are in a sea (albeit more pink than crimson) with oil off 40-60 cents, Dr.Copper off 1%. Iron ore futures, which re-opened on the Dalian exchange limit up yesterday, have eased back slightly in the night session (-0.7%) while other futures exchanges are showing losses of just over 1%. Gold is $5 lower.
This morning on the Economic Front we have no data of note from either the UK or the Euro-Zone. At 11.00 am we have the US NFIB Business Optimism and this is followed at 3.00 pm by the JOLTS Job Openings. Finally at 6.45 pm we have Fed Chair Powell Speaking on the Economy.
March S&P 500
Yesterday was a nothing day as the market went on hold ahead of Fed Chair Powell’s speech this evening. Just as I go press an agreement in principal has been reached to avert a shutdown on Friday. The S&P has rallied 18 Handles and I am still flat. Today I will now raise my buy level to 2692/2704 with a higher 2683 stop. Meanwhile I will also raise my sell level to 2738/2750 with a higher 2758 stop.
Unfortunately I was stopped out of my 1.1365 long Euro position at 1.1315 shortly after I posted yesterday morning and I am still flat. Today I will continue to be a buyer on any further dip lower to 1.1210/1.1250 with the same 1.1155 stop.
March Dollar Index
I am still flat the Dollar and today I will again raise my sell level to 97.20/97.60 with a 98.05 wider stop. The Dollar is now severely overbought after closing higher for eight straight days and is due a pull-back.
DAX Rolling Contract
Overnight the DAX has rallied to my 11110 sell level with the spread betting firms on the US Shutdown Agreement. As I want to make up for the Euro loss I have now cut this position here at 11070 and I am now flat. I no longer want to be short the DAX at this time. I will also be a buyer on any dip lower to 10860/10930 with a 10810 stop.
No Change as I am still a buyer on any dip lower to 6935/6975 with a 6895 stop. Given the weakness in Sterling I still do not want to be short the FTSE at this time.
Dow Rolling Contract
I am still flat the Dow and ahead of Powell’s speech I will now raise my buy level slightly to 24830/24980 with a 24765 stop. I still do not want to be short the Dow at this time.
The NASDAQ just missed my 6880 initial buy level before having a small rally into the close and I am still flat. Today I will lower my buy level to 6810/6865 with a 6755 stop.
I am still flat the Bund and today I will lower my sell level to 166.80/167.25 with a 167.60 stop. Given the insanely low yields I still do not want to be long the Bund at this time.
Gold Rolling Contract
Gold just missed my 1303 buy level with a 1303.50 low print before rallying $6 and I am still flat. As I am still long Silver I will now lower my Gold buy level to 1288/1296 with a 1281 stop.
Silver Rolling Contract
No Change as I am still long Silver at 15.83 with the same 15.45 stop and 15.90 T/P level. If any of the above levels are hit I will be back with a new update for my Platinum Members.