It's Unemployment Day Again!
After having been traveling the past couple of days, it is interesting to see the state of the market as we await the U.S. employment report.
Equity markets have put in an impressive performance as the S&P 500 is up 3.7% for the week which brings the index all the way back from the 3% downtick from last week. In other words new closing highs! Crude is showing signs of life, it has bounced from the lows, while gold has held the $1550 level and closed last night at $1,567. All of this positivity has the VIX sliding lower to under 15.
Where do we go from here or more importantly, what do we do at this juncture?
Lets start with the information highlights so far today:
Industry production in Germany and France fell 3.5% and 2.8% in December.
Australian Central Bank cut their growth forecast, and likely lower rates coming, will try to avoid negative rates.
Japan household spending fell at a much faster pace than analysts expected.
U.S. employment out this afternoon…..
It seems to us that the market is comfortable that the Coronavirus is a China event and that the global growth will support the equity valuations.
It also seems that there is a lot of FOMO (fear of missing out) as well as LOOO (lack of other options) going on in the market.
We can understand the markets complacency when looking at the reporting on the virus developments on the link below.
But we are hearing and reading of large disruptions to shipping globally, supply chain disturbances, increasing travel restrictions and increased finger pointing between China and its neighbors, and increasing disagreements between China and other countries based on their reactions and actions to the virus. None of this seems positive for equity markets in the short term.
Gold: is a buy against $1550/$1555 target test of $1580. Wrong on trade below $1540.
FX: We think the USD will continue to strengthen, but await until after employment report to position.
We still like EUR short against CHF on for a longer term trade, combining risk off with political pressure from the U.S.
Equities: We are skeptical, but respect the resiliency of the market, would suggest buying 20/25 delta puts for clients seeking some protection.
Oil: Dependent on the supply developments, but think the 15% plus fall this year has oil at neutral level.
Gold over the past couple of years:
Rallied from August 2018 to February 2019
Consolidated from February 2019 to June 2019
Rallied from June 2019 to September 2019
Consolidated from September 2019 to December 2019
Rallied this past December and January, and is on consolidating mode currently.
We recommend range trading until we see the market break either the $1,610 or the $ 1,540 levels
Brent Crude at the lower end of range and on key support. For crude lovers this looks like a good risk reward area to go long. Risks range from supply developments (Russia not playing ball) to further growth worries on the back of the Coronavirus. But you know where the stop should be if looking to go long!
|Ticker||Date Opened||Entry Price||Stop||Target Price||Current Price||% Change|
|Long EURCHF Put Option, Strike 1.0650, Expiry 15.4.2020||2020/01/15||1.0757 (0.00620)||1.06961 (0.00526)||-0.56%|
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