It has been a quiet start to September partly due to the US being on holiday celebrating Labor Day. European equity Indices ended the day little changed with the UK FTSE 100 the stand out, up almost 1% and buoyed by a 0.7% decline in the pound. Criticism of PM May Brexit plan, rumours of leadership spill and soft Manufacturing data all conspired against Sterling. Meanwhile the Australian Dollar climbs above 72 cents, but with EM usual suspects under pressure it is hard to get too excited on the mini AUD rebound. Meanwhile in bonds, softer Italian budget rhetoric has helped Italian sovereign bonds outperform.
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For anyone following my Platinum Service it made 15 points yesterday on the first trading session of September, having made 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, and 879 points in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Currencies
Last week Sterling climbed above 1.30 on the back of seemingly positive Brexit sound bites with the move boosted by a short squeeze as the currency pair climbed above its then August month to date high of 1.2936. Over the weekend PM May said she would not compromise on the UK government’s Chequers plan and also ruled out a second Brexit referendum. In response EU’s chief Brexit negotiator Michel Barnier said that he ‘’strongly opposed’’ the ‘’illegal’’ Chequers plan, because it sought to unpick the single market. PM May’s obdurate position appears to have back fired amid strong criticism within her party and rumours of a leadership challenge. Former UK Brexit negotiator Davis said that he will vote against May’s plan and others suggested that she obviously did not have any Parliamentary backing for the plan. Former foreign secretary Johnson claimed May’s plan would be a ‘’disaster’’ for Britain and this has restarted speculation of a possible leadership challenge to May as Parliament opens for business after the summer break. Also not helping Sterling, on the economic front, the UK manufacturing PMI came in softer than expected, slowing to its weakest level in two years. GBP is down 0.7% to 1.2873 and in the process the move has helped the EUR/GBP cross climb back up to 0.9025.
On the other side of the ledger, the Swedish krona is the top G10 performer, up 0.8%, with traders putting it down to a short squeeze ahead of a Riksbank meeting this week and a general election which takes place next Sunday, where focus has turned to the rise in support for an anti-immigration nationalist party that could form part of the next government.
After a soft end to the month of August, AUD has started the month of September in a slightly positive mood (+0.35%), climbing back above the 72c mark. That said, it is hard to get too excited on the AUD near term fortunes given the imminent risk that President Trump may impose another round of tariffs on Chinese imports. In the domestic front more out-of-cycle mortgage rate rises adds a domestic element to downside AUD risk via further pushing out expectations for the start of an RBA tightening cycle and although it has been a relative quiet night for markets, EM FX usual suspects have remained under pressure.
The Argentine peso fell another 4.2% in spite of a new round of austerity measures announced by President Macri. BRL is down 2.27% with news that a Brazilian electoral court has banned former President Lula from competing in next month’s elections doing little to arrest the political uncertainty in Brazil. Yesterday’s Turkey’s August inflation printed at 17.6% and while the country’s central bank has promised to make the necessary policy adjustment next week, the market remains sceptical given President Erdogan wishes for lower rates. Meanwhile ZAR was also down more than 1% on no new news.
So for now most of EM woes can be attributed to country specific issues, but with USD liquidity shrinking as the Fed is expected to continue with it gradual tightening strategy and with President Trump seemingly keen on pursuing its hard line on trade policy, EM contagion risk is still alive and kicking.
Equities
Quiet start to September with the US celebrating Labor day. US equity futures edge up a few points on Monday and European equities were little changed, barring the UK FTSE which was up 0.97%.
Bonds
European bonds closed little changed with UK Gilts a couple of bps lower amid rising domestic political uncertainty (10y Gilts -2.3bps to 1.402%). Italian BTPs were the stand out performers lifted by softer rhetoric on the Italian budget by Deputy PM Salvini. Deputy PM Salvini said Italy’s budget will lower taxes and respect rules.
Commodities
It has been another mixed 24 hours for commodities with LMEX (-0.40%), copper (-0.60%) and aluminium (-1.32%) all having a negative start to the new month. Meanwhile oil prices (Brent +0.94%, WTI +0.43%) and lead (2.02%) are the outperformers.
