Daily Alert: For Friday 12th February 2016

Mark Nugent2016 H1, Daily Alert, February 2016


Fundamentals and Sentiment

We are still definitely risk- off. The Vix is down but still sits above 26 at the time of writing. Ten year bond yields across the US, Germany and the UK are all down indicating there is safe haven flow into these instruments. Commodities are trundling along at their multi-year low. WTI oil continues down and as of the time of writing is less than $27/barrel. Brent is approximately $30/barrel. Global stock markets all down. The JPY index sinks again, i.e. JPY strengthens on safe haven flow. In terms of commodity currencies the CAD, NZD and NZD are all down.

To reiterate: risk appetite is still off.

Janet Yellen spends her second day in front of the House. She has said that “we wouldn’t take those off the table” when referring to negative interest rates. This from a Central Banker whose team is forecasting 4 rises this year!! No wonder the markets are acting as if there will be no rises. The Fed Funds Futures market is forecasting no rise prior to early 2018 and in fact are saying there is a slight chance of a cut.

US Unemployment Claims are positive at 269K vs expectation of 287K.

American banking stocks are being hammered due to the expectation of no rate hikes. (This is bad for banks because it doesn’t allow them to increase the spread between what they charge borrowers and what they offer to savers.) So we see JPMorgan Chase down almost 19% year-to-date; Bank of America down over 32% year-to-date; Citigroup down almost 31% year-to-date and Wells Fargo down 16.6% year-to-date. Something similar is happening in Western Europe.


None of the trades outlined on Monday morning are presenting attractive setups just now however yesterday’s suggestion is looking good:

The GBPJPY closed last night near to the support zone. There was no lower wick, indicating absence of buyers. I placed my short as indicated in yesterday’s Daily Alert. The trade was triggered today. Stop moved to breakeven. The stop is well within 1 x ATR of the current price but I’d rather be knocked out at breakeven than run the risk of a major move against me in this difficult market.


We have German GDP which will undoubtedly inform Draghi’s thinking in terms of a potential policy change at the ECB’s March meeting. We will finish the week with US Core Retail Sales, retail sales being the largest part of the US economy.

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