The market has held on to early gains from the US-China trade armistice. All major equity markets have started the new week with positive returns, risk sensitive currencies are higher and gains in commodities have been led by higher oil prices. However, initial gains faded as the day went by reflecting a sense of cautiousness given lack of details from the ceasefire agreement and conflicting reports. The ISM Manufacturing shot the lights out and even though prices paid eased, policy sensitive front end UST yields rose, flattening the curve.

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US-China Ceasefire 

After Sunday’s tweet by President Trump announcing that China had agreed to ‘’reduce and remove’’ tariffs on American-made vehicles, yesterday US Treasury Steven Mnuchin confirmed China has agreed to eliminate tariffs on imported automobiles but failed to give details. A few hours later in a Briefing, China’s Foreign Ministry spokesman Geng Shuang declined to comment on any car tariff changes, leaving the market wondering if car tariffs are part of a broader deal. Late yesterday, Trump’s Economic Adviser Lawrence Kudlow said he was ‘cautiously optimistic’ about progress in trade talks with China and the US President named US Trade Representative Lighthizer to head trade negotiations, who is a known hard-liner that has been pressing for more tariffs against China. Worth noting too that officially China has not acknowledged the conditionality of the trade truce, the 90 day deadline has also been omitted. So overall trade news has probably left the market with more questions than answers, can the US and China really resolve their differences in 90 days? It seems that more details and signs of progress will be needed if the initial trade truce warm fuzzy feeling is to be sustained.


Relative to yesterday’s opening levels the USD is weaker against most currencies with the improvement in risk appetite the main factor at play. Sterling is one exception a tad weaker after erasing early gains amid more Brexit developments. That said as noted in previous commentary, USD Indices are still hovering very close to their year to date highs. DXY now trades at 97.02 and BBDXY is at 1206.18.

Risk sensitive and commodity linked currencies have led the gains against the USD with NOK (0.97%), SEK (0.91%), NZD (0.84% ), CAD (0.77%) and AUD (0.71%), leading the gains in G10. CNY has also been a key beneficiary of the trade war ceasefire with USD/CNY down more than 1% to 6.8830.

Looking at the AUD in more detail, the pair traded to an INTRA-DAY high of 0.7391 early in the session, but as US-China trade news raised some questions and equity markets faded, the AUD gave back some of its early gains and now trades at 0.7350. Yesterday, the AUD also struggled to retain early gains with domestic data releases printing on the softer side of expectations. Housing market indicators continue to slow in November and Q3 GDP partials came out softer than expected, pointing to downside risks to Q3 GDP on Wednesday. Inventories were flat in the month against expectations of a +0.4% rise, meaning inventories will likely subtract around -0.26%points from quarterly GDP growth and company profits rose 1.9% q/q (weaker than the 2.8% consensus).

Amongst the other majors, JPY is flat against the USD with USD/JPY at 113.68 while GBP/USD is a bit softer (-0.1%) at 1.2724. The UK Attorney General confirmed that Britain will not be able to cancel the Irish backstop clause without approval from the EU, as he gave legal advice to MPs May’s Brexit deal. EUR is up 0.3% to 1.1350, perhaps supported by incrementally positive news on the Italian budget standoff with the EU, although mixed PMI result did not help the Union currency (more below)


The US ISM Manufacturing beat expectations with domestic new orders more than offsetting the decline in export demand. That said and perhaps more importantly for the market, the prices paid index fell by 11 points to 60.7, to be now slightly above its 20y average. Overall the data supports the notion that US inflationary pressures are easing, in line with the sharp falls in the oil price and the recent rise in the US dollar and thus the Fed can afford to be patient.

The ISM did not elicit a material reaction on the USD, however policy sensitive shorter dated UST yields rose after the data release, suggesting the market paid more attention to the rise in the headline numbers rather than the decline in prices. The 2y rate ended the day 4.1bps higher at 2.837% while the 10y rate is essentially unchanged relative to yesterday’s opening level at 2.989%. 10y UST yields traded to an early high of 3.0498%, but with oil prices easing, trade uncertainty rising and a decline in ISM prices, the tenor embarked on a steady decline erasing all the gains for the day.

Italy’s 10-year rate fell to a 2-month low, declining 6.7bps to 3.14% with one paper reporting that PM Conte is convincing Salvini and Maio to lower the deficit to meet EU demands. Data releases probably also paid a part with Italy’s PMI falling to 48.6 and the weakest read since April 2013.


The S&P500 opened up 1.4% higher, but gains has since been pared down to 1.09%. The Dow (+1.20%) and NASDAQ (1.39%) also started the week on a positive note and early in the session all major European indices closed in positive territory with the STX Europe 600 closing at 1.03%.


Oil prices opened stronger and Brent crude was up as much as 6.6% at $62.60 at one stage, before paring gains to 5.3%, now trading at $61.93. In addition to the trade truce improvement in risk sentiment, the ‘’high 5’’ that Putin and the Saudi Crown Prince gave each other was seen as a sign of cooperation that OPEC and friends. The two countries agreed to extend into 2019 their deal to manage the market, although neither have yet to confirm any fresh output cuts.

