- THE FIRST SHOT:
Where do I start with this week’s blog?
Do I get a few of my usual expletive’s out of the way first?
- Holy Mother of God
- What the feck was that?
- Well, glaze my nipples and call me Rita!
- Jesus, Mary and Joseph
- It’s like putting lipstick on a pig… but it’s still a pig
I feel a bit better after that…
So many subjects to choose from this week plus, I have so many pieces of paper with memory joggers noted on them to choose from it’s hard to know what to use never mind where to start from.
- STOCK MARKET CORRECTION
- BOND YIELDS ON A TEAR
- OVER BOUGHT CONDITIONS IN STOCK MARKET
- RAMIFICATIONS OF A RISING U.S. DEFICIT TO THE U.S. & WORLD
- U.S. ECONOMIC OUTLOOK WITH STOCK MARKET FALL
- INTER-MARKET CORRELATIONS OUT OF THE WINDOW
- CREDIBILITY OF CENTRAL BANK ANNOUNCEMENTS
- STRENGTH OF THE USD (DXY) SPIKING OFF LOWS
- BANK OF ENGLAND TURNING HAWKISH
- CHINA DATA MODERATING, HOW WILL THIS MANIFEST ITSELF MOVING FORWARD
- IS THE UK GOING TO WALK AWAY FROM BREXIT WITH A “NO DEAL”?
- SHOULD THE UK TELL THE EU27 TO SHOVE THE BREXIT PROPOSALS WHERE THE SUN DOESN’T SHINE?
- COMMODITY WEAKNESS STARTING TO SHOW… WHAT ARE THE RAMIFICATIONS
In this section I have decided to touch on the media and how we as traders are basically treated as mushrooms fed shi*e and kept pretty much in the dark.
Since Friday Feb 2nd, I have had both CNBC and BLOOMBERG broadcasting alongside my trading screens set up. I wonder why I have had multiple headaches and a migraine in the last week, damn obvious when you think about it.
Back on point…
If you recall when the GFC happened, no-one admitted to losing money. Every clever fecker on CNBC saw it coming and dropped into cash ahead of the carnage. Now I am not comparing the recent correction in stocks to the GFC in size or world impact, there is no comparison, but I am comparing what we receive from the media about it.
We as traders like to have data. We live, eat and breathe data. I get it, sometimes moves just happen. But out of every move there are winners and losers.
We are led to believe, and this makes complete sense to me, that the CORRECTION was caused mainly by the inflation effect of the average hourly earnings increase to 2.9% annualized contained in the Non-Farm data release on 2nd February. The move up in earnings, spooked the bond markets because of the inflation ramifications and in so doing, created a domino effect, the commodity area started to react, then FX, albeit subdued, and finally Wall Street the equity markets suddenly heard the penny drop.
“FECK ME; HOLY CRAP” … maybe the FED may actually raise interest rates 3 or 4 times this year!
The domino effect, the circle was now complete. The rest is history as they say.
A week last Friday was a roller coaster market. The following Monday the DOW JONES closed over 1,100 points lower, a similar loss of 1,032 points was noted on Thursday last week. Both the DOW and broader based S&P entered CORRECTION territory as they had slipped 10% from their highs.
Millions of dollars have been wiped out. Last week was the worse week on Wall Street since 2011.
So; who was selling?
I haven’t got a fecking clue.
All I have heard from BLOOMBERG and CNBC was everyone was holding tight looking for the right opportunity to step back in with value picks.
FFS… someone, some institution was shorting the market.
Please forgive me if CNBC or BLOOMBERG found a seller, when I was taking a nap, having a sleep, eating or having a bathroom break, but I never heard or saw a name not even a rumour.
Can you believe this? Trillions of dollars were lost in the U.S. alone; once again no one on TV reported losing money, and no-one was shorting.
It’s a bloody miracle… I have witnessed a market move of biblical proportions “THE IMMACULATE CORRECTION”
What I do know is that a great deal of retail money came into the market at the start of 2018 and as usual “Ma and Pa” investors seem to be hit again. They always enter at the highs and lose and get out at the bottom just before the spike higher once again. I can only guess what it must be like for some retail investors, or any investors for that matter looking at their statements this weekend.
