Core global yields have made new record lows amid an increase in risk aversion following news that a number of UK asset managers led by Standard Life were suspending redemptions on their property funds. Italian banks have also remained a cause of concern given the magnitude of their bad loans and as a result the fall in equities has been led by financial shares followed closely by materials and energy sectors given the souring global growth outlook. The Pound had another sharp fall while the Yen and USD have outperformed.
To mark my 1100th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2500 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it lost 60 points yesterday but is still ahead by 25 points for July having made 2550 points in June. The previous three months saw gains of 1532, 2175 and 2265 points respectively. Since I started this Platinum service in June 2015 it has averaged a monthly gain of over 2200 points.
Fears of financial contagion have triggered a demand for safety dragging core global yields to new historical lows. 10y US Treasury yields dropped to 1.365% in yesterday’s trading sessions and at 1375% they have closed the New York session below 1.40% for the first time on record. In a similar pattern 10y benchmark bond yields from Germany, the UK, Switzerland and France have also made fresh historical lows.
Early in the session, a softer than expected (52.3 vs 52.8 exp) UK services PMI did little to improve the mood, particularly given the outlook on the survey (lowest since Dec 12) and the fact that 89% of the responses were received before the referendum outcome was known. Also not helping sentiment, the BoE stability report noted that there will be a period of uncertainty and adjustment following the result of the referendum. The report also highlighted risks facing the UK current account and commercial real estate. BoE Governor Carney attempted to ease concerns by cutting capital requirements for UK lenders and stressing that this was not a repeat of the 2007/08 GFC.
Although GBP had a small reaction to Carney comments, the overnight slide in the Pounds was fairly uninterrupted with Cable making a new fresh 30 year low at 1.2795. Relative to other G10 currencies, GBP is the worst performer, down 1.91%. Unsurprisingly, given its preeminent safe haven attributes, JPY is the only G10 currency that has outperformed the USD breaking below 101 overnight. Meanwhile as commodity prices were also under pressure the AUD and NZD also lost some ground, down 0.98% and 1.11% respectively.
Yesterday the RBA left the cash rate unchanged at 1.75%, but the statement left us with the impression that the Bank may be more open to the idea of another rate cut over the near term. The Bank remains data dependent making next CPI print very important.
The GTD auction saw a small drop in dairy prices, but as a soft number was largely expected there was little reaction by the NZD. The GDT Price Index fell 0.4% and whole milk powder prices fell 1.6%, to an average price of US$2,062.
In other news, the FBI has recommended not to charge Hilary Clinton over her use of private emails while at the same time acknowledging Clinton and her staff were extremely careless in their handling of very sensitive, highly classified information. In the UK, Theresa May was comfortably won the first round for the Conservative leader contest (Leadsom was second and Gove was third). The three remaining contenders are due to face a second MPs’ vote on Thursday, followed by a final round next Tuesday to carve the field down to two. These two candidates will seek votes from the entire conservative membership with the outcome expected 9 September.
To give everyone an idea of how this crisis could develop I received an email from a bank friend of mine in relation to Deutsche Bank. As you all know at this stage Deutsche Bank failed the latest Fed stress test by some margin. I do not mean to scare you but here are some of facts in relation to Deutsche. Deutsche is currently leveraged at 40 times which when you compare to Lehman’s when they went bust during the GFC they were only 31 times leveraged. Deutsche has a nominal value of $72.8 trillion worth of derivatives on their books according to the 2016 April Earnings Report which is a mind boggling 13% of the whole derivatives market which itself is staggering at $550 trillion. What is more alarming is that the market cap of Deutsche is less than $20 billion and falling. Negative interest rates are only making this scenario worse and the person who wrote this report said it was only a matter of time before Deutsche goes to zero. One can only imagine the consequences if Deutsche goes bust with a staff of 8000 working in London making it the largest European Bank in London.
This morning we already had the release of German Factory Orders which came in worse than expected at 0.00% versus 1.0% expected. At 2.45 pm we have US Services PMI followed by the ISM New York at 3.00 pm. Finally at 7.00 pm the Fed releases its Minutes from the June 14-15 FOMC Meeting.
