Well, the US animal spirit is back with a trifecta of better than expected data releases and with concerns over US-North Korean tensions abating and Tuesday’s upbeat message from Fed Member Dudley still resonating, the US Dollar and US Treasury yields are higher, safe haven assets have been sold and US equities look to be taking a breather after a decent jump in the previous day. The VIX has edged lower again and it has closed at 12.04, down 33bps on the day. July US Retail Sales beat expectations (0.6% m/m vs 0.3% exp., ex Autos 0.5% vs 0.3% exp.) and recorded the biggest monthly gain since December. The July gains were broad based and the May and June figures were also revised upwards. Meanwhile the Empire State Index jumped to 25.2 in August well above the 10 penciled in by economists and now the Index sits at its highest reading since September 2014. Finally, August NAHB index of homebuilder activity and sentiment rebounded to 68, from 64 in July, well above the 64 expected by consensus.
To mark my 1400th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 65 points yesterday and is now ahead by 555 points for August, having made 1096 points in July, 1023 in June, 1071 in May, 1376 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
So with concerns over US-North Korean tensions abating and Tuesday’s message from Fed Member Dudley still resonating in markets, the message from US data releases yesterday is that the US economy is having a great start to the second half of 2017. Thus, the data releases have helped reinforce the positive economic outlook delivered by Fed Dudley helping UST yields and the USD track higher.
DXY (USD Index) has been on an upward trend since the start of the week and although some of the gains recorded post the release of US Retail Sales have been retraced, the upward trend is still intact. DXY is up 0.47% on the day and after trading to an intra-day high of 94.139 it now trades at 93.854.
Looking at G10 currencies, JPY is the big underperformer against the USD, down almost 1%. USD/JPY has followed the move higher in UST yields and after punching through the ¥110 mark yesterday, it now trades comfortably above the figure at ¥110.69. NZD and Sterling are the other two main underperformers, down 0.73% and 0.71% respectively. The Pound’s underperformance has come from softer than expected July CPI figures (2.6%y/y vs 2.7% exp., core 2.4% vs 2.5% exp.) serving to further reduce expectations of any BoE hiking action this year. After spending most of yesterday’s day session range trading around 1.2960, GBP now trades at 1.2868. As for the Kiwi, most of its underperformance came during Europe’s trading hours. The move lower was unrelated to any news and reflects NZD’s current vulnerability to the downside amid extreme long speculative positioning. This morning GDT dairy auction defied some of the more positive indicators leading up to the auction and showed a slight fall in pricing. NZD down trades at 0.7236 and it has essentially closed near the lows of the NY session.
Meanwhile the Australian Dollar has been steady, after gapping about 25pips at the London open (again unrelated to any news and like NZD reflecting downside susceptibility amid extreme long speculative positioning), it has essentially range trade and now trades at 0.7821. Looking at Bond Yields, 10y UST traded to a high of 2.28% and have ended the day close to the highs at 2.2728%. The 2y year tenor shows a similar pattern reaching a high of 1.35%, ending the day at 1.3465%, 3bps relative to its previous close. Stronger US data releases have pushed pricing expectations for a December hike to 42%, up from yesterday’s pricing of 37%.
A brief look at commodities paints a mixed picture. Oil prices are little changed (Brent dipped to a low of $50.11, but now trades at $51), Copper is also flat, unsurprisingly gold is down 1% and iron ore is down 1.4%. Two reports overnight painted a grim outlook for iron ore, with Citi Bank raising over supply concerns while Axiom capital warning the potential for an acute correction over the next four months.
Meanwhile in other news the IMF increased its estimate for China’s average annual growth rate through 2020, but warned that it would come at the cost of rising debt that increases medium-term risks to growth.
This morning on the Economic Front we have UK Unemployment and Average Earnings at 9.30 am. This is followed at 10.00 am by Euro-Zone GDP. Next we have US Housing Starts and Building Permits. Finally at 7.00 pm we have the FOMC Minutes. The July FOMC Meeting will be assessed to see the degree of conviction the Committee has on the outlook for inflation. The Minutes will be also studied for any hints on the likelihood of the Fed announcing it balance sheet unwind strategy at their next meeting in September. On Tuesday Fed Member Dudley noted that market expectations for a September announcement were not unreasonable.
September S&P 500
Unfortunately after I posted early yesterday morning the S&P just missed my 2473 sell level and I am still flat. After last week’s sell-off the market has now rebounded to what I call the congestion zone between 2460/2480. I am still flat and today I will leave my sell level unchanged from 2472/2478 with a 2483 stop. Given the potential for some fireworks after the FOMC Minutes are released I will also leave my buy level from 2449/2455 unchanged with the same 2444 same stop.
EUR/USD
My Euro plan worked well with the Euro trading lower to my 1.1700 buy level with a 1.1688 low print on the release of the stronger than expected US Retail Sales. The Euro subsequently rallied back above 1.1740 and I used this rally to exit any long position at 1.1720 or better and I am now flat. There is now doubt the Euro has strong support from 1.1640/1.1685 and today I will again look to buy the market in this area with a 1.1610 stop. I will also lower my sell level to 1.1820/1.1860 with a 1.1890 stop.
September Dollar Index
Unfortunately the Dollar also missed my buy level before rallying as expected and I am still flat. As I have mentioned over the past number of weeks it is only a matter of time before we see a substantial rally in the Dollar given how much it has fallen since last January. Today I will now raise my buy level to 93.20/93.55 with a 92.90 stop.
September DAX
No change as I am still a buyer on any dip lower to 12060/12110 with the same 12010 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to the 200 Day Moving Average at 11900/11920 with a 11850 stop.
September FTSE
Given how weak Sterling is trading I would have expected the FTSE to be stronger. Brexit is now having a material effect on the UK Economy as shown by the recent data releases. Today’s Average Earnings will be worth watching at 9.30 am. Despite the weakness in Sterling I am going to leave my buy level unchanged from 7270/7310 with a 7240 stop.
Dow Rolling Contract
Frustratingly the Dow just missed my sell level before having an 80 points sell-off and I am still flat. Given the potential for some volatility surrounding the FOMC Minutes at 7.00 pm I am going to leave my sell level unchanged from 22080/22150 with the same 22195 stop which is just above last week’s all-time high at 22179. I will now lower my buy level to 21780/21845 with a 21730 stop.
September BUND
I am still flat the Bund which continues to trade an insane low yield. Today I will now lower my sell level slightly to 164.25/164.65 with a 164.90 tight stop.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1267 buy level before rebounding to my revised 1271.50 T/P level and I am now flat. As I am long Silver, my only interest in buying Gold is on a further dip lower to 1254/1262 with a 1248 tight stop.
Silver Rolling Contract
No change as I am still long Silver from early yesterday morning at 16.85. I will only add to this position on any subsequent move lower to 16.55 with the same tight 16.35 stop.
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