Friday’s was largely a lower beta replica of Thursday and where, recall, the higher US core CPI and further drop in US Jobless Claims were the key market drivers. Momentum carried though to Friday’s session, and wasn’t undermined by US Industrial/Manufacturing Production data that was soft but no worse than expected, while the University of Michigan’s preliminary October Consumer Sentiment reading jumped to 92.1 from 87.2.
For anybody following my new Platinum Service, none of my trades got executed yesterday with the Service still ahead by 982 points for October, The previous four months saw gains of 2833, 2195, 1810 and 3045 points respectively.
The US Dollar modestly extended Thursday’s rally. The narrow DXY finished +0.18% at 94.54 and the broader BBDXY +0.37%. Asian EM currencies lost 0.29% on average led by MYR (-1.37%). The biggest EM casualty Friday was Brazil, the Real plunging 3.2% on speculation Finance Minister Joaquim Levy was about to resign. In the event he agreed to stay, so BRL should be due a rebound on Monday.
In G10, AUD was the biggest loser, -0.89% to 0.7264 so slightly extending local session weakness and which came in part on comments from the RBA in the Financial Stability review suggesting signs of moderation in Sydney and Melbourne property price inflation and risk of price falls from impending oversupply in the apartment sectors. In this respect, CoreLogic RP data yesterday reported Sydney’s weekend auction clearance rate falling to 66.6% – its lowest this year and a third successive week sub-70%.
Despite the strong AUD rally on Wednesday through Friday the week before last, Friday’s CFTC/IMM positioning data for the week through last Tuesday showed that net shorts in AUD only came in to 33.7k from 40.8k – a notional A$3.4bn and a smaller reduction than the week before. This highlights the scope for another squeeze higher if the USD sets back again and/or the recent heightened speculation on a November RBA rate cut suffers a set-back. The IMM also still carried a sizeable speculative short in The Euro (-80,600 contracts or a notional €10bn.)
US equities managed modest gains, the S&P500 finishing +0.46%, with the VIX losing another point to 15.05, a drop of two points on the week. Treasury Yields were higher across the curve by no more than 2bps (the 10 year +1.6bps to 2.0334%). Friday’s August US TICS data allowed us to quantify the scale of Foreign Central Banks selling of Treasuries in August. The data shows foreign official institutions sold $41.12bn worth of Treasuries and which was only partially offset by $9 bn. worth of buying by the foreign private sector. In prior months, official selling has been more than offset by private sector foreign buying.
The numbers shows China sold a net $22,62bn, with very little activity (gross or net) reported out of Belgium, which in prior months was suggested to be synonymous with Chinese selling (Belgium reported net sales of just $295mn). Overall net long term portfolio flows (from foreign net activity in Treasuries, Agencies, corporate bonds and stocks less US net activity in foreign stocks and bonds) was a net inflow of $20.4bn after +$7.7bn in July – both weak numbers in relation to the size of the US current account deficit that needs to be funded and as such a background a negative US dollar influence.
In commodities, Gold lost $5.80 to $1177.3. Oil was up, WTI +$0.88 to 47.26 (-$2.37 on the week) and Brent +$0.73 to $50.46 (-$2.17 on the week). Iron ore was -$1.38 to $53.74 and the LMEX index -0.32%.
This morning on the economic front we already had the release of Chinese GDP which printed 6.9% which was higher than the 6.8% expected but still below the 7.0% reported last Month. China also reported Retail Sales which came in at 10.9% versus 10.8% expected. Next up we have Euro-Zone Construction Output at 10.00 am. The only US data due today is the NAHB Housing Market Index which is due to be released at 3.00 pm.
December S&P 500
The S&P again just missed my 2010 buy level on Friday as the market extended its recent gains with the market now approaching key resistance at the 2035/2050 area which held the market seven or eight times in 2015 before finally cracking on August 20th. Today I will be a small seller on any further rally higher to 2037/2043 with a 2051 stop. Today I will also raise my buy level slightly to 2008/2013 with a 2004 stop. The S&P really need to close below 1998 for the market to find itself on the defensive again but with the Fed Meeting next week the downside appears to be limited until we get this now major news event out of the way.
EUR/USD
No change as I am still a small buyer on any further dip lower to 1.1270/1.1310 with a 1.1245 stop as the Euro traded in a very narrow range on Friday after Thursday’s sharp move lower on comments from Austrian Central Bank Chief and ECB Governing Council Member Nowotny that more QE was necessary. Please remember no Central Bank wants a strong currency at this time.
December Dollar Index
No change as I am still a buyer on any dip lower to 93.20/93.60 with the same 92.90 stop. I will also look to go short the Dollar on any spike higher to 95.20/95.60 with a tight 95.85 stop.
December DAX
The DAX continues to lag the US Equity Markets at this time with the fallout from VW and the stronger Euro been the main catalysts. I am still flat the DAX and today I will again look to go short on nay spike higher to 10240/10290 with the same 10330 stop. I will leave my buy level unchanged at 9980/10030 with a 9940 stop.
December FTSE
I am still flat the FTSE which is trying to move higher. Today I will move my sell level higher to 6410/6440 with a 6470 stop. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
The Dow just missed my 17230 sell level into the close on Friday and I am still flat. Interestingly the Dow Transports had a weak trading session on Friday in contrast to the other major Indices. The Dow has strong resistance from 17250/17320 which is the 62% retracement of the whole move down from early August and today I will a seller in this region with a 17360 stop. Given the huge rally over the past three weeks I do not want to be long the Dow at this time.
December BUND
I am still flat the BUND and today I will leave my buy level unchanged at 156.00/156.30 with a 155.75 stop. Remember I will an aggressive seller on any rally higher over the coming days to 158.70/159.20 with a 159.50 stop.
Gold Rolling Contract
No change after what was a very quiet trading session for Gold on Friday as I will still be a small buyer from 1160/1167 with the same 1153 stop.
Silver Rolling Contract
No change as I am still long from last week at 15.95. Today I will raise my stop on this position to 15.60.
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