September S&P 500
I had three or four opportunities to T/P on the S&P after it hit my average buy level at 2080 yesterday but for whatever reason I had expected the market to close some of the ‘Open Gap’ from Friday which alas did not happen and I got stopped out near the low of the day at 2073 and I am now flat. I was lecturing last night and I did not get a chance to implement my 5 Handle Rule but for anyone who did we had a nice rally into the close as the market rallied to 2084 before getting hit again overnight on the back of the stronger Yen. As mentioned above the S&P has an open gap from Friday’s close at 2096 to yesterday’s afternoon high at 2086 and we may look to close some of this gap when the Fed releases its Minutes later this evening. Today I will again look to buy the market on any dip lower to 2069/2075 with a 2064 tight stop. I am not comfortable in been short the US or UK markets at this time.
EUR/USD
Overnight the Euro traded lower to my 1.1040 buy level before having a small rally which enabled me to cover this position at my revised 1.1065 T/P level as I want to reduce my loss for yesterday and I am now flat. As I mentioned over the past few days the Euro needs to break and close below 1.0780 for me to turn bearish but at the same time I have to respect the downside Key Week Reversal post ‘’Brexit’’. Today I will move my sell level lower to 1.1140/1.1190 with a tight 1.1225 stop. My only interest in buying the Euro today is on a dip lower to 1.0930/1.0980 with a 1.0895 stop which is just below the low print last Friday week.
September Dollar Index
As I was already short the EUR/USD I waited to sell the Dollar which I did early this morning at 96.30. I am still short and I will now lower my stop on this position to 96.70.
September DAX
The comments I made in relation to Deutsche Bank above should be enough to scare people into not buying the DAX. It is ironic that out of ‘Brexit’ both the UK and US stock markets are holding while the European markets get slammed and I believe that this trend will continue. Today I will now lower my sell level in the DAX to 9640/9700 with a 9760 stop. My only interest in buying the DAX is on a dip lower to its major support at 9150/9220 with a 9095 stop.
September FTSE
Just as I posted yesterday morning I was stopped out of my long 6495 FTSE position at 6440 before the market had a 100 point rally on the easing of the credit rules for the UK Banks by the Bank of England. As I mentioned at length last night at my IG lecture the one market that you do not short is the FTSE especially with the aggressive action taken by the Bank of England. Today I will again look to buy the FTSE on any dip lower to 6440/6470 with a 6410 stop.
Dow Rolling Contract
Thankfully we had no buy levels in the Dow yesterday with the market having a nice 250 point fall following its 1000 rally over the previous three days. However I expect the market to rally into the FOMC Minutes this evening and I will now be a buyer on any dip lower to 17730/17790 with a 17660 wider stop. I do not want to be short the Dow at this time unless we can break 18000 from where I will think about putting on a more macro short position.
September BUND
The Bund traded higher to my 167.75 sell level with a 168.10 high. I am still short and I will now reduce my stop on this position to 168.25.
Gold Rolling Contract
The weakness in the Equity markets has finally led to Gold breaking its post ‘’Brexit’’ high at 1358. I find Gold so volatile to trade at this time preferring to be long Silver which has been a much safer and very profitable trade all year. I am also concerned about the open interest in Gold and the Daily Sentiment Index reading for the precious metal at this time. Today I will move my buy level higher to 1335/1342 with a tight 1327 stop.
Silver Rolling Contract
My Silver plan worked well yesterday with the market hitting my 19.60 buy level shortly after I posted yesterday morning. Subsequently Silver spiked over $20 which enabled me to take profit at 20.00 and I am now flat. Just like Gold above both the open interest and DSI reading are at scary levels and I am hoping that Silver will trade back to 18.00/18.50 over the coming days to give me a chance to put on a more aggressive long position again. I still expect Silver to trade back to 25/26 over coming months which remember is only 50% of where is was in May 2011. Today I will again look to buy Silver on any dip lower to 19.30/19.80 with a 18.90 stop.
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