There are plenty of news stories about the muted reaction from markets to the latest escalation on the Korean peninsula. The AUD dipped ever so briefly at the open yesterday but even that modest move was short lived and rather slight in magnitude. How indeed to price catastrophe? It’s certainly not as if the risk has gone away. There is no doubt that the potential consequences are abhorrent. It just doesn’t bear thinking about. The war of strong words over events in North Korea continues. There are calls for the UN Security Council to invoke yet more sanctions, a process that has been going on since 2006 when North Korea detonated its first nuclear device. The US Administration is floating the idea of the US not dealing with any country that deals with North Korea. German Chancellor Merkel and President Trump in a telephone call yesterday condemned the test noting it was a “new and unacceptable escalation by the North Korean regime”.
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 15 points yesterday and is now ahead by 152 points for September, having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 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.
US UN Ambassador Haley told the UN Security Council “enough is enough” and that North Korea is “begging for war”. US Defence Secretary Mattis spoke of a “massive military response” if needed. South Korea is warning that the North is preparing to launch more missiles. China has warned North Korea against launching another missile but regards the Trump Administration threat of tougher trade sanctions as “unacceptable”. The Chinese UN Ambassador is calling for a peaceful resolution. As they say, the situation remains fluid.
And yet “risk off” sentiment has hardly become evident. Moves back to “safe haven/risk off” currencies, the Japanese yen and the Swiss Franc, have been very much at the margin, the AUD suffering very little to no collateral damage. Dr Copper, one of the best barometers of actual and prospective momentum in the global economy, is higher again overnight, by 1.20%, continuing on its run higher with other base metals, though Aluminium gave back some ground overnight. The Korean KOSPI opened 2% lower yesterday, closing down 1.2%. For those that like history, the Dow fell less than 1% in the week the Cuban missile crisis was at its most tense but then rallied after.
US energy markets look to be moving toward normality. Seven Gulf refineries (accounting for 8% of US capacity) are beginning to reboot and come back on line. Gasoline futures are now beginning to steady and WTI is somewhat higher.
There’s been little to no data of note over the past 24 hours, with only the Euro Zone Sentix Investor Confidence survey for September and the UK PMI Construction index for August. The Investor Survey rose while the UK index dipped, but at 51.1 is the lowest for a year, if still in growth territory. With US markets closed for the Labor Day holiday, European equities were lower, following yesterday’s APAC lead. Bond yields inched lower, Germany’s 10y by 1.3bps and the French yield by 0.5bps.
This morning on the Economic Front we have German, Euro-Zone and UK Services/Composite PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed at 10.00 am by Euro-Zone GDP and Retail Sales. Finally we have US Factory Orders at 3.00 pm.
There are two Fed speakers later today, Fed Governor Lael Brainard, a very thoughtful observer of the economy. When she last spoke on economy and monetary policy she noted that the Fed’s long-run miss of its inflation goal undermines the rate hike case. One could imagine that recent data has only solidified that view. Minneapolis Fed President Neel Kashkari is also speaking. He’s a voter on the FOMC this year and generally batting back against calls for haste on hiking rates further.
September S&P 500
With the US markets closed yesterday the S&P traded in a very narrow range and I am still flat. No matter what news is thrown at this market the S&P refuses to sell-off. As I have mentioned consistently over the past few months, the S&P needs to break and close below its huge support from 2385/2430 for me to turn bearish. This band of support contains both the 100 Day and 200 Day Moving Averages at 2430 and 2387 respectively while the June low is at 2402 and the July low at 2405 also offer strong support. In my opinion it is going to take something dramatic to break and close below here as we enter traditionally the weakest month of the year for US Equities. Today I will now raise my buy level in the S&P to 2458/2464 with a 2453 stop. Despite the growing geo-political risk I still do not want to be short the market at this time.
EUR/USD
I am still flat the Euro with the market trading sideways ahead of Dragi and the ECB on Thursday. There is no doubt this is the calm before the storm. Today I will raise my buy level slightly to 1.1790/1.1830 with a 1.1755 stop. Meanwhile my sell level will remain unchanged at 1.1970/1.2010 with the same 1.2040 stop.
September Dollar Index
No change as I am still a buyer of the Dollar on any dip lower to 91.85/92.25 with the same 91.50 tight stop. Given how oversold the Dollar is trading I still do not want to be short the market at this time.
September DAX
The DAX rallied strongly after I posted yesterday despite the increased tensions in North Korea and the Euro which is back trading above 1.1900. I am still flat the market and today I will now raise my buy level to 11995/12055 with an 11955 tight stop. Given how oversold the DAX is trading I still do not want to be short the market at this time. However for the DAX to turn bullish it needs to break and close back above its key resistance level at 12300.
September FTSE
The FTSE was the only market to hit yesterday with the market eventually trading lower to my 7405 buy level. As I wanted to bank some points for yesterday’s trading session I emailed my Platinum Members to exit this trade at 7420 and I am now flat. Today I will again look to buy the market on any dip lower to 7355/7385 with a 7325 stop.
Dow Rolling Contract
I am still flat the Dow which just like the S&P traded in a narrow range yesterday due to the fact that the cash equity markets were closed for the Labour Day Holiday. Given the amount of uncertainty over both Hurricane Harvey and the Debt Ceiling, I am not going to chase this market higher especially as Congress resumes today to debate both issues. For this reason I will leave my buy level unchanged from 21790/21855 with the same 21740 stop.
December BUND
As my September sell range did not get hit yesterday I am now rolling to the December Contract which trades at a 11 point premium to the September Contract. I would expect the Bund to trade sideways ahead of Thursday’s ECB Meeting. Today my sell range will be from 165.30/165.60 with a 165.90 stop. Given the insane low yield for the Bund I do not want to be long the Bund at this time.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1316/1323 with the same 1310 stop.
Silver Rolling Contract
I am still flat Silver and today I will raise my buy level slightly to 17.45/17.80 with a 17.15 stop.
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