The risk on tone continued yesterday with the S&P500 hitting another record high (+0.3%), Bond Yields rose across the board (US Treasuries +3.7bps), while the US Dollar held onto Monday’s gains. Outperforming was Sterling (+0.9%) on the back of stronger than expected inflation figures which has seen markets pull forward expectations for a Bank of England rate hike to May 2018 from Dec 2018. In a quiet trading session for data, risk sentiment remained positive. The UN Security Council voted to adopt new sanctions against North Korea (major items: a cap on oil imports; bans on the export of textiles; and preventing overseas North Korean workers from remitting funds). The market mostly shrugged off threats by North Korea to inflict the “greatest pain” on the US it has ever suffered, especially given China and Russia agreed to the sanctions.
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 24 points yesterday and is now ahead by 207 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.
In FX the biggest mover was the Pound. GBP/USD soared 0.9% to 1.3283 – it’s highest since September 2016. Stronger than expected inflation data supported with headline inflation spiking to 2.9% y/y, against expectations of 2.8% rise, and equalling the four-year high seen in May. Driving the price increase was clothing and petrol with the weaker pound since Brexit the main culprit. Gaining the markets attention was the core measure which was also stronger than expected at 2.7% y/y (2.5% expected). In response the market has pulled forward expectations of a Bank of England rate hike to May 2018 from Dec 2018, while the market’s assessment of the terminal rate has also risen with one year OIS in five years-time up 12.5bps to 1.06%. The move in market pricing now brings it more in line with Governor Carney’s words in August that the first rate hike was not likely until August 2018.
Other currency pairs were more muted. The USD (DXY) held onto Monday’s gains to be unchanged at 91.912. With risk aversion abating the safe haven currencies fell: Yen (-0.8%) and Swiss Franc (-0.5%), while the Euro rose 0.1%. The Aussie was little moved, down 0.1% to 0.8019 while the Kiwi outperformed, up 0.5% to 0.7291 on the back of better polling for the incumbent National Party ahead of the election on 23 September. The most recent Newshub poll puts the National Party at 47.3% and Labour at 37.8% which would be just enough for the party to form government in their own right (61 seats in a 121 seat Parliament).
As for Bond Yields, the UK CPI data saw Gilts rise 9.0bps to 1.14%. That bled through to other major sovereign bond yields with German Bunds +6.5bps to 0.40% and US Treasuries +3.7bps to 2.17%. As for the Fed, abating concerns around Hurricane damage and reports that the debt ceiling up for negotiation in December could be practically pushed into January due to emergency funding mechanisms has seen the OIS market pricing in a 47% chance of a December rate hike, up from Friday’s 33% chance.
Also supporting yields were comments on US tax reform by Treasury Secretary Mnuchin. He reiterated his confidence in getting tax reform done by the end of the year: “we’re going to get this done” and the administration is “super focused”. However, he also noted that the corporate tax rate is unlikely to be cut to 15% from the current 35%: “I don’t know if we will be able to achieve that, given the budget issues” “But we’re going to get this down to a very competitive level”.
Economic data was sparse but US releases continue to reinforce strength and hint towards an eventual lift in wages growth. The NFIB index rose to 105.3 from 105.2 and above the consensus of 104.8. Hiring plans remain elevated (18 v its average of 11 in 2016), while the % of firms reporting higher worker compensation rose to 28 (it averaged 24 in 2016). The number of job openings also rose to a new all-time high of 6,170k while the quit rate rose a tenth to 2.2%.
This morning on the Economic Front we had German Final CPI which rose 0.1% as expected. At 9.30 am we have UK Unemployment and Average Earnings at 9.30 am. This is followed at 1.30 pm by US PPI. Finally at 7.00 pm we have the US Monthly Budget.
September S&P 500
The S&P traded in a narrow range yesterday with the market closing at another new all-time high. However volume was weak and we still have negative divergence with the Dow which so far has been unable to break its August 8, 22179 previous high. I am still flat the S&P and tomorrow I will roll to the December Contract with the Sept Contract expiring on Friday. The S&P still has this large ‘’open Gap’’ from 2463/2474. However my own view is any sell-off will be limited as the bulls are in full control. Today I will now raise my buy level to 2480/2486 with a 2475 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2459/2465 with a 2454 stop. I still do not want to be short the S&P at this time.
EUR/USD
I am not having much luck with some of my calls this month with the Euro missing my 1.1920 buy level with a 1.1926 low print before rallying nearly 70 points and I am still flat. I am not going to chase the Euro higher and today will only raise my buy level to 1.1895/1.1935 with a 1.1860 stop. I still do not want to be short the Euro at this time.
December Dollar Index
I am still flat the Dollar which initially rose to 92.00 yesterday before selling off overnight. Today I will again look to buy the Dollar on any dip lower to 90.85/91.25 with a 90.50 stop.
September DAX
The renewed strength in the Euro sees the DAX trading lower this morning from yesterday’s 12559 high print. The 12440 area which is the 100 Day Moving Average should act as strong support initially and today I will leave my buy level unchanged from 12390/12440 with a 12350 stop. Despite the DAX trading overbought I still do not want to be short the market at this time as shorts are too risky.
September FTSE
The FTSE struggled yesterday on the back of the higher inflation data which led to a large rally in Sterling. After the FTSE traded lower to my 7390 buy level I emailed my Platinum Members to exit this position at 7402 as I wanted to bank some points for yesterday’s trading session and I am now flat. The FTSE again failed to break the key 7445/7470 resistance level before having a small sell-off in what turned out to be another sideways trading session. The FTSE has now been contained in a narrow 200 point range for over three months making it frustrating to trade. The best support for the FTSE is from 7290/7320 and today I will be a buyer in this area with a 7260 stop.
Dow Rolling Contract
After the Dow traded higher to my second sell level at 22130 I emailed my Platinum Members to exit this short position at 22118 as I wanted to be flat ahead of the Apple 8 iPhone launch. Apple shares fell $4 on the news as traders took some profit at $164 after the huge move higher over the past few months. The Dow has strong resistance at 22180 and today I will again add to my tiny short 22030 position here with a 22230 stop. If I am taken short I will then raise my T/P level to 22100.
December BUND
On the back of the strong UK Inflation data the Bund sold off with the market trading the whole of my 162.30/161.95 buy range. I am now long at an average rate of 162.12 and for now I will leave my stop unchanged at 161.60. Yesterday was the largest red candle that we have seen in the Bund for a few weeks and is a warning of lower prices ahead. I will now look to exit this long position on any move higher to 162.20 and I will also look to go short from 162.45/162.80 with a 163.05 tight stop.
Gold Rolling Contract
Gold traded to a 1322.50 low print before rallying and I am still flat. As I am still long Silver I am reluctant to chase this market higher and will leave my buy level unchanged from 1308/1316 with the same 1299 stop. Any sell-off to the 1300/1310 area is an excellent buying opportunity.
Silver Rolling Contract
Silver again just missed my second buy level at 17.70 to add to my already long 18.05 position. Today I will leave my instructions the same as yesterday with a 17.45 stop.
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