Other commodities have started the week with gains, albeit not quite to the same degree as oil. The LMEX index is +1.27%, iron ore is 1.24% and gold is 0.90%.


– A number of Fed speakers were out yesterday. Vice-chair Clarida’s comments on Bloomberg TV looked a little hawkish, as he played up the ‘’symmetry’’ around the Fed’s inflation target, not concerned about overshooting the 2% target; and playing down the concept of a ‘’Powell put’’, cautioning investors against thinking that the Fed would act to halt a sharp stockmarket decline. Fed President Kaplan’s comments were more on the dovish side. He urged the central bank to tread carefully and be ‘’very patient’’ as it considers further increases in US Interest Rates. He was seeing signs of weakness in sectors sensitive to higher interest rates, such as housing, as well as more sluggish growth readings overseas and tepid US inflation data. ‘’I want to avoid a situation where we have overdone it, I think because inflation readings are more muted, we have the luxury to be patient and be very vigilant here, and try to avoid making that mistake’’ , adding that there are a number of possible ‘’downside risks’’ that could hit the economy in the months ahead. This is the line of thinking that the market has recently adopted. The Fed’s Quarles said the Fed is following a policy strategy and ‘’will be following this path until there is a significant reason to change’’.

– The manufacturing ISM index rose to 59.3 in Nov from 57.7 in Oct, well above the 57.5 consensus. Rebounds in new orders (up to 62.1 from 57.4, reversing the October drop), employment (58.4 from 56.8) and inventories (52.9 from 50.7) were responsible for most of the increase in the headline. Prices Paid fell -10.9 points to 60.7, staying above its 20y average of 59.7.

– EZ Final Manufacturing PMI at 51.8 against a preliminary 51.6. While positive, it was the Italian numbers that took the wind out of the sales with Italy’s PMI falling to 48.6 and the weakest read since April 2013.

This morning on the Economic Front the UK Governor Carney is speaking at 9.15 am and this is followed at 9.30 am by PMI Construction. At 10.00 am we have Euro-Zone PPI. Finally at 2.45 pm we have the ISM New York and the Fed’s Williams who is speaking on the US Economy at 3.00 pm.

December S&P 500

The US Stock Markets will closed tomorrow Wednesday, December 5, in observance of a national day of mourning for the passing of George H.W. Bush. There will be no pit trading and no Globex trading in US Equity Futures. Yesterday the S&P which traded to a high of 2814 subsequently got hit hard but unfortunately just missed my 2770 buy level with a 2774 low print before rallying into the close. I am not going to chase this market higher given how far we have rallied in the last six trading sessions and today I will leave my 2760/2770 buy range unchanged with the same 2748 stop. I will now lower my sell level slightly to 2815/2827 with a lower 2835 stop.


The Euro rallied to an intra-day high of 1.1380 after I posted yesterday morning thus giving anyone who stayed long an opportunity to exit any long position held over the weekend at my 1.1350 T/P level or higher and I am now flat. Given the low DSI reading towards the Euro as long as we can hold the 1.1215 November low then it is only a matter of time before we break the key 1.1450/1.1500 resistance area. Today I will again look to buy the Euro on any dip lower to 1.1280/1.1320 with a 1.1245 stop.

December Dollar Index

My short 97.20 position form late Friday also worked well with the Dollar trading lower to my 96.90 T/P level and I am still flat. Today I will again look to sell the Dollar on any rally higher to 97.20/97.60 with a 97.95 stop.

December DAX

I am still flat the DAX. I still do not like the price action in the market as the DAX is struggling to break and close over the key 11500/11600 resistance area. Today I will leave my 11240/11320 buy level unchanged with the same 11180 stop.

December FTSE

Despite the very weak Sterling the FTSE is also struggling to break higher. I am still flat and I will continue to be a buyer on any dip lower to 6980/7010 with a 6945 stop.

Dow Rolling Contract

Unfortunately the Dow just missed my initial 26130 sell level with a 26070 high print before the market fell 400 points and then rallied 150 of these losses into the close. Today I will be a buyer on any dip lower to 25380/25560 with a 25275 stop. I will now lower my sell level slightly to 26100/26300 with a 26385 tight stop.

December NASDAQ

Both the 50 and 200 Day Moving Averages for the NASDAQ are at 7062 which is where the market closed last night. I am not convinced that given the recent damage in the FANG stocks that the NASDAQ is going to recover much further. Today I will be a small seller on any rally higher to 7130/7175 with a 7210 stop. I do not want to be long the market at this time.

December BUND

The weakening EZ Economy sees the Bund trade higher. I am still flat and today I will now raise my sell level to 162.05/162.45 with a higher 162.75 stop. Despite the positive price action I still do not want to be long the Bund at this time.

Gold Rolling Contract

Gold finally closed over 1230 last night but only just. Today I will now raise my buy level to 1212/1220 with a 1203 stop.

Silver Rolling Contract

Shortly after I posted Silver traded higher to my 14.30 T/P level on my latest 14.15 long position and I m now flat. Silver traded to an intra-day high of 14.60 before selling off small into the close. If Silver can break the key 14.80/15.00 resistance area then we may finally see a test of the next key resistance level at 16.00. Today I will again look to buy the market on any dip lower to 14.00/14.30 with a higher 13.70 stop.