Thus far the big weekend news is a Chinese central bank rate cut (PBoC) of 25 basis points to their main benchmark bringing it to 5.35%, citing deflationary concerns. The PBoC also lowered the Deposit Rate (1 year) to 2.5%. This initially weighed on the AUD as futures opened last night, but it has since pared back some of those losses. The EUR/USD got a boost from some decent Euro Macro data, weakening the USD/JPY which had some effect on the failed attempted breakout early this morning in USD/JPY above $1.20 which it failed to do (resistance and then weakening $USD). Gold gained on the rate cut, this has been mild and I think our general gold analysis still stands as it looks like we are in a transitional area from the gold pullback we had forecasted early in the year.
Crude saw some overnight weakness which seems to be a spill over from last week's EIA inventories with an additional push lower on February data for Saudi oil production which rose by 130,000 barrels per day, the highest rate since 2013. Additionally the Baker Hughes rig count shut down dropped off significantly late last week.
We'll look closer at Crude, but I suspect at this time, since we have more than enough base for a counter trend rally, we are likely seeing a larger base being created, one that's not a counter trend rally but rather a change in trend which does not preclude a counter trend rally from occurring first, again we'll cover this on its own in a bit.
We have quite a bit of data this week, global PMIs, Euro CPI, an ECB meeting and Friday the notorious Payrolls. I read an interesting article on the US BLS data manipulation in the form of having to reduce their budget and one of two programs they cut was "Mass Lay-off" tracking, this sounds like an unreasonable data service to cut when you are providing data on employment//initial claims, etc. This would easily explain why the U6 rate, the broadest measure of employment/unemployment is so much worse looking than the headline U3 data which Yellen herself confirmed in Congressional testimony. Of course I have no proof, but I think you know that I believe the F_E_D is not raising rates (whether I believe they should or not from an economic standpoint is irrelevant and has nothing to do with this ) based on what they believe is lift-off in the economy, but for another reason and I believe that data has been massaged to help them get to that goal. The Unemployment rate is a big factor in that as well as inflation so in that context I found it surprising or maybe not so surprising that the BLS had stopped tracking mass lay-offs and excluding it from data in some form, thus making the employment situation and UE rate look better. The CPI data can be massaged, but more importantly the F_E_D can use "expectations" to hike rates long before actual data.
Speaking of the F_E_D, the F_E_D whisperer, the WJS's Hilsenrath came out with a piece saying 9 of 17 F_E_D officials saw the benchmark interest rate at a media of 1.13% by year's end, currently the market is pricing in 50 basis points, so well over double what the market has been pricing in and also suggesting and earlier than later start to lifting rates.
There were some other interesting articles over the weekend like the collapse of shadow banking and liquidity making a flash crash or a sustained flash crash more probable. This is loosely based on the same data I've been bringing you on market breadth comparing it to a long pier over the ocean which from the top deck looks fine, but just under the waterline the pilings that support that pier are rotted to the point in which one good impact from an event (in this case we'd say a strong wave) would send the pier crumbling in to the ocean. The F_E_D and other central banks have changed banking business models so much that I am not sure they can easily readjust to a new model that doesn't include QE, asset purchases and ZIRP rates, thus the very measures taken to supposedly help the economy, may be multiples higher in effectively tearing it down.
Friday's Daily Wrap saw early strength on Monday morning with some difference in relative strength among the averages, thus far that's what we have, however I also believe we are at a pivot for the Price pattern (Igloo/Chimney) and thus as far as early action today which we are already seeing a bit stronger, I think these two charts from the IWM sum up my early expectations for price action this week with an emphasis on early week price action.
I'll have some additional early updates out in the next few minutes.
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