On the heels of Thursday’s FX about-turn on the news that trade talks between the US and China would resume in Washington later this month (reportedly now from this Wednesday), the Wall Street Journal on Friday afternoon NY time reported that the U.S. and China were drawing up plans to settle their trade dispute in November, when Presidents Xie and Trump are next due to meet. This has given markets some reason for optimism that a de-escalation of Sino-US trade tensions is possible one side or other of November’s US mid-term elections. The news resonated more in currency markets than elsewhere with gains most pronounced for the NZD and AUD; but it also served to lift US stocks into positive territory for the day after flat-lining earlier in the session.
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Currencies
NZD (0.76% to 0.6637) and AUD (+0.72% to 0.7313) predictably led what was a fairly broad-based US Dollar sell-off in Friday afternoon New York trade that saw the DXY Dollar Index loose 0.5%. The Canadian Dollar fared equally as well as the Australian Dollar, but in part due to the much stronger than expected headline CPI print (3.0% up from 2.5% and 2.5% expected). The jump was led by airfares and tourism costs, with the average of the core measures only rising to 2.0% (the middle of the Bank of Canada’s 1-3% target range) from 1.97%, as expected. Pricing for a next move in Interest Rates in September lifted to 32.1% from 30.4%, and in October from 69.6% to 73.3%.
In Emerging Markets, ADXY rallied by more than the Global EMCI, with TRY back above 6.0 (-3.1%) following fresh ratings downgrades from both S&P and Moody’s and a Turkish court ruled against the release of American Pastor Andrew Bunson. RUB was also weaker (-0.4%):
Thursday’s and Friday’s moves have pushed the USD into negative territory for the week, DXY and the somewhat broader BBDXY both about 1% lower, and the ADXY into the black. NZD, the biggest underperforming G10 currency of late, fared best on the week (+0.7%) with AUD only up 0.15%:
Equities:
US equities were travelling fairly flat ahead of the WSJ report but lifted in mid/late afternoon trade to close higher, the S&P by 0.3% and the Dow by 0.4%. The news came too late to help European stocks, which finished lower. On the week the Dow and S&P ended in positive territory while the NASDAQ was slightly lower given the drag from some big hits to specific tech sector/e-commerce stocks earlier in the week. Shanghai is still 4.5% lower and by far the worse perfuming major stock market. This should though now start reversing on Monday on optimism towards reduced trade tensions, and news at the weekend that the Chinese bank regulator had ordered banks to step up lending to the infrastructure and export sectors.
Bonds:
Despite the positive trade story and boost it gave to risk assets, Treasury yields were flat to marginally lower on Friday. On the week UST yields are also little changed as are core European yields, with the Bund having a narrow price range all week.
Commodities:
Mixed performances across the commodity complex on Friday with the LMEX Index slightly lower led by aluminium, but notable perhaps that copper, oil and iron ore all rose, some support seemingly drawn from the aforementioned WSJ story. Gains here could not though rescue commodities from a down week with the sole exception of coal (steaming coal +1.2%, coking +0.1%).
Economic Data
Aside from Canada CPI, the other main economic news Friday was the University of Michigan’s preliminary Consumer Sentiment reading, which unexpectedly fell to 95.3 from 97.9 (98.0 expected. Current conditions (-6.6pts to 87.3) led the drop with expectations unchanged at 87.3.
This morning on the Economic Front we have no Economic data of note from either side of the Atlantic as traders face their last two weeks of summer vacation.
Meanwhile at 3.00 pm the Fed’s Bostic will speak on Economic Outlook in Tennessee.
September S&P 500
The S&P continues to follow my roadmap as outlined in last Thursday’s detailed commentary. Unfortunately the S&P just missed my 2834 buy level on Friday with a 2835 low print before rallying over 20 Handles. I know some of you buy in front of my buy levels and hopefully you were able to do this on Friday. However I am still flat and today I will now raise my buy level to 2833/2841 with a 2825 stop as I continue to look for new all-time highs above the Jan 26 high at 2878. For this reason I still do not want to be short the market at this time.
EUR/USD
The Euro also missed my buy level before rallying as expected on Friday and I am still flat. However the Euro needs to break back and close over the key 1.1510/1.1550 resistance level for the bulls to regain control. I will still be a seller in this area with a 1.1585 stop. Meanwhile I will now raise my buy level to 1.1320/1.1360 with a 1.1280 stop.
September Dollar Index
I am still flat the Dollar and today I will now lower my sell level to 96.45/96.85 with a 97.25 stop. Given how overvalued the Dollar is trading I still do not want to be long the Dollar at this time.
September DAX
Following last week’s aggressive sell-off in the DAX the market is on a small sell signal. However with the US Markets recovering strongly following last Wednesday’s test of the 50 Day Moving Averages I find it difficult to go short the European markets. Today I will now raise my DAX buy level slightly to 12060/12120 with a 12010 stop.
September FTSE
Unfortunately the FTSE just missed my 7495 buy level with a 7505 low print before having a nice rally into the close and I am still flat. Today I will raise my buy level slightly to 7460/7500 with a 7425 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow came close to my buy level before reversing to rally over 200 points off its intra-day low and I am still flat. As I write this commentary the Dow is opening just above the key 25693 resistance level. With this in mind I will now raise my buy level to 25320/25480 with a 25245 stop. I still do not want to be short the market at this time.
September NASDAQ
My NASDAQ plan worked well with the market trading lower to my 7330 buy level before rallying to my 7365 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7300/7340 with a 7260 tight stop.
September BUND
As mentioned in my Economic Commentary above the Bund again traded in a narrow range on Friday. Last week was the quietest trading week for the Bund all year. I am still flat and today I will leave my buy range unchanged from 162.10/162.50 with a 161.80 stop. I will also leave my sell level unchanged from 164.20/164.60 with the same 165.05 stop.
Gold Rolling Contract
As I wanted to end the week on a positive note I emailed my Platinum Members that I was cutting my latest 1171.50 long position at my revised 1179.50 T/P level and I am now flat. About one hour after I went flat Gold had a small spike higher into the New York close which is not surprising given the 7% DSI latest reading. As long as gold can hold its recent 1160.50 low print I am bullish as I look for the market to rally to at least the 1230 area. Today I will again look to buy Gold on any dip lower to 1163/1173 with a 1154 tight stop.
Silver Rolling Contract
Silver also rallied into the New York close as the market again just missed my 14.45 buy level and I am still flat. Today I will now raise my buy level to 14.20/14.60 with a 13.80 stop and a 14.95 T/P level if executed.
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