What do I take from this…
I have blogged about this so many times over the past 5 years or so and you can obviously draw your own conclusions, but, I am now more than ever of the belief after 10 years of trading that in FOREX: -
It is all about you
You have your machines
You have your charts
You have your analysis
It is you versus the world
It is all down to you
You will rise or fall on your decisions
Whether you are a Fundamental or Technical trader
- The media is biased. It only wants to promote “GOOD NEWS” because “BAD NEWS” does not get advertising revenue.
- Banking analysts SELL their latest book. They do this whether it’s the right thing to do or not.
- Twitter feeds and other Social media can be a very dangerous place to ascertain quality data.
The CORRECTION has happened. The unwinding will go on for some time yet as other influences come into play. The markets were very badly positioned going into NFP and this complacency has been whacked in good old Tony Soprano style.
Without doubt, some trading accounts were blown apart and some people lost a ton of cash. On the other side, somewhere somebody must have made a ton of cash shorting?
With all the above being said…
I can guarantee you that following last week there will be a lot of retail investors looking at their statements and weeping.
All eyes will be on CPi data this week.
- MARKET OVERVIEW – MY THOUGHTS:
ARE CENTRAL BANKS BEHIND THE CURVE?
I am a FUNDAMENTAL trader. 90% of the time I trade in the direction of my MICRO views and thoughts.
Obviously, my beliefs are built around the various policies of the Central banks. Their Monetary Statements are crucial to my thoughts along with the day to day economic data.
My initial observations are that when times are distressed they are quick to act they are masters of supplying liquidity, masters of trying to stabilize markets, removing uncertainties by promising whatever it takes to try to stabilize matters. The GFC and more recently BREXIT being cases of recent Central Bank intervention to support the general marketplace. Prior to these events, Central Bank governors or Presidents appeared to be wound up very tightly. Almost overnight it seemed that they all took stool softeners, which relaxed them and within what seemed like hours they were flooding the markets with financial accommodation and promises to keep banks liquid.
We are now moving away from “accommodation” after the longest period of recovery that I can think of and Central Banks are now moving to a policy of normalization.
Some are further down this road than others as the world economies recover at different paces.
- FED: In pole position to normalization.
Current rate is 1.5%, with 3 or maybe 4 rate hikes this year.
- BOE: Initially maybe a little reluctant to normalize but now moving up.
Current rate is 0.50%, with possibly 2 rate increases this year.
- BOC: On the road to higher rates. The BOC is data dependent.
Current rate is 1.25%, with possibly 2 more rate hikes this year.
- RBA: Unmoved and unchanged since August 2016.
Current rate is 1.50%, however analysts have a hike factored for Q4 2018.
- RBNZ: On hold with the last change being in November 2016.
Current rate is 1.75%, it was believed the next hike would be in 2019. However, the timing may be brought forward into Q4 2018.
- ECB: On hold with no plans to normalize interest rates this year.
Current rate is 0.00%. Q3 this year, news re normalization should be updated to the markets.
- BOJ: On hold with no plans to normalize.
Current rate is negative 0.10%.
- SNB: On hold with no plans to change.
Current rate is negative 0.75%
From this list of the major USD crosses, it is clear to see that we will be moving to a position of normalization from different places, but they are all from a very low base level.
My question is; Are the Central Banks behind the curve?
Let me use the FED as an example, initially.
One of the reasons provided by some analysts over the current stock market sell-off is that following the last good print of the Non-Farm payrolls number and the fact that wages started to accelerate resulting in possible inflation finally appearing, that caused the penny to drop. The FED had said at the end of 2017, based upon their view of the U.S. economy that 3 maybe 4 increases in U.S. interest rates could be taking place in 2018.
The markets being complacent ignored this, believing it probably would not happen. Non-farm data was good, the FED speakers that followed revisited the messages posted in 2017 and bond yields started to move. Commodity prices started to follow and then FX started to react very noticeably through the USD (DXY) strengthening.
Finally, Wall Street must have had a FFS and WTF moment. The rest is as often said, history. We should note, despite the changes in stock market prices lower, this has little or no effect on the economic outlook for the U.S. That message would change when people’s spending habits are seen to change.
In my opinion, this is all down to market complacency.
However, having said that, is the FED behind the curve based on the conditions in the U.S. economy?
