President Trump has stolen the show yet again with his tweeter account and commentary largely responsible for most of the main market moves over the past 24 hours. Major equity Indices have had a solid start to the new week after a twitter posting yesterday morning by President Trump suggesting that he will be delaying the increase in China tariffs scheduled for March 1st. Comments from President Xi focusing on ‘’Stable growth’’ also boosted Chinese equities and early yesterday morning another tweet from President Trump sent oil prices crashing. The US Dollar is little changed against most majors, but it has lost ground against Emerging Market currencies while the AUD and NZD have led the charge within G10. US Treasury yields are a few basis points higher.
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It all started with a couple of tweets.. President Trump twitted ‘’I will be delaying the U.S. increase in tariffs now scheduled for March 1. Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement. A very good weekend for U.S. & China! The news boosted risk appetite with APAC equities performing across the board while EM FX and commodity linked currencies also joined the party.
Chinese equities were the outstanding performers with both the Shanghai and Shenzhen Composites up almost 6%. President Trump tweets was one supporting factor, but another key driver came from weekend news noting commentary from President Xi at a Politburo meeting on Friday emphasising ‘’risk prevention should be done on the basis of stable growth’’. The commentary was interpreted as yet another signal that China’s policy makers are de-emphasising their crackdown on leverage and as a result financial shares were the big winners yesterday up more that 7.5% in the Shanghai Composite index and 9.51% in the Shenzhen index. In comparison, major European equity markets closed with modest gains ( STX Europe 600 +0.26%) while US equities closed up between 0.1% and 0.3% after a late sell-off into the close.
Insistence from US trade negotiators that a deal with China needs to include strong enforcements including a ‘’stable yuan’’ is keeping many investors cautious. In this regard China’s official Xinhua News Agency reported that while ‘’substantial’’ progress has been achieved the talks may face ‘’new uncertainties’’ adding that bilateral trade frictions are ‘’long-term, complicated and arduous’’. Speaking to the media overnight and as true showman President Trump said ‘’We are going to have a signing summit, which is even better,’’ adding that ‘’We are getting very, very close’’ only to then curb everyone’s enthusiasm by noting that a deal ‘’might not happen at all.’’
Looking at currencies in more detail, the US Dollar is little changed against the majors although as we type Sterling is getting a boost following news reports that on the back of pressure from his own party, UK opposition Labour Party Leader Jeremy Corbyn has agreed to support a new Brexit referendum. The change in tactic comes as the Labour Party tries to halt a wave of defections from party members who want to stop Brexit. A propose referendum amendment is not expected to take place this week with the Labour Party still in need to do a fair bit of work if it wants to get the Referendum vote over the line. Bloomberg notes that even if all 246 Labour MPs voted for a referendum – along with the 65 other opposition MPs who might back one, and around 10 members of May’s Conservative party — they would only just have a majority. The report also suggest that there is probably about 25 Labour MPs that would disobey any instruction to vote for a referendum. GBP now trades at 1.3150, up 1.0% over the past 24hrs.
AUD (@0.7174) and NZD (@0.6885) are the other two outperformers, up 0.63% and 0.57% respectively with the US-China trade news and broad improvement in risk appetite the main drivers for the antipodean gains. Buoyant risk appetite and commodity prices are currently more than offsetting the domestic concerns over a subdued consumer, declining house prices and cautious RBA. As noted yesterday, my fair value model has continued to tick higher, suggesting a move above 72c looks reasonable from a fundamental basis.
Oil prices have crashed more than 3% following another tweet by President Trump “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!”. The tweet comes two months into a new round of production cuts from OPEC and friends. The producers are scheduled to meet again in mid-April to review the deal, which is planned to last through the first six months of 2019.
Global rates have moved higher amidst the risk-on tone to markets. The 10 year Treasury yield is 2.2bps higher to 2.675%, reversing its fall on Friday. There was no major economic data yesterday, although Atlanta Fed President Raphael Bostic (a non-voter this year) commented that he expected one more hike this year and one further rate rise in 2020, assuming the economy was ‘’running fine’’. Fed Chair Powell testifies before the Senate this afternoon, and markets expect he will reiterate his intention to be ‘’patient’’ with further interest rate increases. Powell is likely to be quizzed on the Fed’s plans for the balance sheet, and the circumstances under which it could resume rate hikes.
This morning on the Economic Front we already had the release of German GFK Consumer Confidence which came in as expected with a 10.8 print. At 9.30 am we have UK BBA Mortgage Approvals and this is followed at 1.30 pm by US Building Permits and Housing Starts. Finally, at 3.00 pm we have Consumer Confidence, Richmond Fed Manufacturing Index and Fed Chair Powell’s Testimony to the Senate Banking Panel.
March S&P 500
My S&P plan worked well yesterday with the market finally testing the key 2810/2825 resistance area with a high of 2813.75 before selling off over 30 Handles. The key to yesterday’s move was the 10% spike in the VIX which was higher all day despite the Stock Markets opening with stronger prices. As I was also short the Dow at the same time I unfortunately covered this short S&P position too early at my revised 2806 T/P level and I am now flat. Given the fact that Fed Chair Powell’s Testimony is this afternoon I would expect some bounce-back in the market before we see lower prices. Today I will raise my buy level slightly to 2767/2780 with a 2759 stop. I will again look to sell the S&P on any move higher to 2808/2821 with a 2830 stop.
The boring action in the Euro continues with little or no net movement over the past six months. Today I will leave my 1.1270/1.1310 buy level unchanged with the same 1.1225 stop.
March Dollar Index
I am still flat the Dollar and today I will also leave my 96.65/97.05 sell range unchanged with a 97.35 stop. I still do not want to be long the Dollar at this time.
The DAX initial rally failed as the day went on and I am still flat. Today I will lower my sell level to 11570/11640 with a 11695 stop. Meanwhile my only interest in buying the market is still on a dip lower to 11280/11360 with the same 11220 tight stop.
My FTSE plan worked well with the market trading lower to my 7135 buy level before rallying to my 7165 T/P level and I am now flat. With Sterling trading over 1% higher since I posted 24 hours ago the FTSE should struggle to rally from here. I will now look to sell the market from 7145/7185 with a 7225 stop. I no longer want to be a buyer of the FTSE at this time.
Dow Rolling Contract
Initially the Dow made new highs for the Year led by new all-time highs in Cisco with the market closing the ‘’open Gap’’ from last November with a 26241 high. Subsequently the market sold off as expected given the strength of the 26200 resistance area which is 4500 points higher than the lows made on Christmas Eve. My Dow plan worked well as after the market traded higher to my 26200 sell level before falling over 170 points into the close and this move lower enabled me to cover this short position at my 26145 T/P level and I am now flat. Today I will continue to be an aggressive buyer on any further dip to 25650/25750 with the same 25580 stop. Meanwhile I will still look to sell the Dow on any further rally to 26180/26340 with a 26415 stop.
The high for the NASDAQ was 7167 which was just shy of my 7200 sell level which is frustrating with the NASDAQ trading at 7090 this morning. Today I will lower my sell level to 7160/7210 with a 7265 stop.
I am still flat the Bund and today I will leave my 166.90/167.30 sell level unchanged with the same 167.70 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1305/1313 with a 1297 stop.
Silver Rolling Contract
I am still flat the market and today I will now lower my buy level slightly to 15.30/15.70 with a lower 14.95 stop. If I a taken long I will have a T/P level at 15.95 which is just below the key 16.00/16.20 resistance area.