It seemed that a deal over the Irish border was likely to emerge after the May-Juncker lunch meeting yesterday, the market was excited, but a deal did not emerge. There is still confidence on both sides that one can be agreed ahead of the EU December 14-15 Summit, with May and Juncker saying they will meet again before the end of this week. The Pound gyrated around these developments, rallying by a big figure from 1.3420 to 1.3520, but then giving it all up on “no deal” news. It’s though since steadied amid signs that the leaders will get together again to stitch together a deal that can be taken to the Summit.
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PM May must not only seek to put a deal together from which the Europeans will negotiate a trade deal, but retain support of the Northern Ireland DUP. There is no doubt the larger and over-riding picture is to get a transition deal done rather than a hard Brexit with no transition. Adding fuel to the fire were comments from Scottish First Minister Nicola Sturgeon saying that if N. Ireland gets to stay in the EU/Single Market and Customs Union, why can’t Scotland and Wales? (Scotland voted to stay in the EU but was outvoted by the pan-UK poll result). The Mayor of London Sadiq Kahn has said of the Irish deal that this should mean the City of London can do so too. We await further news late in the week.
With a whippy Pound and some softness in the NZD, CAD (oil lower), and the CHF, the DXY index closed up 0.32%, benefitting from tax reform tailwinds. The Dow and the S&P 500 closed higher (though off intra-day highs and there is some rotation out of tech stocks with the NASDAQ down 0.55%). US bond yields are somewhat higher though again more at the short end of the yield curve. 2s are up 3.4bps to 1.8063% and 10s up a net 1bp to 2.37%.
There is continuing speculation in the US press around the Mueller/Russia investigation. Markets though look to be taking their lead from the likelihood of Congress agreeing on tax cuts and, another positive US economy data print. This one was a better than expected reading on US Factory Orders for October, including an upward revision to the core capital goods orders component. There was no update to the Atlanta Fed’s GDPNow estimate for Q4 GDP that currently sits at a healthy 3.5%. There will be an update this afternoon after the release of the US ISM Non-manufacturing report for November and the full trade report also for November. The market will be paying close attention to not only the headline print for ISM Non-manufacturing but what it might say about Friday’s payrolls from its employment component.
With the USD somewhat stronger yesterday, oil, gold, and most base metals were also softer, but not iron ore. It rose another $2.57/t to $72.68/t, while met and steaming coal prices were also higher, met coal up another $2.50/t to $223/t. We have seen in iron ore that while the mostly-quoted 62% fines benchmark was up, the lower-graded 58% benchmark was down marginally on the day, a continuing revealed preference among steel mills for the higher quality imported ore.
This morning on the Economic Front we have German, UK, Euro-Zone and US Services/Composite PMI at 8.55 am, 9.30 am, 10.00 am and 2.45 pm respectively. Also at 10.00 am we have Euro-Zone Retail Sales and GDP and this is followed at 1.30 pm by US Trade Balance. Finally at 3.00 pm we have the ISM Non-manufacturing Composite.
December S&P 500
The S&P gapped higher at yesterday’s Chicago open accompanied by strong breath and a high NYSE tick. But the strength dissipated shortly thereafter as the NASDAQ never confirmed new all-time highs in both the Dow and S&P. The S&P’s intraday high came in at 2665 before the market sold off to close the ‘’Open Gap’’ from Friday at 2641.50 with a 2634 low print. With a closing Trading Index of 0.77, it suggests, again, a lot of buying power was used yesterday but to little avail as the S&P closed lower by 3 Handles. The last week has finally seen a massive pick up in volatility with the S&P having its most volatile two-way price action so far this year. I am still flat and I will continue to be a buyer on any dip lower to 2612/2622 with a 2604 stop which is just below last Friday’s low print. Given the reversal off yesterday’s 2665 high print I will now lower my sell level to 2659/2666 with a 2671 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller on any further rally to my 2680/2700 resistance area with a 2715 stop.
Unfortunately the Euro missed my 1.1825 buy level with a 1.1829 low print before rallying strongly and I am still flat. The price action continues to tell me to be a buyer of the Euro on dips. However I am not going to chase the market higher and today I will leave my buy level unchanged from 1.1780/1.1825 with the same 1.1745 stop.
December Dollar Index
Unfortunately the Dollar again missed my buy level before rallying and I am still flat. Just like the Euro above I am not going to chase this market higher and I will leave my buy level unchanged from 92.40/92.75 with the same 92.05 stop.
Surprisingly the DAX helpd in better than the US Indices yesterday with the market refusing to sell-off despite the near 275 point fall in the Dow from its opening high print. I am still flat the DAX and nervous especially given the renewed weakness in the NASDAQ which is an Index that the DAX tends to follow closely. In light of all of the above I will only raise my DAX buy level slightly to 12880/12940 with a 12825 stop.
My FTSE plan worked well with the market finally trading lower to my 7305 buy level before rallying to an overnight high at 7351. As I wanted to be flat overnight I covered this position too early at my revised 7315 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7275/7305 with a 7240 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
Frustratingly the Dow missed my 24540 sell level with a 24536 high print before selling off over 270 points to my 24290 buy level. Given the volatility it is getting more and more dangerous to hold an overnight position especially as the stock markets are now reacting more and more to both positive and negative news. Unfortunately I emailed my Platinum Members late last night to exit any long position at my revised 24310 T/P level and I am now flat. For any member who did not see my email you were better off with the Dow trading to a 24390 rebound high overnight. The Dow has an ‘’Open Gap’’ from last week at 24231 which should lead to a decent rally if tested. Today I will now be a buyer on any dip lower to 24180/24240 with a 24130 stop. Despite the reversal yesterday afternoon I still do not want to be short the Dow at this time.
The FANG stocks continue to lead the NASDAQ lower which as mentioned above did not confirm the new highs in both the S&P and Dow yesterday afternoon. I am still flat and today I will be a buyer on any further dip lower to 6190/6220 with a 6155 tight stop.
I have now rolled to the March Contract which trades at a 32 point discount to the December Contract. Today in the March Contract I will be a small buyer on any dip lower to 162.20/162.55 with a 161.95 tight stop. As the March Contract is trading at a discount to the December Contract I do not want to be short the Bund at this time as I want to see how the roll to the March Contract plays out over the next 24 hours.
Gold Rolling Contract
The boring non action for Gold continues with little or no price movement on a net basis over the past four months. I am still flat and today I will continue to be a buyer on any dip lower to 1256/1263 with the same 1249 stop.
Silver Rolling Contract
No change as I am still long from last week at 16.41 with the same 15.95 stop. As mentioned yesterday, my only interest in adding to this position is on a further move lower to 16.10. Today I will now lower my T/P level on this position to 16.55.