Bond markets have grabbed the primary attention of markets, centred on Japan for once, while in currency markets, the USD has made up some net ground, if assisted by weakness in the AUD and NZD stemming from weakness in the Chinese yuan. Bond markets in recent times have been taking their lead from developments in the US, but it has been developments in Japan that have gripped the market’s attention since late last week, developing further in the past 24 hours.
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For anyone following my Platinum Service it made 80 points yesterday and is now ahead by 912 points for July, having made 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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The BoJ meets next week and there is speculation that the central bank will tweak its policy in some way (support for medium to longer term yields?) to make it more sustainable, whatever that might mean. This also comes with the expectation that the BoJ will likely lower its inflation forecasts with the implication that its QE policy with yield curve control (-0.1% short term rate and 0.0% JGB 10 year bond yield target) might need to be tweaked/adjusted in some way, possibly to support bank profitability and avoid other side effects of exceptionally low yields for an even more protracted period.
The Asahi newspaper reported that BoJ policymakers would not make a decision at this meeting, but would announce a review of its framework. Even so, JGB yields retained support, the market anticipating the policy risk of more steepness in the yield curve. In response to market moves, the BoJ announced yesterday it would be offering an unlimited fixed rate bond auction for the first time since February 2018 with a yield of 0.11%, drawing a line in the sand that caps the ceiling on 10 year yields at 0.10%.
The 10 year JGB yield spiked initially higher, settled back but rose again, peaking intra-day at over 0.09%, closing up a net 5.1bps to 0.086%. European and US bond yields have moved higher in sympathy on the back of a very light news flow, the German 10 year bund up 3.7 bps to 0.406% and the 10 year Treasury up a solid 6.47bps to 2.9578. 30 year Treasuries rose 7.09bps, Japanese 30 year bonds up a net 9.4bps yesterday to 0.784%, the 40y bond up 10.8bps to 0.919%.
Currencies & Equities
Of course, there is the added difficulty that if any BoJ ‘’policy tweaks’’ do have the effect of supporting medium to longer term yields further then that would also have the effect of supporting the yen, blunting chances of achieving higher inflation. That is the way the market played it yesterday, the yen outperforming and closing flat against the USD after some initial strength in the APAC session. The Nikkei closed down 1.33%, the Topix down 0.4%. European equities closed down marginally (the Eurostoxx 600 index by 0.19%), the Dow has closed close to square (-0.06%) and the S&P 500 +0.18%. Amazon shares closed down 0.6% after a taking an initially larger hit from a Trump tweet saying that many feel Amazon should face anti-trust claims.
The Japanese yen certainly outperformed on the crosses, the AUD and the NZD losing some steam at yesterday’s trading session from further weakness in the Chinese yuan. The AUD trades this morning at 0.7382, down 0.4% over the past 24 hours and the NZD at 0.6785, also down 0.4%.
The Aussie remains centred on Chinese currency developments. The PBoC injected $74b of liquidity via its Medium-Term Lending Facility (MLF), its largest ever operation via this facility. Amidst further policy easing from China, the CNY weakened 0.4%, with USD/CNY approaching its highs for this year of 6.8. The CNY has fallen over 6% against the USD in little more than a month. There were also some further incremental policy developments.
Elsewhere in the currency space, Sterling had a brief dip after Bank of England Deputy Governor Broadbent said he did not know whether he would vote for an August rate rise. The fall was not sustained, as Sterling sits just above 1.31 versus the US Dollar as I go to press, down 0.2% over the past 24 hours. Conservative cabinet minister Jeremy Hunt was the latest to sound a warning about UK-EU negotiations, saying that there was ‘’a very real risk of a Brexit no deal by accident’’.
Economics
It was very light for data with only the Chicago Fed National Activity Indicator (a volatile indicator and nowhere near the top of the watch list), coming with US Existing Home Sales for July. There were soft again in July (-0.6% after -0.7%), though the US National Association of Realtors Chief Economist attributed this to a shortage of stock and not a weakening in demand. Median prices were up 5.2% y/y.
Commodities
Not too much further to report with somewhat lower oil, gold and base metal prices (USD strength), while on the Australian bulk commodity export front, Met Coal prices eased, steaming coal prices were higher again, as was iron ore on the day.
This morning on the Economic Front we have German Manufacturing and Services/Composite PMI at 8.30 am. This is followed at 9.00 am by Euro-Zone Manufacturing PMI. Next we have UK CBI Industrial Trends Survey at 11.00 am. At 2.00 pm we have US Housing Price Index. Finally we have US Manufacturing PMI and the Richmond Fed Manufacturing Index at 2.45 pm and 3.00 pm respectively.
September S&P 500
Thankfully I posted just before 12.00 pm on Sunday as the S&P traded lower to my 2793 buy level two hours later before rallying to my 2798 T/P level and I am now flat. Yet again the buy the dip won the day as one short position after another got slammed especially in the NASDAQ Market which closed within touching distance of a new all-time high. Today I will again look to buy the S&P on any dip lower to 2794/2802 with a 2788 stop. Again if I am taken Long and subsequently stopped out of this position I will be a more aggressive buyer from 2765/2775 with a 2757 wider stop. I still do not want to be short the S&P at this time.
EUR/USD
I am still flat the Euro which came close to my buy level with a 1.1686 low print before rallying. Today I will now lower my buy level slightly to 1.1600/1.1640 with a 1.1565 stop. Ahead if the EU/US Tariff Summit tomorrow I still do not want to be short the Euro at this time.
September Dollar Index
No change as my only interest in buying the Dollar is still on a dip lower to 93.40/93.85 with a 93.05 stop.
September DAX
Unfortunately the DAX juts missed my 12430 buy level before spending the rest of the session trading sideways to higher and I am still flat. Today I will now raise my buy level to 12410/12490 with a 12350 stop. I still do not want to be short the Market at this time.
September FTSE
Frustratingly the FTSE just missed my 7545 buy level with a 7557 low print before spending most of the session trading higher. I am still flat and today I will now raise my buy level to 7510/7560 with a 7475 tight stop. Just like both the DAX and S&P I also do not want to be short the market at this time.
Dow Rolling Contract
The Dow underperformed both the NASDAQ and S&P yesterday and I am still flat. Today I will only raise my buy level slightly to 24810/24960 with a 24695 wider stop. Meanwhile I will leave my sell level unchanged from 25350/25500 with the same 25580 stop.
September NASDAQ
My NASDAQ plan worked well with the market trading lower to my 7315 buy level before incredibly rallying over 100 points off this low. This move higher enabled me to cover my long position at my 7345 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7330/7375 with a 7295 stop. The NASDAQ has strong resistance from 7510/7560 and today I will be a seller in this area with a 7605 stop.
September BUND
Apologies I forgot to do the Bund yesterday which as it turned out had a large sell-off from last Friday’s 163.39 high print which unfortunately had just missed my initial 163.45 sell level. Thankfully we have had no buy levels over the past week given the insanely low yield on offer. Today I will now lower my sell level to 162.55/162.95 with a 163.30 stop.
Gold Rolling Contract
I am still flat Gold as I patiently wait for a rally to develop especially with the DSI printing its third single digit reading for the month at just 7% bulls. As I am still long Silver I will now lower my buy level slightly to 1205/1216 with a 1198 tight stop.
Silver Rolling Contract
No change as I am still long Silver at 15.39 with the same 14.95 stop and 15.60 T/P level. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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