Trading Desk Notes - May 12thSubmitted by Polar Futures Group on May 11th, 2018
President Trump will reapply sanctions against Iran. China has been told to reduce their trade surplus with America by $200 Billion within 2 years. Whether these are tactical bargaining positions or a line in the sand, the President is on a roll as the politically incorrect “disrupter” who is doing what he said he would do while rising in popularity with American voters...while the economy continues to grow and unemployment falls to record lows. I’d say chances are that the Republicans are going to keep control of the House and the Senate in this fall’s mid-term elections...and Trump will see that as an affirmation. My job is to figure out how that impacts the markets.
Fed Chairman Powell, speaking in Switzerland on Monday said, in effect, that the Fed will do what’s in the best interests of the USA...without regard for how that will affect other countries. My job is to figure out how that impacts the markets.
Crude Oil jumped to a 3½ year high on the Iran sanctions (with a little kick higher from military activity on the Israel/Syria border) with front month WTI nearly touching $72...up $30 from last summer’s lows. American crude oil production continues to surge ahead hitting a new All Time high of 10.7 MBD as higher prices encourage the boys to drill faster. The USA is currently tied with Russia as the world’s top crude oil producer with both countries now pumping more oil than Saudi Arabia. (Do you ever wonder if maybe someday the USA won’t need 3 MBD of heavy Canadian crude?)
The trade weighted US Dollar rose ~5% in the last 4 weeks with some 2nd tier and EM currencies especially weak.
The Canadian Dollar fell to a 6 week low Tuesday (as the USD surged to a 5 month high against the Euro) but bounced back as crude oil rallied on Wednesday and Thursday. CAD registered a Weekly Key Reversal Up this week. There’s a congressional deadline for a NAFTA agreement next week...otherwise it gets indefinitely postponed. Mexican Federal elections are July 1 and a win by leading contender Obrador could derail negotiations.
The S+P 500 stock index is up 7 days in a row...up ~5% from last week’s lows. APPL jumped as much as 18% from April’s lows (Buffet buying and more stock buybacks) to touch All Time Highs this week.
Currencies: my April 21 notes started with “It doesn’t matter until it matters...and then it really matters” which was my way of saying that the USD interest rate premium was finally making a difference and that USD was going to rally. I think USD could have a rest after the gains of the last 4 weeks but given my comments on Trump and Powell above (think, “Putting America First”) I think USD keeps going higher. My accounts have been short Euro for the past month or so, I sold CAD on Friday near this week’s highs...if crude breaks down CAD could make new lows for the year...a price move that would be much greater than what I’m risking on the trade.
Interest rates: I realize there is a massive net speculative short position in Eurodollars, 2 year, 5 year and 10 year notes...but...I think US interest rates go higher. My accounts have been short T-Notes on and off for the past few months.
Stocks: since the big break in late Jan / early Feb I’ve made money selling “bounce back” rallies that ran out of steam. I’ve been sitting on my hands MTD. If this latest rally rolls over I’ll get short.
Crude: I took a small short position in WTI Friday around $71. I think this is the first time I’ve had a position in WTI this month. I think the rally is overdone and if it is the potential profit on the trade is several times greater than what I’m risking.