U.S. Equity Markets edged higher to fresh records as investors looked for signs of progress in U.S.-China trade negotiations. The US Dollar again weakened and Treasury yields dipped. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all fluctuated throughout the day, but ended up eking out a gain. Defensive shares such as consumer staples and utilities performed best. Word that White House would extend a license to allow U.S. companies to do business with Chinese telecom firm Huawei competed with reports that said Beijing was sceptical about reaching a broad deal anytime soon. Meanwhile, the US Dollar extended a slide after Federal Reserve Chairman Jerome Powell met with President Donald Trump and Treasury Secretary Steven Mnuchin on Monday to discuss the economy. Japanese and Chinese equities closed higher, while stocks slipped in India and Australia. Hong Kong’s market outperformed, even as unrest in the city continued. China’s Yuan dipped after the country’s Central Bank lowered borrowing costs on short-term loans for the first time since 2015 and injected $26 billion into the financial system. The moves were seen as aimed at shoring up confidence following a string of poor data in the second-biggest economy.
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U.S. equities are showing their sensitivity to any developments on trade after months of closely followed negotiations. Yesterday’s records extended gains from last week, when White House economic adviser Larry Kudlow’s had said that U.S.-China talks were nearing the final stages. I don’t know how many times we’ve seen optimism turn into pessimism. If it was easy, it would already be signed.
The S&P 500 Index rose less than 0.1%, closing at a price of 3122.
The Stoxx Europe 600 Index was little changed.
Hong Kong’s Hang Seng Index jumped 1.3%.
Here is a summary of the main changes in F.X Markets:
The Bloomberg Dollar Spot Index fell 0.1%.
The Euro strengthened 0.2% to $1.1075.
The Japanese Yen rose 0.1% to 108.65 per dollar.
The offshore Yuan sank 0.3% to 7.0254 per dollar.
The British Pound gained 0.5% to $1.2955.
The yield on 10-year Treasuries dipped two basis points to 1.81%.
Britain’s 10-year yield rose two basis points to 0.75%.
Germany’s 10-year yield was little changed at -0.34%.
Italy’s 10-year yield fell two basis points to 1.21%.
On the energy front, Saudi Arabia set an IPO valuation target for Aramco well below the kingdom’s goal of $2 trillion and pared back the size of the sale. It looks set to rely on local investors after most international money managers balked at even the reduced price target.
West Texas Intermediate crude decreased 1.5% to $56.84 a barrel.
Gold rose 0.2% to $1,471.77 an ounce.
This morning on the Economic Front we have the Euro-Zone Current Account and Construction Output at 9.00 am and 10.00 am respectively. At 11.00 am we have the UK CBI Industrial Trends Survey and this is followed at 1.30 pm by U.S. Housing Starts and Building Permits. Finally, we have a speech from Fed Member Williams at 2.00 pm.
December S&P 500
Both the Dow and S&P closed at new record highs yesterday but yet again more stocks closed lower than higher on the NYSE and there was more down volume relative to up volume on what turned out to be a very slow trading session. The S&P has left an ‘’Open Gap’’ from November 14 at 3096 as this fractured move higher shows no signs of ending despite all my concerns as outlined in my commentaries over the past few weeks. Yesterday the VIX rose 3.5% to close at 12.46 while the McClellan Oscillator again fell to close with a still negative print of -41. This should not be happening with the main Indices at record highs. I am still short the S&P at an average rate of 3113.50 and today I will raise my T/P level on this position to 3112. I will leave my stop at 3132 and if I am stopped out of this position I will continue to be a seller form 3133/3145 with the same 3158 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
As regards markets, President Trump has achieved almost everything he set out to do with the exception of a weaker US Dollar. After it was announced that Trump had met Fed Chair Powell yesterday the expectation is he has asked for the Dollar to weaken and despite the interest rate differential it is the main reason why I have not been short the Euro over the past few months. Four years ago the Euro was trading at 1.09/1.11 and this range has more or less held in the intervening period despite the US Economy outperforming its European Counter parts. Today I will continue to be a buyer of the Euro from 1.1000/1.1040 with a 1.0965 stop. I still do not want to be short the Euro at this time.
December Dollar Index
No Change as I am still a seller on any rally higher to 97.95/98.35 with the same 98.65 stop.
The DAX sold off early in the afternoon before bouncing to close the day unchanged. The DAX has support from 13080/13140 and I will be a buyer on any dip to this area with a 13025 tight stop.
I am still flat the FTSE and today I will now raise my buy level to 7240/7280 with a higher 7195 stop. Despite the higher Sterling I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow briefly dropped after news out of China that there was no sign of an imminent Trade deal. I used this move lower to cover my latest 28005 short position at my revised 27975 T/P level as emailed to my Platinum Members and I am now flat. One interesting piece that I read over the weekend in relation to Tariffs that I want to share with you. It is not widely known that China is the top furniture exporter to the U.S. – $34 BILLION LAST YEAR – and furniture retailers in the US are feeling the sting from the trade war tariffs. Chinese furniture was hit with a 10% tariff in September 2018, and that jumped to 25% last May after trade negotiations fell apart. Because furniture is a discretionary purchase, which means the industry could face more tariff-related financial troubles. Jay Berkowitz, CEO of the furniture company Arnold’s says the $2.2 million in furniture tariffs his company paid over the past 12 months completely wiped out its profit and forced it to operate at a loss. Trade wars are not good for an economy and this will end badly in my opinion.
Today I will again look to sell the Dow on any further move higher to 28160/28310 with a 28395 tight stop. If I am taken short I will have a T/P level at 28085.
My 8360 short position worked well with the market declining below 8300 and this move lower enabled me to cover this position at my 8320 T/P level and I am now flat. The NASDAQ has strong resistance from 8370/8420 and I will be a seller on any rally to this area with an 8465 tight stop.
I am still flat the Bund as I continue to be a buyer on any dip lower to 169.90/170.40 with the same 169.55 stop.
Gold Rolling Contract
Gold made a low at 1456 shortly after I posted yesterday morning before rallying to close at 1474 and I am still flat. Today I will be a small buyer on any dip lower to 1450/1460 with a 1443 stop.
Silver Rolling Contract
I am still flat Silver and today I will now raise my buy level to 16.40/16.80 with a higher 16.10 stop.