Trade talks in between Beijing resumed yesterday and included an unscheduled appearance by China’s Vice President Liu He, an act that further boosted sentiment towards a deal. Commerce Secretary Wilbur Ross later expressed optimism to CNBC that the U.S. can reach a “reasonable” trade deal with China. A pact would include increased Chinese purchases of American soybeans and LNG, plus “structural reforms” on IP rights and market access, Ross said. Also helping sentiment are reports of PresidentTrump aides telling him that in order to stabilise markets, he needed to do a trade deal with China and leave Fed Chair Powell alone.
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The US Non-Manufacturing ISM disappointed expectations coming in at 57.6 down from 60.7 in November and 58.5 expected, though market reaction was limited in so far as the ‘’whisper number’’ was undoubtedly lower than the official consensus after last Thursday’s big downside surprise in the manufacturing version. Also supportive, the new orders component held steady, in contrast to the big drop in manufacturing orders in last week’s report.
European data was a mixed bag, with German November Factory Orders falling by 1% against -0.1% expected though both German and pan-Euro-Zone November Retail Sales came in stronger than expected at 1.4% and 0.6% on the month respectively.
There has been no sign of progress towards ending the partial US government shutdown, now in its 17th day.
Fed speak saw Atlanta Fed President Raphael Bostic (an FOMC non-voter this year) say the central bank should raise interest rates just once this year, but he didn’t say when and added he would keep an open mind about whether more or fewer moves might be needed.
The AUD has made further advances overnight albeit not by much, to a high of 0.7150 from around 0.7125 24 hours ago, Sino-US trade optimism still the principal fundamental driver. AUD gains have though been exceeded by most other currencies, NOK, SEK, CHF, EUR and CAD all showing bigger gains. The JPY is again the only currency down against the USD; symptomatic of the sudden loss of demand for safe haven currencies (the stronger CHF merely looks to be mimicking gains in the EUR).
Instructive here is that the USD has, in narrow DXY Index terms, just recorded its lowest levels since 22nd October 2018 (low o/n of 95.64). This is over 2% down on its mid-December highs and after a period where the USD wasn’t receiving as much safe haven support during the late December market ructions as one would normally expect, falling US yields notwithstanding.
So even if the US rates market is getting ahead of itself pricing in the commencement of a Fed easing cycle as early as late 2019, it is going to take lot to get the USD back near its 2018 range highs. I do not it, the flipside of which is that last week’s ‘’Flash Crash’’ low on AUD/USD at 0.6790 should not be seen again this year. I say this even if it transpires that incoming Australian data is seen to add to risks of the RBA’s next rate move being down.
US equities have extended Friday’s 3%+ gains the NASDAQ up over 1% and both the Dow and S&P by more than 0.5%. Within the S&P500 it is the consumer discretionary sector that is faring best, up 2.4%. Earlier European stocks closed mixed, the Eurostoxx 50 -0.3% with the UK, Germany and France all down but Spain and Italy higher.
The VIX index is little changed on Friday’s close at 21.5.
The US Treasury curve has bear-flattened with 2s +3.9bps to 2.532% and 10s a lesser +2.3bps to 2.689%.
Commodities are all showing gains with the exception of a small fall in steaming coal, oil by between 50 and 75 cents and meaning that both WTI and Brent are now some 15% up on their late December lows. Base metals are all higher, as is iron ore (+1.5%). Gold is also a touch higher, aided by the weaker dollar.
This morning on the Economic Front we already had the release of German Industrial Production which came in much weaker than the +0.3% expected with a -1.9% print. At 9.30 am we have the UK Halifax House Price Index and this is followed at 10.00 am by Euro-Zone Consumer Confidence and Economic Sentiment. Next we have the US NFIB Business Optimism Index at 11.00 pm and the Trade Balance at 1.30 pm. Finally at 3.00 pm we have the JOLTS Job Openings.
March S&P 500
It is incredible that just two weeks ago the McClellan Oscillator closed near a record low of -327 indicating a massive rally in the US stock market. This has now been achieved with a 235 Handle rally off the 2332 low print on December 26, 2018 to yesterday’s 2567 high print. This rally saw huge spike in the MO which closed last night near record highs with a +288 print. The S&P managed to close over the February low of 2532 which is important as this low held the market on four occasions in early December before finally breaking and should contain any initial sell-off despite the overbought condition of the US Indices. Today I will now raise my buy level to 2518/2534 with a 2509 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip to 2482/2497 with a 2468 stop. Given the severity of this now overbought market I will be a small seller on any further rally to 2583/2598 with a 2610 stop.
The Euro closed at its highest level since October 19, 2018 as the narrow sideways trading action continues. The Euro has strong support from 1.1100/1.1200 and strong resistance from 1.1600/1.1700 and it will take a break of either of these key levels for the next meaningful move in the market. I am still flat and today I will leave my 1.1320/1.1360 buy level unchanged with the same 1.1280 stop.
March Dollar Index
I am still flat the Dollar and even though the market closed at a two month low I am not going to chase the Dollar lower. Therefore I will leave my 96.00/96.40 sell level unchanged with the same 96.75 stop.
My DAX plan worked well with the market trading lower to my 10680 buy level before rallying to my revised 10700 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 10590/10650 with a 10540 stop. I still do not want to be short the DAX at this time.
My FTSE plan also worked well with the market trading lower to my 6730 buy level shortly after I posted yesterday morning before rallying to my 6760 T/P level and I am now flat. Given the oversold condition and attractive Yield on market I will continue to be a buyer on dips in the FTSE. Today my buy level is from 6675/6720 with a 6635 tight stop.
Dow Rolling Contract
My Dow plan worked well with the market selling off shortly after the US Markets opened to my 23320 buy level before rallying to an intra-day high of 23688. This move higher enabled me to cover my long position at my revised 23420 T/P level and I am still flat. Today I will again look to buy the Dow on any dip lower to 23290/23430 with a 23150 stop. Even though the MO closed at a +288 print I still do not want to be short the Dow at this time especially as I have a sell range in the S&P above and NASDAQ below.
I am still flat the market which missed my buy range before trading higher. The NASDAQ has huge resistance from 6600/6660 and I will be a seller on any rally to this area with a 6705 stop. Meanwhile I will now raise my buy level slightly to 6340/6390 with a 6285 stop.
I am still flat the BUND which continued to sell-off yesterday closing below the key 164.00 support level. The 163.95/164.35 area should now act as strong resistance and today I will be a seller in this range with a 164.65 tight stop.
Gold Rolling Contract
After a strong upward push that saw Gold rally to a high so far of 1298 the precious metal sold off yesterday. I am still flat and today I will leave my 1257/1267 buy range unchanged with the same 1249 stop.
Silver Rolling Contract
Overnight Silver traded lower to my 15.60 buy level. I am still long and I will now raise my stop on this position to 15.15. I will also lower my T/P level to 15.80. If any of the above levels are hit I will be back with a new update for my Platinum Members.