The only price action of particular note since I posted yesterday morning has been in Sterling, which jumped by over a cent against the US dollar after UK Prime Minister May told parliament that if they rejected her Withdrawal Agreement on March 12th, they would in the subsequent days have the option of voting to leave the EU on March 29th without a deal, or vote for an extension of Article 50. May has though only suggested that the latter should be for only a short while (no later than June). I suspect events will over-take this ‘’extend and pretend’’ approach by the Prime Minster than seems designed to head off the immediate threat of more Cabinet resignations.
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For anyone following my Platinum Service it was flat yesterday and is still ahead by 941 points for February, having made 1671 points in January, 2803 points in December, 1541 points in November and 2094 points in October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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But what it means for the time being is that it is still not possible to definitely rule out a hard/no deal Brexit either on March 29th or sometime not much later. Indeed, after the close last night, France’s Finance Minister was out saying that if there is no clarity on the purpose of an (Article 50) extension ‘’I don’t see the necessity of that extension’’. Remember all 27 EU (ex-UK) nations need to approve any such request from Britain.
The net result sees Sterling higher on the further thinning of the March 29th hard-Brexit tail risk, EUR/GBP now trading at multi month lows at 0.8580 while Cable has closed well above its 200 Day Moving Average to register its highest close since April last year. I still see higher prices, but perhaps not at least until we see what unfolds on March 12th and in the days thereafter.
Not too much else to note in FX, save that the EUR (+0.3%) has managed to catch a bid in the slipstream of the stronger GBP, confirming its current ‘’low beta GBP’’ characteristic, such that gains for the two currencies that together comprise over 70% of the DXY Dollar Index means that the latter is currently 0.4% weaker. There has also been a contribution from a stronger JPY, USD/JPY -0.4% at 110.59 and thus moving further back down after having rejected a test of both the 100 and 200 day moving averages on Monday.
US interest rate markets have seen yields move modestly lower, in the wake of a (mixed) set of incoming US economic data and the first day of Fed chair Jay Powell’s semi-annual Congressional Testimony, before the Senate Banking Committee. Given the move to hold press conference after each FOMC meeting, we should now have learned not to expect any ground breaking insights from these affairs, which will be repeated this afternoon in front of the House Financial Services Committee.
Powell reiterated that the Fed would be ‘’patient’’ with interest rates. He said the US economy remained healthy, although it faced ‘’crosscurrents’’ from more volatile financial markets, slowing growth in China and Europe, and uncertainty around US-China trade negotiations and Brexit. The implicit message would appear to be that if the US and China can achieve a trade deal and global growth and markets rebound, then the Fed might again consider rate hikes.
On the more dovish side, Powell noted that people were being pulled back into the labour market, which had created more room for the US economy to grow without overheating. Powell reiterated that the inflation pressures were ‘’muted’’. US rates were little moved through the Q&A, and the market continues to price little from the Fed this year, and a rate cut by the end of 2020.
Powell also highlighted the Fed’s review of monetary policy that it is undertaking (the conclusions are expected next year). Powell said ‘’We are trying to think of ways of making that inflation 2 percent target highly credible, so that inflation averages around 2 percent, rather than only averaging 2 percent in good times and then averaging way less than that in bad times.’’
On the economic data front, US Consumer Confidence rebounded strongly in February from the January fall, to 131.4 from 121.7, unsurprisingly given the ending of the government shutdown and subsequent rally in US stock markets, the latter historically the biggest driver of swings in consumer sentiment. The current level does though still sit below the August-November 2018 highs.
In contrast housing-related data was weak, December Housing starts slumping to 1078k from 1253k expected (-11.2%) albeit Building permits were up by 0.3%, while the S&P Case-Schiller Core Logic house price series for December showed 20city index up 0.19% on the month (versus +4.5% expected) and seeing the annual pace of growth slip to 4.18% from 4.58% previously.
Equity markets closed slightly negative having reversed course in the last hour of trading as we wait for more news on the US/China Trade talks (0.1-0.2%) with the IT and Telecommunications sectors showing the biggest sub-sector gains in the S&P 500.
Oil has enjoyed a small rebound after Monday’s big fall, Brent crude currently 56 cents or 0.86% stronger, while most base metals, as well as iron ore, are firmer.
This morning on the Economic Front we have Euro-Zone Money Supply at 9.00 am, followed by Consumer Sentiment and Business Climate at 10.00 am. This is followed by US MBA Mortgage Application at 12.00 pm. At 1.30 pm we have Durable Goods Orders, Wholesale Inventories and the Trade Balance. Finally at 3.00 pm we have Pending Home Sales, Factory Orders and the Fed Chair Powell’s Testimony to the House Financial Services Committee
Meanwhile the ECB’s Coeure and Bundesbank’s President Weidmann are both speaking this morning at 8.30 am and 10.00 am respectively
March S&P 500
Unfortunately the S&P just missed my 2808 sell level with a 2803 high price before selling off into the close and again overnight with the market currently trading at 2785. I am still flat and today I will now lower my buy level to 2763/2775 with a 2755 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2738/2750 with a 2729 stop. I will also lower my sell level slightly to 2802/2812 with a 2821 stop.
The sideways action in the Euro continues and I am still flat. Today I will again leave my 1.1270/1.1310 buy level unchanged with the same 1.1225 stop. The Euro has strong resistance from 1.1520/1.1570 and I will be a seller on any rally to this area with a 1.1605 stop.
March Dollar Index
I have had the correct view in trying to sell the Dollar but unfortunately the market has not given me a chance to get short and I am still flat. Thankfully we have had no buy levels in the Dollar over the past two weeks with the market now trading over 200 points lower off its late January high. I am reluctant to chase this market much lower from here and today I will only lower my sell level to 96.10/96.50 with a 96.85 stop. The Dollar has good support at 95.00 and I will now look to buy the market on any further dip to 94.80/95.20 with a 94.45 stop.
The DAX continues to hold in despite the sell-off in the US Indices over the past two days. I am still flat and I will continue to be a small seller on any further rally to 11590/11650 with the same 11690 stop. My only interest in buying the market is from 11280/11360 with the same 11220 tight stop.
Frustratingly the FTSE just missed my 7145 sell level with a 7143 high print before having a small sell-off and I am still flat. Today I will raise my sell level slightly to 7160/7200 with a higher 7235 stop. I still do not want to be long the market at this time.
Dow Rolling Contract
Late yesterday the Dow rallied to a rebound high of 26155 which was just shy of my 26180 sell level before selling off 200 points and I am still flat. Today I will now lower my sell level to 26150/26300 with a lower 26390 stop. Given how overbought the Dow is trading I will leave my 25630/25750 buy range unchanged with a lower 25545 stop.
I am still flat the NASDAQ which again traded in a narrow range. My only interest in selling the market is still on a rally higher to 7160/7200 with a 7235 stop. The NASDAQ has support from 6960/7010 and I will be a buyer on any move lower to this range with a 6915 tight stop.
With Bund yields trading at such a low price it is no surprise that we are seeing little or no movement in this market. I am still flat and I will continue to be a seller from 166.90/167.30 with the same 167.70 stop. I still have no interest in buying the Bund at this time.
Gold Rolling Contract
I am still flat Gold with an unchanged 1305/1313 buy range. If I am taken long I will have a T/P level at 1319. Meanwhile I will leave my stop unchanged at 1297.
Silver Rolling Contract
No Change as I am still a buyer on any dip lower to 15.30/15.70 with a 14.95 stop.