Assessment of Iranian sanctions and the prospect of tropical storm Gordon becoming a hurricane as it crosses the Gulf of Mexico have helped oil prices perform.
Economics
EZ: Manufacturing PMI unchanged from the flash at 54.6. Nothing much to read into here, trade uncertainty remains a headwind
UK Manufacturing PMI disappoints at 52.8 against expectations of 53.9. Details show New Export orders are slowing and have contracted for the first time since April 2016. That flowed to slower rates of production and employment – job creation at large enterprises was quoted as being “near-stagnation”. Brexit uncertainty remains a headwind.
This morning on the Economic Front we have UK Construction PMI at 9.30 am and this is followed at 10.00 am by Euro-Zone PMI. At 2.45 pm we have US Markit Manufacturing PMI. Finally we have Construction Output and ISM Manufacturing at 3.00 pm.
Later at 3.30 pm we have a speech from the Chicago Fed’s Evans.
September S&P 500
With the US Markets closed for the Labor Day Holiday the S&P traded in a narrow but firm range. I am not going to chase this market higher as I want to see how the US traders react to the new highs in the S&P and NASDAQ since most of them went on vacation a few weeks ago and are only returning to their desks today. Therefore, I will leave my buy level unchanged from 2891/2899 with a 2884 stop. I will still be a small seller on any rally higher to 2919/2926 with the same 2933 stop. I am expecting volatility to ramp up for September. Despite the new highs in the S&P the VIX is not soft as it closed on Friday at 12.86.
EUR/USD
Unfortunately the Euro just missed my 1.1630 T/P level on my latest long 1.1615 position with a 1.1628 high print. Today I will continue to add to this position on any further move lower to 1.1560 with the same 1.1530 stop. I will now lower my T/P level on this position to 1.1625 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
September Dollar Index
The Dollar is opening higher this morning after been closed yesterday. The Dollar has strong resistance from 95.60/96.00 and today I will be a seller on any rally to this area with a 96.35 tight stop.
September DAX
The lower Euro is helping the DAX to trade higher this morning. I am still flat and today I will now raise my buy level to 12220/12280 with a 12175 stop. I still do not want to be short the DAX at this time.
September FTSE
As mentioned in my Economic Commentary above the softer Sterling as certainly helped the FTSE to regain much of last week’s losses with a 1% rise yesterday. So far the FTSE is managing to hold the key 7400/7450 support level and today I will now raise my buy level to 7415/7465 with a 7380 stop. Just like the DAX above I still do not want to be short the FTSE at this time.
Dow Rolling Contract
I am still flat the Dow as we wait for the US Markets to open at 2.30 pm following yesterday’s Labor Day Holiday. So far the Dow is underperforming both the S&P and NASDAQ as we head into the more seasonally dangerous month of September. Today I will again raise my buy level slightly to 25760/25910 with a higher 25675 stop. The Dow has strong resistance from 26200/26350 and today I will be a small seller on any rally to this area with a 26425 stop.
September NASDAQ
No change as I am still a buyer on any dip lower to 7580/7620 with a 7545 stop. As mentioned yesterday the NASDAQ is overbought and has strong resistance from 7750/7600. I will still be a seller in this area with a 7635 tight stop.
September BUND
No change as I am still a buyer on any dip lower to 162.10/162.50 with the same 161.70 stop. I still do not want to be short the market at this time.
Gold Rolling Contract
Gold is following Silver lower this morning with the strong US Dollar also a burden to higher prices at this time. As I am back long Silver I will now lower my Gold buy level to 1178/1186 with a 1172 stop.
Silver Rolling Contract
Shortly after I posted yesterday morning Silver traded higher to my 14.55 T/P level on my latest long 14.40 position. Subsequently I emailed my Platinum Members to re-buy Silver at 14.40 and this position was executed this morning. I am still long and I will look to add to this position on any further move lower to 14.00 with a 13.70 stop. I will now lower my T/P level on this position to 14.58 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
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