Yesterday we had a trading session of very contained markets with US Treasury yields trading within recent ranges, stocks mixed, and the US Dollar losing a little more ground against most majors. There has been no major economic data of note. Notwithstanding a somewhat softer USD, base metals, oil, and gold were all lower. China’s steel and iron ore futures yesterday saw little new change in price direction at the start of the week after the sizeable falls of last week, including for iron ore. Tomorrow sees the first glimpse at Chinese growth for the year with monthly growth data for Industrial Production, Retail Sales, and Fixed Assets Investment, this one is Feb year to date to traverse shifting Lunar year effects.
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For anyone following my Platinum Service it made 27 points yesterday and is now ahead by 952 points for March, having made 2256 points in February, 879 points in January, 946 points in December, and 823 points in November. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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The US Treasury auctioned $28bn of 3 year Treasury notes and $21bn of 10s last evening. There was no sign of indigestion, nor pre-CPI nerves, from the bond market with 10 year yield down on net for the day by 2.75bps to 2.866% and the 3 year yield down by 0.8bps. The auction of 3 and 10 year Treasury bonds met with reasonably good demand ahead of the Treasury issuing 30 year bonds this evening. The bond market has been calm and measured.
After the Goldilocks payrolls report sugar hit for stocks on Friday, US equities have opened this week mixed. The Dow has given back some of Friday’s gains, closing down 0.63% while the NASDAQ again made new all-time highs with a gain of 0.36%. Meanwhile European equities made mostly some gains.
Most currencies have made up some ground on a soggy USD, though the NZD and the CAD have underperformed somewhat, the CAD seemingly held back by a pull-back in oil prices at the start of the week. The AUD has edged marginally higher against the USD, trading overnight in a 0.7855/0.7880 range, the Aussie currently toward the top end of that range.
One currency that has been under the spotlight over the past 24 hours has been the Japanese yen over a re-developing political land scandal. The JPY strengthened yesterday afternoon in the wake of a growing scandal involving Japanese Prime Minister Abe and Finance Minister Aso. The scandal erupted last year, PM Abe saying at the time he would resign if he or his wife were implicated in a controversial sale of public land. The Ministry of Finance released a report yesterday stating that an MoF official had removed reference to PM Abe’s wife in a document related to the sale. Finance Minister Aso, a close ally of Abe, has come under pressure to resign, but yesterday said he had no intention of stepping down.
While a less stable government might ordinarily lessen support for that currency, the market is also mindful about whether this could potentially call into question the longevity of the Abenomics reflation agenda, which includes the Bank of Japan’s QQE, if Abe is forced out. For now though, the market reaction has been reasonably contained and not suggestive of major political change, nor indeed a clear yen out-performance on the crosses so far this week. The USD/JPY has fallen from close to 107 yesterday lunchtime to an overnight low at 106.25 before rallying back to 1.06.90 this morning.
Ahead of the UK Chancellor’s Spring Statement later today, Sterling has also been making some positive headway. The mood music around Brexit has been a little more positive after UK Brexit Minister Robin Walker said the UK and EU were very close to agreeing a transitional deal for after March-2019. Walker said ‘’U.K. and EU’s access to each other’s markets should continue on current terms’’ during such an implementation period. The UK hopes to agree a transitional deal at next week’s EU Summit, although there is a risk that the ongoing dispute around the Irish border delays this; that is certainly the event to watch. As for the Spring Statement on the economy with its forecasts for the economy and public borrowing, markets will also be closely eyeing an appendix that is expected to set out the costs of Brexit.
This morning on the Economic Front we have the US NFIB Small Business Optimism at 10.00 am and this is followed at 12.30 pm by US CPI. Remember all US Markets and Economic Data releases are one hour earlier for the next two weeks due to the US moving their clocks forward by one hour last weekend. Finally this afternoon the UK Chancellor Hammond will release his Spring Statement.
March S&P 500
Although the Dow got hit for a 160 point decline the S&P closed flat helped by the NASDAQ making another new all-time closing high. I am still flat the market and today I will now raise my buy level slightly to 2765/2773 with a 2758 stop. If I am taken long and subsequently stopped out of this market I will be a more aggressive buyer on any further dip lower to 2740/2750 with a 2732 stop. The S&P has massive resistance from 2810/2820 and today I will continue to be a seller on any rally to this area with a 2826 stop. With US CPI due at 12.30 pm we may see some increased volatility especially after what happened after the February release last month.
Shortly after I posted yesterday morning the Euro traded lower to my 1.2300 latest buy level before rallying to an overnight high at 1.2345. As I wanted to bank some points for yesterday’s commentary I covered this position at my revised 1.2315 T/P level and I am now flat. As I mentioned yesterday the 1.2255 level is key support for the Euro as a break and close below here is bearish. With this in mind my only interest in buying the Eur0 today is on a dip lower to 1.2220/1.2260 with a 1.2190 tight stop. I still do not want to be short the Euro at this time.
June Dollar Index
The Dollar traded the whole of my 89.35/89.75 buy range yesterday and I am now long at an average rate of 89.55. I will now raise my stop on this position to 89.15. I will also lower my T/P level on this position to 89.75 as I look to go flat ahead of US CPI.
No change as I am still a buyer on any dip lower to 12280/12340 with the same 12220 stop. I still do not want to be short the market at this time.
Yesterday afternoon the FTSE traded lower to my 7195 buy level before having a small rally and I used this rally to cover this long position at my revised 7207 T/P level and I am now flat. With Sterling stronger ahead of the UK Spring Statement the FTSE is finding it difficult to rally. Today I will again look to buy the market on any dip lower to 7140/7175 with a 7110 stop.
Dow Rolling Contract
The Dow just missed my 25050 buy level with a 25140 low print before rallying into the close and again overnight. It is interesting that despite the Dow falling 160 points yesterday the McClellan Oscillator only closed marginally lower than Friday’s 160 close with a +150 print. Today I will raise my buy level slightly to 24910/25080 with a 24820 stop. My only interest in selling the Dow is still on a rally to the key 25700/25850 resistance level with the same 25930 tight stop.
There is no stopping rally in the NASDAQ as yet again the market closed at a new all-time high. We now have negative divergence between both the S&P and Dow against the NASDAQ and this will continue unless the S&P and Dow can make new all-time highs which seems unlikely in the near term given that the S&P is currently 90 Handles below its January 26 high. I am still flat the NASDAQ and today I will now raise my buy level to 7010/7060 with a 6965 tight stop. Despite the NASDAQ trading overbought I still do not want to be short the market at this time.
The BUND traded in a narrow range yesterday and I am still flat as the Bond markets wait to see how the US 30 Year Bond auction is received later today. I will now raise my buy level in the Bund to 156.45/156.85 with a 156.15 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1299/1308 with a 1292 stop.
Silver Rolling Contract
I am still long Silver at 16.66 from last week as I patiently wait for the market to breakout to the upside. I will continue to add to this position on any move lower to 16.25 with the same 15.90 stop and 17.05 T/P level. If my second buy level at 16.25 is filled I will lower my T/P level to 16.70.