News in the last two hours of the New York trading session that President Trump wants to move ahead with a plan to impose tariffs on $200 billion of Chinese imports as soon as the public comment period concludes next week, has pulled the rug from an earlier recovery in US stocks that in turn had been driven by a recovery in European Bourses on news that the EU was (again) offering to cut tariffs on auto imports to zero if the US would do the same. Recall the EU currently imposes 10% tariffs on all cars coming into the EU from outside while the US imposes 2.5% tariffs on car imports and 25% tariffs on light trucks. Trump has just said that Europe’s offer for no auto tariffs is ‘’not good enough’’. Also helping US (technology) stocks was the news that Warren Buffet was lifting his stake in Apple, describing the iPhone as ‘’enormously under-priced’’.
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Reading the full Bloomberg story on Trump’s China tariff intentions is not quite so alarmist, suggesting no decision has yet been made, that it could be implemented in stages, would not start immediately, etc. etc.. Trump has also tweeted that he expected to sort out trade differences by the time he meets with China’s President Xie in November. One thing’s for sure ‘’Sino-US trade developments are destined to be the defining feature of September’s markets. I am inclined to take the headlines that Trump is minded to announce his intentions to ratchet up tariffs on China as early as next week at face value (the consultation period ends next Thursday).
FX and Equities
The China tariffs headlines knocked more than 0.5% off the S&P 500 and another 20 pips off the AUD, that earlier wasn’t showing any sign of recovery from Wednesday and Thursday’s double hit from first the news Westpac was lifting its standard mortgage rate by 14bp – the market presumption being this would mean RBA policy ‘’lower for longer’’ – and then yesterday’s weak Q2 Capex (-2.5%) and Building Approvals data (-5.2%).
The AUD currently sits at 0.7250 and 2.2% down on the month heading into month-end, losses which have just been out-done by the NZD (-2.5%) which took another sizeable hit from yesterday’s ugly ANZ business survey. As a result of the latter, the NZ rates market now ascribes about a 50% probability to a 25-point cut to the OCR in the coming year. The Aussie rates market does not have a 25-point rate hike priced before 2020, but is still not flirting with the idea of a rate cut before then.
Also not helping AUD has been renewed pressure on Emerging Market currencies outside Asia, with the Argentine Peso off another 12% yesterday, this after the country had earlier asked for speeded-up disbursements of its $50bn IMF aid package and a failed attempt to shore up the currency with a15% jump in interest rates, to now 60%. Renewal of pressure on the Turkish Lire is also evident, off almost 3% on rumours of the Central Bank Deputy Governor resigning and now back much close to 7 than 6 against the USD having been briefly sub-6.00 on Monday (so now 12% down on the week).
ZAR, CLP and MXN and BRL are also all lower by between 0.9% and 2.4%. This puts the JPM Emerging Market Currency Index off another 1% (having been 1.5% lower immediately after the China tariff headlines).
Slippage in both MXN and CAD has come despite continued optimistic soundings from the ‘’new-NAFTA’’ negotiations currently in place and where Trump has just said that a trade deal with Canada may come by Friday or ‘’within a period of time’’.
Elsewhere amongst the majors, the JPY has caught a fresh safe-haven bid to be 0.6% higher on the day, while Sterling is little changed, so still holding all of Wednesday’s gains on the comments from the EU’s Barnier about a special Brexit deal for Britain. GBP has also been helped by a UK Times report indicating that French President Macron is urging EU leaders to make a deal with Britain as part of his vision for a united Europe, both inside and outside the EU. The Euro is lower against the USD (by 0.3%) but is continuing to out-perform commodity-backed currencies whenever trade tensions escalate.
US equities have closed with the S&P off 0.4%, the Dow -0.5% and NASDAQ -0.3%.
Bonds
The China tariffs story has turned an earlier 0.5bp fall in 10-year Treasury yields into a 2.5bp drop, and a 1bp decline in the 2-year yield into one of also 2.5bps.
Commodities
Oil is higher despite signs Europe is working hard to preserve an Iran nuclear deal that would allow it to by-pass US sanctions, but hard commodifies are all lower led by aluminium and nickel while Chinese steel futures are 2.5% lower.
