In what has been an otherwise quiet 24 hours bereft on tier-1 economic news, the highlight has arguably been comment from St Louis Fed president James Bullard. Though not a current FOMC voter, and considered more an ‘activist’ than an easily labelled ‘hawk’ or ‘dove’, Bullard’s comments that he sees a greater than 50% chance of Fed rates ‘lift-off’ in September, have helped propel US front end Bond Yields to their highest level of the month. US 2-year yields closed in New York at 0.7067%, up by 4.1bps and their first close above 0.7% this month. The yield is 16.5bps up on intra-month lows. US 10 year bonds finished 2.9bps higher at 2.376% – so still very much ‘home on the range’ that has been capped at 2.5% over the past couple of months.
Of some note is that the creep higher in front end Bond Yields evidently holds no fear for US risk markets, with the NADAQ building slightly on Friday’s record closing high, the S&P500 closing within three points of its (21 May) record and the VIX closing below 12.0 for the first time since 5 December last year. The US Dollar is a touch firmer, the DXY closing +0.18% at 98.04, its highest level since mid-April. The ongoing US risk-market rally may be being helped by incoming US earnings reports – Morgan Stanley the last of the big banks to report yesterday and who comfortably exceeded their consensus street estimate.
The nonchalance with which US (and now European) risk markets are travelling is not being so easily replicated in Emerging Markets, where the only currencies not to have fallen against the US dollar in the past 24 hours are the Peruvian Sol and Romanian Leu. The more actively traded EM currencies are under the pump, led by the Turkish Lire (1.68%) Thai baht (-0.71%) and South African Rand (-0.64%). A major terrorist atrocity in Turkey looks partly responsible for the Lire’s fall, while the Rand has clearly been impacted by the slide in Gold price since Friday. 1 month Non-Deliverable Forwards (NDFs) ranging from the IDR (Indonesia) to CLP (Chile) to KRW (Korea) are all at the weakest levels against the US dollar in the past month or more.
The only developed world currency to show similar stress is the Norwegian Krone (-0.69%). This follows the latest slippage in Oil prices and where the NYMEX WTI benchmark has just closed below $50 for the first time since the end of March. Expectations for increased Iranian supply coming on stream next year, following a pledge by the Iranian Oil Minister to win back market share – is being blamed for the latest fall. The ‘steward enquiry;’ into Gold’s rapid fall from grace continues (it was off $48 intra-day at one point early Monday morning). A chunky sale into illiquid Asia markets has been widely touted, though we still regard the disappointment at the scale of China’s purchases revealed on Friday to be the fundamental catalyst for the shake out. The AUD, a currency that has traditionally shown a high correlation to the Gold price, has been hardly moved on the Gold news. We’d argue this is because the currency had already fallen so far during a period of largely sideways trading in Gold between October last year and mid-July. Meanwhile the iron ore price has bucked the trend of falling commodity prices elsewhere to add $1.73 to $52.39 for the 62% fine China import grade – its highest almost three weeks. AUD/USD currently sits virtually unchanged on last week’s close, near 0.7370.
Today is extremely light for economic data with the only economic news of note been UK Public Sector Borrowing Requirement and this will be released at 9.30 am ahead of the release of the Bank of England’s latest Minutes from its last Meeting tomorrow .
September S&P 500
The S&P plan worked well yesterday as shortly after lunch the S&P rallied to my 2123 sell level before having a nice sell-off which enabled me to cover this position at 2117 as outlined earlier to my Platinum Members and I am now flat. With the S&P within reach of its previous record close last May it is only a matter of time before we take out this level. So far the market is ignoring the sound bites from the Fed which in my opinion is foolish despite the fact that the NASDAQ closed at yet another record high. The fall in Commodity prices over the past two weeks shows that Deflation has not gone away. Today I will still be a small buyer on any dip lower to 2106/2113 with a 2102 stop. I will also be a small seller on any further rally to 2129/2134 with a 2138 stop.
EUR/USD
No change as I am still long from last Friday at 1.0845 with the same 1.0795 stop. Given how oversold the Euro is trading I will also be a more aggressive buyer(in the event that I am stopped out of this current long position)on any further dip to 1.0730/1.0760 with a 1.0695 stop.
September Dollar Index
No change as I am still short at 98.20 with the same 98.60 stop.
September DAX
Shortly before lunch the DAX traded higher to my 11780 sell level before having a nice sell-off which enabled me to cover this position at 11730 and I am now flat. Today I will again be a small seller on any further rally higher to 11810/11850 with a 11880 stop. Given how overbought the DAX is currently trading I do not want to be long the market at this time.
September FTSE
The FTSE plan also worked well yesterday as shortly after I posted the FTSE rallied higher to my 6755 sell level before having a nice sell-off which enabled me to cover this position at 6715 as outlined earlier to my Platinum Members and I am now flat. Today I will again be a seller on any rally higher to 6750/6780 with a 6810 stop.
Dow Rolling Contract
No change as I am still a small seller on any further rally higher to 18190/18240 with a tight 11280 stop. Given how weak the price action in the Dow in comparison to the other major US Indices I do not want to be long the Dow at this time.
September BUND
The BUND plan also worked well yesterday as shortly after I posted the BUND traded higher to my 153.25 sell level before having a nice sell-off which enabled me to cover this position as again outlined to my Platinum Members at 152.90 and I am now flat. Today I will again be a small seller on any further rally higher to 153.50/153.80 with a 154.10 stop.
Gold Rolling Contract
Literally as soon as I posted early yesterday morning Gold got slammed and fell $48 to 1071 before rebounding very quickly to 1105. The move lower stopped me out of my long 1130 position for a small loss at 1119 and I am now flat. As I have mentioned over the past few days Gold has strong support at 1080 and given how far outside the Bollinger Band that Gold is trading, today I will be a small buyer from 1078/1088 with a 1065 stop which is just below yesterday’s low.
Silver Rolling Contract
Despite Gold making new 5 year lows Silver has so far managed to hold the key 14.49 support level. I am still long at 15.05 and I will keep my stop the same at 14.40. If I am stopped out of this trade I will be a more aggressive buyer in front of 14.10 with a 13.60 stop.
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