Jump for my love was a classic 1980’s hit by the Pointer Sisters and one suspects would be particularly high in the Spotify lists of several Fed officials after yesterday’s weaker than expected Manufacturing ISM. The weak result raises the bar for this afternoon’s Non- Farm Payrolls to prompt Fed action in September and all eyes will be on Payrolls at 1.30 pm. Yesterday, the weaker than expected US Manufacturing ISM saw a slight paring back of US Fed Rate hike expectations, broad US Dollar weakness and lower Bond yields; equities were little changed after another hail Mary rally late in the New York trading session.
To mark my 1150th 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 70 points yesterday on the first trading day of September having made 1722 points in August and 1682 points in July. The previous three months saw gains of 2550, 1532 and 2175 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 2100 points.
The ISM fell to 49.4 (from 52.6) and was below expectations of a 52.0 print. The details do reveal some anomalies that could cast some suspicion on the extent of weakness with the outcome driven by steep declines in new orders (down 7.8 points) and production (down 5.8 points). For those looking for a case not to hike rates in the near term, it very much raises the bar for today’s Payrolls to prompt Fed action.
It’s also worth remembering ‘one swallow does not a summer make’ with other less high profile US data positive. US Jobless Claims remained low and stable at 263k (slightly below the 265k consensus forecast), while Unit Labour Costs (a key input to forecasts of inflation) were revised higher to 4.3% (from 2.0%) alongside higher hourly compensation costs (revised to 3.7% from 1.5%). That may go some way into justifying Cleveland Fed President Meste’sr (FOMC voter) remarks who spoke after the ISM release: “If you have a forecast and inflation is moving up to your target and you’re at full employment, then it seems like a gradual increase from very low interest rate is pretty compelling…Pre-emptiveness is important”. The market is currently pricing 37.5% chance of a hike in September and 75% by December.
In terms of specific market moves it was one of broad US Dollar weakness (down 0.4% across the board). The British Pound was the outperformer amongst G10 currencies up 1% to 1.3270 following a much better than expected UK PMI (53.3 v expectation of 49.0). Next up was the Aussie and the Kiwi up 0.5% and 0.4% respectively, with much of that strength in the Asian session driven by stronger Australian non-mining investment intentions, China’s manufacturing PMI, and stronger NZ export figures. The Euro also finished the day 0.4% higher.
While US Bond Yields were only down 1.2 basis points on the day, that disguises some hefty intraday moves, with yields initially trading higher to 1.62% (helped along by higher Unit Labour Costs and the better UK PMI), before the weak US Manufacturing ISM which saw yields fall to 1.55%. Amongst the other majors, German Bund yields were little changed at -0.07% while Gilt yields rose 2.6% to 0.67.
Major stock indexes were little changed with the Euro Stoxx down 0.2%, and the S&P500 unchanged. Oil continues to come under sustained weakness, with WTI down 3.2% for the day to $43.28. That comes after rising inventories and remarks by Russia that indicated there was no need for an output freeze.
This morning on the economic front we have UK Construction PMI at 9.30. This is followed by the big event of the week namely the US NFP data. For Payrolls, the Atlanta Fed’s Job Calculator suggests around 118k payrolls are required to keep the unemployment rate unchanged. That suggests a payrolls print north of 120k would be enough for the Fed to hike rates. The market is currently expecting 180k jobs and for the unemployment rate to decline to 4.8% from 4.9%. It is also worth noting that a key input to most economist forecasts of Payrolls – the Non-manufacturing ISM Employment Index – is not at hand this month. Of the available data, the NFIB Small Business Jobs Report for August was mixed with an increase in job openings, but a reduction in plans to increase employment. For me the key component will be Average Earnings which are expected to rise by 0.2%. Finally we have the ISM New York and Factory Orders at 2.45 pm and 3.00 pm respectively.
At 6.00 pm the Fed’s Lacker will speak on Interest Rates in Virginia.