Economics
US data had no real market impact, with the important core PCE deflator data for July coming in at 0.2% as expected, pushing the year on year rate up to 2% (i.e. bang on the Fed’s target) from 1.9% in July. Personal Income was up 0.3% and spending 0.4%, close enough to expectations not to matter for markets while Weekly US jobless Claims remains very low at 213k (212k expected).
This morning on the Economic Front we already had the release of German Retail Sales which came in weaker than the -0.2% expected with a -0.4% print. At 10.00 am we have Euro-Zone Unemployment and CPI. Finally we have the Chicago Purchasing Managers Index and the University of Michigan Consumer Sentiment Index at 2.45 pm and 3.00 pm respectively.
Remember the US Markets are closed next Monday for the Labor Day Holiday.
September S&P 500
Patience was the key to yesterday’s trading session. Just when it looked like both the S&P and NASDAQ were going to close at yet another all-time high we got the latest tariff news which knocked the S&P off by nearly 20 Handles. This move lower enabled me to buy the market at 2896 before we rallied to my revised 2900 T/P level and I am now flat. Today I will again look to buy the S&P on any dip lower to 2882/2889 with a 2875 stop. I have no interest in chasing this market lower and today my sell level will be from 2916/2926 with a 2933 stop.
EUR/USD
I am still flat the Euro as we head into a long weekend in the US. Today I will raise my buy level slightly to 1.1580/1.1625 with a 1.1540 stop. Unfortunately the Euro again missed my 1.1750/1.1790 sell level and today I will leave this sell area unchanged with a 1.1830 stop. Remember a break and close over 1.18 for a few days opens up the strong possibility of a move higher to the 1.22/1.23 strong resistance area.
September Dollar Index
The Dollar again traded in a narrow range over the past 24 hours and I am still flat. Today I will leave my buy level unchanged from 93.20/93.60 with a 92.80 stop. I will also leave my sell level unchanged from 95.20/95.60 with a 96.05 stop.
September DAX
Shortly after I posted yesterday morning the DAX sold off to my 12395 buy level before rallying over 100 points. This move higher hit my too tight 12430 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 12240/12310 with a 12185 stop. Despite the negative price action over the two days I still do not want to be short the market at this time.
September FTSE
Overnight the FTSE finally traded lower to my 7460 buy level before rallying to my 7485 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7400/7450 with the same 7375 stop. This buy area is strong support and should hold the market on any subsequent test. Just like the DAX above I still do not want to be short the FTSE at this time.
Dow Rolling Contract
I hate when I have a position for too many days especially when it is one that I am offside on. Thankfully the late sell-off in the Dow saw the market hit my 25980 T/P level on my 26000 short position from last Monday and I am now flat. Today I will again look to sell the Dow on any move higher to 26140/26280 with a 26350 stop. Remember given the size and volatility of the Dow I am only trading this market in small size. My only interest in buying the Dow is on a further move lower to 25650/25800 with a 25575 stop.
September NASDAQ
Just when it looked like the NASDAQ was going to hit my 7710 stop on my latest 7560 short position we got the tariff news which sent the NASDAQ lower to my 7625 T/P level and I am now flat. This move lower happened despite Apple shares trading to another new all-time high. Even though I am long-term bearish of the US stock market it is very difficult to be short until we get a sell extreme that last more than a few days. The next resistance area for the NASDAQ is from 7730/7780 and today I will again look to sell the market on any rally to this area with a 7815 tight stop. Given the strong price action I will also look to buy the market on any dip lower to 7550/7590 with a 7510 stop.
September BUND
One market which keeps coming back from any sell-off is the Bund and this is despite its insanely low yield. The incredibly low yield in the Bund shows how weak the Euro-Zone recovery is. Yesterday the Bund finally traded higher to my 162.95 sell level. I see no reason why to hold this position and I have now exited here at 162.88 and I am now flat. I will now raise my buy level to 162.00/162.40 with a 161.60 stop.
Gold Rolling Contract
Gold came close to my 1190 buy level with a 1195 low print before rallying into the New York close and I am still flat. Today I will leave my buy level unchanged from 1182/1190 with the same 1175 stop.
Silver Rolling Contract
Silver continues to trade ‘’heavy’’ and I am still flat. Today I will also leave my 14.00/14.40 buy level unchanged with a 13.70 stop. If I am taken long I will have a T/P level at 14.65.
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