The Week Ahead – Profiting from War

Previous week: 03 April 2017 – 07 April 2017

AUD Cash Rate—12:30pm 4 April 2017

The Reserve Bank of Australia kept interest rates unchanged at+1.50%.

US crude oil inventories—10:30pm 5 April 2017

US crude oil inventories continued to increase this week with a build in crude inventories of +1.566 million barrels. Baker Hughes oil rig count rose another 10 from 662 to 672 last week, making it the 12th consecutive week of rig count gains.

http://www.zerohedge.com/news/2017-04-05/wtirbob-tumble-after-surprise-inventory-build-sends-crude-glut-back-record-high

FOMC Meeting Minutes—6 April 2017 2am

There are three main takeaways from this FOMC meeting minutes. The first being the Fed’s pivot in stance on their enormous balance sheet. The Fed is now hinting that they are willing to change their stance on reinvesting matured assets on their book. This implied that they want to reduce the size of their balance sheet and stop buying Treasuries and mortgage backed securities. The second point is that the Fed still expect further increases in the Fed funds rate later this year. The third point is that the Fed thinks that the stock market is “quite high”.

“Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee’s reinvestment policy would likely be appropriate later this year.”

http://www.zerohedge.com/news/2017-04-05/fomc-minutes-balance-sheet-begin-shrinking-year-some-saw-stock-prices-quite-high

US non-farm employment change—7 April 2017 8.30pm

The number of jobs created in the month of March was a paltry 98k on the expectation of around 180k. To add insult to injury, the previous two months were revised downwards. January’s figure was adjusted from +238k to +216k while February’s figure was adjusted from +235k to +219k for a combined downward revision of 38k jobs. The unemployment rate dropped 0.2% from 4.7% to 4.5%. Expectation was for unemployment rate to stay unchanged at 4.7%. Average hourly earnings came in in line with expectations of 0.2% increase. Overall, a very poor March jobs report for The Donald who called himself the “greatest jobs president God ever created”.

http://www.zerohedge.com/news/2017-04-07/march-payrolls-crumble-only-98k-jobs-added-even-unemployment-rate-45

Senate Confirmation of US Supreme Court Nominee—7 April 2017

Donald Trump’s nominee Neil Gorsuch was confirmed by the Senate to become an Associate Justice of the Supreme Court of the United States after a seat was left vacant when Antonin Scalia passed away last year. It took much resolve on the part of the Republican senators to not even consider President Obama’s nominee Merrick Garland for almost a year when it was hardly clear that Donald Trump would win the presidency. Their resolve was rewarded last week when the Senate confirmed a conservative justice to the Supreme Court rather than a liberal. Neil Gorsuch’s confirmation meant that the highest court in USA was maintained conservative rather than liberal by the margin of 5 to 4.

 

Coming week: 10 April 2017 – 14 April 2017

UK CPI y/y—4.30pm 11 April 2017 Tuesday

Expectation is for an increase of CPI of +2.1% in the month of March. February’s number was +2.2%.

Bank of Canada Overnight Rate + Rate Statement + Press Conference—10pm 12 April 2017 Wednesday

The expectation is for no change in overnight interest rate (+0.50%).

US Crude oil inventories—10.30pm 12 April 2017 Wednesday

Will it be another week of crude oil inventory build?

US CPI m/m—8.30pm 14 April 2017 Friday

The expectation is for no increase (+0.0%) in CPI m/m for the month of March. Last month number was +0.1%. Core CPI is expected to be an increase of +0.2%. Last month number was +0.2%.

 

Trade Ideas

USD/JPY long

USD/JPY is coming into a weekly support area at around 110. The next BOJ meeting is not until the 27th and 28th of April 2017. With hawkish stance by the Fed and BOJ holding pat for many meetings now, there is a divergence in monetary policy. The Fed wants to hike rates and decrease the size of its balance sheet. The BOJ wants to induce inflation (especially wage growth) and is still very far from their 2% inflation target. Watching for a potential opportunity to go long USD/JPY at 110 does seem favourable. Other factors have to be considered too. One being President Trump’s willingness to lower the trade deficit with Japan, the country the US has the second largest deficit with. Another being the potential incompetency of President Trump to enact change. This is evident in his (and Speaker Ryan’s) inability to pass the GOP’s healthcare bill which was supposed to replace Obamacare.

The monthly chart shows that 38.2% Fibonacci retracement comes in at 111, which is exactly where the USD/JPY is currently trading at.

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Support is seen at 110 to 111 (pink line). 2 consecutive weekly bullish pinbars (pink arrows) are seen at this support. Also, a bullish flag and pole chart pattern seems to be forming too.

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On a day when the non-farm payrolls report was terrible, USD/JPY was able to hold support and form a bullish pinbar on the daily chart. That shows strength. A double bottom on the daily chart may in forming as well.

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Gold Short

Gold had hit strong resistance at $1250 and formed a large bearish pinbar on the daily chart. The weekly chart of gold also bearish pinbars (2 of them, one smaller one more pronounced) formed at $1250. Friday’s selloff in gold is in reaction to the 10 year Treasury bond yield (the chart everyone been watching like a hawk) taking support at 2.31%. The reason for this inverse relationship is because the opportunity cost of holding gold is the interest rate that you can make for that same amount of money. When interest rates rises, the price of gold and silver drops. Also the yield curve, as seen on the 10 year 2 year Treasury yield spread, continues to trend lower. Next logical support on gold comes in at $1200.

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Nasdaq 100 long

Nasdaq 100 futures daily chart shows a strong uptrend. Support seem to be taken off 5400.

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FTSE 100 long

FTSE 100 futures is taking support off 7200. This trade idea may have already moved and opportunity for entry may have departed.

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Food for Thought

Shares in defense contractors rallied following the US bombing in Syria. Raytheon in particular as they are the makers of the Tomahawk missiles of which 50 were used in the airstrike. In addition, Lockheed Martin, the worlds number one weapon supplier is trading near its all time highs whilst Raytheon had breached its all time high of $157.59. Northop Grumman and Boeing are other companies to watch as defense spending has been on a tear over the last 18 months. Largely a result of Trump’s campaign promise to increase defense spending by 10% . The only risk in this sector is the fear of peace breaking out in the Middle East.

An interesting video below that simplifies the issue in the region.

 

 

 

 

 

 

 

 

 

 

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