September S&P 500
My S&P plan has not worked out the last two days as despite having the correct view I have been stopped near the bottom of the range on each of these trading sessions which is very frustrating when you see the subsequent rally that has occurred in the last hours of trading in the Chicago session. What is incredible in relation to the US Stock market is the fact that the McClellan Oscillator has now closed negative for the last five weeks (which must be some sort of record) despite the fact that the S&P is only 20 Handles from all-time highs. For the record the S&P traded lower to my 2167.50 average buy level before stopping me out of this position at 2157 and I am now flat. I know a number of my members thankfully used my ‘’5 Handle Rule’’ to subsequently re-buy the S&P after they were stopped out which would have put them long again at 2159 thus mitigating any loss occurred. Unfortunately with all my travel and various meetings yesterday in London I was not at a screen to avail of this opportunity. Today of course is NFP day and I will as usual stay flat until we see the release at 1.30 pm. The S&P has two support levels from 2150/2158 and the major one at the previous high at 2134. If by some chance the S&P gets hit hard today after the NFP release I will be a very aggressive buyer on any dip lower to 2137/2144 with a 2131 stop. Otherwise I will look to buy the market again on any dip lower to 2153/2158 with a 2148 stop. My only interest in selling the S&P is on a rally higher to 2189/2195 with a 2201 stop. Remember the US Markets are closed on Monday for the Labour Day Holiday and liquidity will start to dry up after 6.00 pm.
EUR/USD
As I mentioned at last Tuesday’s lecture in IG Dublin, everyone that I read and talk to are bearish the Euro while looking for a stronger US Dollar. Yesterday’s shocking ISM Report saw the Euro rally from 1.1130 to over 1.1210. This rally saw the Euro hit my 1.1195 sell level and as I was not comfortable in going short the Euro I Emailed my Platinum Members to exit this position at 1.1180 and I am now flat. I am going to stay flat until we get the NFP release and if the Euro trades lower I will again look to buy market from 1.1085/1.1115 with the same 1.1050 stop. I do not want to be short the Euro at this time as a weak NFP will quickly see the Euro break last week’s high at 1.1360.
September Dollar Index
The Dollar hit my 95.65 buy level after the ISM data yesterday. Just like the Euro above I was not comfortable in been long the Dollar and I cut this position at 95.75 and I am still flat. Today I will look to sell the Dollar on any rally higher to 96.30/96.70 with a 97.05 stop.
September DAX
Initially my DAX plan worked well as the market hit my 10580 buy level. However the strong Euro weighed on the DAX and I subsequently emailed my Platinum Members to cut this position at 10600 and I am now flat. With so little volatility over the past two months traders are looking much more at the EUR/USD rate than ever before to justify each trade taken. The DAX has very strong support from 10390/10440 and today I will be an aggressive buyer on any dip to this level with a 10350 tight stop. My only interest in selling the DAX is on a rally higher to 10685/10745 with a 10775 stop.
September FTSE
My FTSE plan did not work well yesterday as after the UK released its blockbuster of a PMI Report Sterling rallied strongly against all major currencies. This rally hit the FTSE hard and after buying the market at 6790 I was stopped out after the US ISM release at 6740 and I am now flat. The next support for the FTSE is at 6710 and today I will be a small buyer from 6680/6720 with a 6650 stop. I will also be a small seller on any rally higher to 6820/6850 with a 6880 stop.
Dow Rolling Contract
My Dow plan worked well yesterday with the Dow trading lower to my 18370 buy level before having a nice rally which enabled me to cover this position at my revised 18400 T/P level and I am now flat. The Dow has certainly underperformed the other major US Indices over the past six weeks but if the Dollar starts to weaken again then this trend may reverse. Today I will again look to buy the Dow on any dip lower to 18260/18320 with an 18215 stop. Despite the negative price action I do not want to be short the Dow at this time.
September BUND
I had no luck yesterday with the Bund missing my 166.90 buy level with a 166.94 low print before having a nice 60 point rally and I am still flat. Today I will raise my buy level slightly to 166.65/166.95 with a tight 166.35 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1289/1296 with the same 1283 stop.
Silver Rolling Contract
Silver also just missed my 18.50 buy level before having another rally to 19.00. Today I will raise my buy level slightly to 18.30/18.60 with the same 17.95 stop.
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