From my perspective YES… without doubt and the fumbling and dithering by the FED have a part to play in creating an unstable environment. The very primary function that they are entrusted to prevent.
The conversations that take place regarding whether members are DOVISH or HAWKISH rumbles on. I have blogged on numerous occasions that Janet Yellen is always a DOVE. Once a DOVE always a DOVE. This means caution, or in my words dithering.
Jerome Powell her replacement as FED chairman has a tough job. Under Yellen and Bernanke, we never saw volatility like we have just seen. On the very day Powell gets sworn in the markets go mental. Can you connect this? I do not think so for the reasons already provided about how this MARKET CORRECTION came about.
But the facts are the U.S. economy is in fair shape and confidence is good.
I would not be surprised that if in March, Powell hits the market with a 0.50% rate hike, following with 0.25% in September and similar again in December. This would send a message and definitely bring the Fed in line with the curve. Doing 0.25% in March and again in June does NOT in my opinion send the correct message of control.
Stock markets are going to correct. As often said, the recent rise in equities over the past few years has been the most hated BULL RALLY in the history of stock market moves.
It’s now time to look forward and manage. The FED needs to be the Fed once again and take control. Be assertive, give the message of strength and outline the path forward. Had the FED been more assertive in the first place the rise in bond yields may not have been such a shock to the system.
Moving away from the FED…
Mark Carney at the BOE is really the only other Central Bank that has to deal with inflation. This issue for Carney, is that he has to deal with the complexities of BREXIT at the same time. Political fumbling’s and a weak power position for Theresa may as UK Prime Minister must keep him up at night.
He does not to coin a phrase, have much behind the clock in case of emergency. With interest rates at 0.50% I suppose he can match the ECB at 0.00%!
UK inflation is receding as the GBP/USD moves higher but cable is pressured at the moment. Above 1.4000, I would imagine gives him comfort as well as the key exchange rate being above that psychological number.
Across the English Channel in mainland Europe, the ECB is at 0.00% with QE still in place until at least Q3 this year.
There is little to no inflation in the EUROZONE, but the economic data is without doubt improving. More so in Northern Europe than the Mediterranean area, but data is moving to the positive side.
In my opinion, the ECB is behind the curve. Mario Draghi, ECB President has a huge, massive, bigly message to deliver without creating uncertainty in the markets. Right now, one could argue the stubbornness of the ECB to properly acknowledge good data and “Face the music” of the markets will come back and bite hard.
Therefore, in my opinion, one of key functions of Central Banks; to remove uncertainty and maintain stability in the markets is being placed in jeopardy because they do not act fast enough.
This opens up a new debate about the data they receive on which to base policy on. Is it good data? Is it timely? Is it accurate?
This then leads into the quality, the experience and abilities of those in the senior positions. Do they have what it takes to manage, interpret data and more importantly have the ability to deliver the message? Can they direct effectively?
- USD SUPPORT and RESISTANCE with my BIAS:
- THE PREMIUM SERVICE TRADING SUMMARY:
PREMIUM SERVICE PERFORMANCE YEAR TO DATE:
(Incorporating the last 5 PREMIUM SERVICE TRADES)
- PREMIUM SERVICE SUBSCRIBERS:
(This section is for PREMIUM SUBSCRIBERS ONLY)
5.1. TRADING REVIEW:
5.2. SENTIMENT, FUNDAMENTAL & MACRO THOUGHTS:
5.3. THE WEEK AHEAD:
5.3.1. ECONOMIC DATA RELEASES THAT INTEREST ME:
5.3.2. MY KEY EVENTS ON THIS WEEK’S CALENDAR AND WHY:
5.3.3. HOW I WILL APPROACH and TRADE THE MARKET THIS WEEK
5.3.4. MY “MACRO” TRADING PLAN FOR THE WEEK AHEAD:
5.4 SUMMARY - LONG TERM CORE TRADES:
5.5. CURRENT LIVE TRADES & LIMIT ORDERS:
5.6. FX BROKER NEWS and MARKET FEEDBACK:
- THE FINAL SHOT:
Nothing more to add here, I have said enough except,
Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.
The Pip Accumulator
BLOG VERSION: #269 FREE NEWSLETTER
DATE: 10th February 2018