After another wild trading session for equity markets yesterday where the Dow closed another 370 points higher at 16654 and is now an incredible 1400 points higher than its low print of last Monday. Today all eyes will be on Jackson Hole which is an economic conference held for Central Banks by the Kansas City Fed every year where the main event will be the speakers starting with the SNB President Jordan. He is then followed by: the BoE’s Carney, the Fed’s Fisher and the ECB’s Constancio. So no matter the events of last night or through the day today, what matters are the speakers over the weekend; particularly at this sensitive time for markets. The Chinese equity market rallied hard into the close yesterday as investors got behind the idea that the Chinese pension funds were about to invest in the local market and there was talk of more official assistance. The Shanghai ended the day +5.3%.
For anybody following my New Platinum Service it made 125 points yesterday and is now ahead by 1625 points for August.
I have been asked to do a live trading/training day over the Non-Farm Payrolls next Friday September 4th in the Royal Irish Yacht Clun Dun Laoghaire from 11.0 am to 5.00 pm and if anybody is interested in attending, please contact Graham on grahammulhern@yahoo.com.
This buoyed other markets, with Europe up strongly, and the US putting in a fairly good effort at an upswing. Commodities were supported and this duly was reflected in the Currencies, with the US Dollar higher, and AUD, CAD and NZD outperforming. The EUR and JPY underperformed. Bond yields were higher. There was additional news that China had eased the pressures in the CNY swap market, as well as equities. We head into a long holiday in China next week (Sep 3-5) and the news-flow suggests that an easing of market stresses is desired before that holiday. It appeared to have worked in the last 24 hours at least.
The economic data was good yesterday, with the US GDP second release showing a strong upward revision, and was consistent across the categories. With some stability in China expected this week, and good data, the chatter at Jackson Hole is going to get just that bit more interesting. The USD has been under pressure of late, and US Bond Yields are rising. On the other side has been continued intervention in the FX market to slow EM currency depreciation from their central banks. That requires a selling of USD and purchase of the currency in question. This intervention will necessarily result in the sale of underlying reserve assets such as US Treasuries at some point; with or without disruption to broader markets. With the USD making up (on average) 64% of reserve holdings the main channel of reserve asset change is through the US.
However, the US market is particularly large, and while not immune to selling by this large investor, it has some alternative buyers. It is something to keep an eye on but not over-react for the moment. But since the reserve managers started diversifying their reserve portfolios into other currencies, there is the likelihood that as reserves are drawn down (in USDs) that some rebalancing may be required, at some point (it doesn’t have to be done immediately). That means selling EURs (with QE in place, the ECB are buyers), JPY (the BoJ are also QE buyers), as well as GBP (which has a large pool to sell into). It is the rise in holdings in currencies of the smaller markets, which were driven up in the accumulation phase, which might experience some interesting times as reserves are drawn down and rebalanced. That includes AUD and CAD, as well as other smaller currencies. This may not happen in the short term, but as reserves decline, these pressures are more likely to build. So if you see a higher positive correlation between Currencies and Bonds (prices) then this might be your answer.
This morning on the economic front we have UK GDP at 9.30 am. This is followed at 10.00 am by Euro-Zone Consumer/Economic Confidence. At 1.00 pm we have German CPI and this will be closely watched by the markets to see if we have any pick-up in inflation. At 1.30 pm we have Personal Income/Spending. Finally at 3.00 pm we have the University of Michigan Consumer Confidence. Later this evening and into tomorrow the various Central Bankers will speak on the economies and Monetary Policy from Jackson Hole.
September S&P 500
As mentioned in the economic commentary above the volatility in these markets in terms of price movement is the highest that I have ever seen in my 30 years of trading. To think the S&P opened last Sunday night at 1965 trading down to a low of 1830 on Monday afternoon and hit a new recovery high at 1993 overnight gives some idea of the volatility that we have experienced. Unfortunately this only tells some of the story as in intra-day volatility is even higher. Yesterday I was extremely unlucky with my 1972 short S&P trade as I had a T/P level at 1956 on this position only for the market to hit a 1956.50 low print before stopping me out of this position at 1983. Subsequently the S&P made a slightly new high before 8.00 pm before falling over 40 Handles to 1945 and then reversing these losses into the close. Incredibly the S&P closed over the major 1980 resistance level that I was mentioning all week. I have no doubt that behind the scenes the Fed were behind this extraordinary recovery with their own form of intervention.. However I am convinced that this sell-off is not over as the financial press wants us to believe. Today I will again look to go short from 1987/1994 with a 2002 stop. Given the extent of this recovery I do not want to be long the S&P at this time.
EUR/USD
The sell-off in the Euro continued yesterday with the market eventually hitting my 1.1285 buy level before stopping me out of this position at 1.1235 and I am now flat. I am not convinced by this lower move in the Euro as to me there is no chance the Fed can hike rates next month and I still believe the Dollar is wrongly priced despite the better economic data that has been released over the past few days. Today I will again look to buy the Euro on any further retracement to 1.1180/1.1230 with a 1.1140 stop.
September Dollar Index
As I was already long the Euro yesterday afternoon I waited until the Dollar Index hit the top of my sell range at 95.90 before going short. I am still short and today I will leave my stop the same at 96.30 on this position.
September DAX
The DAX plan worked well yesterday as shortly after I posted the DAX traded higher to my 11350 sell level before having an nice sell-off shortly after the US markets opened which enabled me to cover this position at 11280 as outlined earlier to my Platinum Members and I am now flat. Incredibly the DAX has now rallied over 11% off its 9350 low print last Monday. To me the DAX is beginning to run out of steam and as I mentioned yesterday as major resistance at the 10650 level. Today I will again look to go short on any rally higher to 10370/10440 with a 10500 stop. I still do not want to be long the DAX at this time.
September FTSE
The rally yesterday in the FTSE has hit my 6185 sell level. I am still short and I will leave my stop the same at 6230 which is just above yesterday’s high print. If I am stopped out of this trade I will be a more aggressive seller in front of 6250 with a 6280 stop.
Dow Rolling Contract
The Dow plan worked well yesterday as shortly after I posted the Dow traded higher to my 16465 sell level before having a nice sell-off which enabled me to cover this position at 16400 as outlined earlier to my Platinum Members and I am now flat. As I mentioned in my other commentaries above I am not convinced that this down move is over and today I will again look to go short on any rally higher to 16680/17740 with a 17790 stop.
September BUND
No change as I am still a small buyer on any dip lower to 153.20/153.60 with a 152.95 stop.
Gold Rolling Contract
My long 1124 Gold position is finally working this morning and I have just decided to cover this position at 1131 and go flat. Today I will again look to go long on any dip lower to 1114/1122 with a 1108 stop.
Silver Rolling Contract
My long 14.10 Silver position also worked well yesterday as Silver had a nice rally through the day with the market eventually hitting my 14.50 T/P level as outlined earlier to my Platinum Members and I am now flat. Today I will again be a buyer on any dip lower to 14.00/14.30 with the same 13.80 stop.
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