US February jobs were expected at 180k new jobs…actual data print came out at 20k.
Larry Kudlow was quick to say these numbers were fluky and that we should just ignore them… Imagine if the data print came out positive…what would Mr. Kudlow be saying. Seems like we cannot be told the truth.
Financial media, which was making fun of people who mentioned the recession word, or even spoke about the Federal Reserve cutting rates, are now speaking about the high possibility of both. Data prints have been coming out negative, which adds more confluence to both cases.
Here in Canada, our PMI for February came at 50.6, just barely above 50, when 58 was expected. The Bank of Canada, as expected, put out dovish rhetoric, and now, if anything is done with interest rates, it will more likely be a rate cut than a hike.
For those wanting to forecast economic conditions, we look at the PMI rather than the GDP. GDP tells you what has already happened, PMI tells you what is coming. An analogy is if you are driving a car. When you drive and look at the rear-view mirror, you are looking at GDP (past you). When you drive looking out the windshield, you are looking at PMI (what is ahead of you).
The European Central Bank remained dovish. For the past two years, the ECB has said they will stop their bond purchasing program, and hike rates…only to delay this. Well, Mario Draghi said that we will see the ECB finally keep its word this year…but not anymore. The ECB will keep this program until next year.
People are slowly realizing (if not already) that the ECB policy has failed. Mario Draghi is leaving at the end of October, and will hike rates in his term. Quite frankly, he just wants to leave so he can hand this mess over to someone else. Europe is stuck. They cannot hike interest rates because they got addicted to cheap money, and the ECB destroyed the European bond market. If investors were buying European debt, interest rates would be much higher. Add the fact that European countries are likely in recession, or soon to be…the ECB tools are pretty much exhausted…unless they go even more negative. Japan is the best case scenario for the EU, and now the ECB balance sheet is 40.5% of European GDP (Bank of Japan is 90%…)
Draghi has essentially put Jerome Powell in a situation where he will want to hike rates due to a possibility of a very weak Euro. A huge mess.
Before we look at the chart set ups for this week, let us talk about US-China trade talks.
President Trump has been using news of good talks as a way to boost the stock market (ahem pump it). However, it seems now the market is not falling for it anymore…after being fooled countless number of times.
There was talk of possible talks at Mar-A-Lago, but the Chinese have called it off.
I have been saying that the Chinese are the ones with full control of these talks. They have the position of power. Firstly, it is due to the fact that they can sell off US debt to spike American interest rates.
Secondly, they know that President Trump’s achilles heel is the stock market. He has been touting new highs…now if the markets start going down, Trump will be under pressure.
The Chinese can be patient. They know there is an election cycle coming in America, and can wait for a weaker US President. It is President Trump now who is desperate for a US-China trade deal, and if a deal is made, the Chinese will dictate it and get the better terms. President Trump just wants one to make stock markets go higher.
Candidate Trump was right to call the US stock market a bubble and fake…but as soon as he began tweeting about how strong the US stock market was under him, he took ownership of the bubble. It is his market, and if it falls, it provides good fodder for the Democrats in the next election.
As well shall see, the stock markets look set to go lower…President Trump will be under pressure and will be more likely to cave to Chinese demands.
The Chinese can be patient because they have no elections, and the fact the censorship controls there are high. The US strategy of trying to weaken the Chinese economy, so the people will put pressure on the government, thereby being forced to the talking table, won’t work. Any type of dissidence can be put down rather quickly due to controls in China.
Does China have a debt problem? Yes, a very big problem, but they can control their people quite easily being authoritarian.
I said this in my China Thucydides trap post, but America’s only option is her military. On the economic front it is all China with the cards.
Let’s look at the charts.
First of all the economic calendar for this week:
- Monday: US retail Sales Group
- Tuesday: Powell Speech, UK Brexit vote, US CPI
- Wednesday: US non defense capital, GBP budget report
- Friday: Bank of Japan rate decision
There are some good looking British Pound pairs, but beware of the Brexit vote high risk event. We will see volatility and wild swings so best to perhaps avoid Pound pairs until after Tuesday.
The US S&P 500 had a good break of the higher low I outlined last week. Now, I am awaiting for a retest of the 2764 zone to form a lower high which will be confirmed when we break below 2720. This will mean a lot on the geopolitical front, especially in regards to how President Trump approaches this China deal as I discussed above.
The US Nasdaq is also similar in terms of chart approach for this week.
To be honest, I do like the German Dax on the 2 hour chart. You can also trade it on the 4 hour. What I like here is we can see price broke the previous swing. We have been in an uptrend and it seems we may see a head and shoulders pattern forming. Definitely one to watch.
Natural Gas continues to look enticing. We did not get the break out we were looking for. Break out still on watch. I have a level drawn at 2.82 because it shows a swing that I am watching which could show a possible move to the downside.
Gold is a beautiful chart. What I say for Gold, also applies for Silver. We had our breakout, but now I would like to see either a pullback which forms a higher low for us to get in on the second wave higher, or a retest of the break out zone (which also produces the higher low). One to watch, but do not chase currently.
I like what I am seeing here on EURGBP. I like the downtrend, and then the range/ double bottom pattern we have put in. I would ideally, like to see a pullback to form a higher low before we break out.
Do really like USDCAD. I had this on watch last week, but the Friday breakout is not what I really would want to enter. I do not like to open positions on Friday, nor do I like to hold positions over the weekend, especially in times like this. I am watching a break of 1.34.
AUDUSD is interesting on both the short and the long. If we do see a break of the lower lows at the 0.7000 zone, I would just await for some sort of bottoming after another wave down. I am however watching this 0.7050-60 zone. Ideally, I would like to see price retrace currently before breaking out higher. That would form a head and shoulders bottoming pattern.
I really like GBPAUD… my only reservation is the Brexit vote on Tuesday. But the break is great, with a topping pattern after a nice uptrend. I would like to see a retracement up to the 1.8530 zone, and then a break lower after the vote. This pair correlates well with GBPNZD, and if you look at the chart for that pair, it is already more advanced in its downtrend.
I really like GBPCHF here. Unfortunately, we had our break on Friday. I want to see how price opens this week. Again, would like to see a pullback before making lower lows.