We now have a risk-off atmosphere to markets with the public consultation period in respect of White House plans for tariffs on another $200bn of Chinse goods just drawing to a close. The S&P500 and NASDAQ closed lower but still managed to stage another late rally, chip-makers (on weaker demand forecast) and technology giants (in a week where anti-trust issues have again raised their head) leading the sell-offs. MSCI’s Global Emerging Market Index has now entered bear market terrain (off 20% since January) while in currencies, the Swiss Franc and Japanese Yen top the G10 leader board. US bond yields are bit lower but largely on the back of comments from New York Fed president John Williams, not risk-sentiment per se. The Euro is unchanged against the US Dollar.
To mark my 1650th 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 To demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoblecom for details
For anyone following my Platinum Service it made 132 points yesterday and is now ahead by 289 points for 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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Data and Central Bank speak
The recently installed head of the NY Fed, former San Francisco Fed President John Williams and definitely one Fed official to be listened to, has been out saying he is not concerned about potential yield curve inversion and that the Fed should push on with gradual rate hikes according to its read of the data and its outlook, but that limited wages growth to data suggests that there remain slack in the economy such that there is no need to consider a step up in the pace of tightening. Williams said, ‘’the fact that wages haven’t grown a lot faster is a sign that this economy still has room to run,’’ adding that as a result, ‘’we don’t feel the need to raise interest rates more quickly than otherwise.’’
Chicago Fed President Charles, in the text of a speech he was to deliver in Argentina but which got cancelled, says that the Fed should be moving policy toward neutral and then a bit beyond. Tailwinds could prompt the Fed to tighten somewhat further (a veiled reference to fiscal stimulus?) while headwinds (e.g. from tariffs) could dictate a shallower path of rate rises. This is really nothing new.
On the data front the US Non-Manufacturing ISM printed above expectations at 58.5 up from 55.3, with activity and orders both very strong and the rhetoric on tariff concerns still there but somewhat less shrill than recent months. Firms are coping okay so far, is the message. We also had ADP employment printing at a below-expectation 163k ahead of this afternoon’s Non-Farm Payrolls (see below) while Factory Goods Orders followed last week’s soft headline Durable Goods Orders, coming in at -0.8%.
Currencies
Not a big session overall for currencies. In the EM world, the Rouble is the biggest loser of the last 24 hours, down 1.4% as market anticipate further sanctions against Russia related to the Novichok poisoning deaths in the UK and following the identification of two Russian suspects. The overall EMCI global EM FX Index is actually a touch firmer (+0.3%).
In G10, JPY (+0.73%) and CHF (0.66%) top the table reflecting their safe-haven characteristics ahead of a possible China tariff announcements from the White House, followed by the Canadian Dollar (+0.27%). The latter is after senior deputy Bank of Canada Governor Carolyn Wilkins revealed that the bank debated this week whether to accelerate the pace of tightening before agreeing to maintain the ‘’gradual’’ official policy line.
Sterling has also been a slight outperformer, rising 0.2% to 1.2929, helped by a more positive vibe around Brexit. A European Commission spokesman said that chief Brexit negotiator Barnier does not think that the UK’s plan for post-Brexit ties is completely unworkable. He said that Barnier had been ‘’very clear’’ from the outset that the plan contains ‘’positive elements’’ and there could be ‘’further discussions on issues that still create problems.’’
AUD is back hugging the 0.72 handle having taken another small hit yesterday on news that two more of the major local banks were lifting their variable mortgage rates, by either 15bps or 16bps (reinforcing perceptions that out of cycle rate rises will keep the RBA on hold for longer).
Equities and Bonds
As noted, a cautious tone to US equities. Though chip makers and some of the technology behemoths drove the weakness in the NASDAQ (-0.91%) it was energy shares (-1.93%) that were the worst performing S&P sector within its overall 0.37% decline, thanks largely to falls of +/-1% in crude oil. Earlier, European stocks all finished in the red, the Eurostoxx 50 down by 0.6%.
10-year US treasures closed 3bps lower at 2.873% and the 2-year note -1.6bps to 2.633%. Most of the yield declines were generated out of the aforementioned Williams speech. Also worth noting is that Italian bonds yields continue to outperform the Euro core, 10yr BTPs off another 3.5bps vs. -2.5bp for the Bund.
Commodities
WTI crude is down 83 cents or 1.2% to $67.89 and Brent off 68 cents to $76.59. Precious metals are flat ion the day while industrial metals are mostly higher with copper and zinc both up about 1%, though aluminium is off 1.35%.
This morning on the Economic Front we already had the release of the German Trade Balance which came in at 15.88bn versus 19bn expected. At 9.30 am we have UK Consumer Inflation and this is followed at 10.00 am by Euro-Zone GDP. Next we have the US Non- Farm Payrolls at 1.30 pm. The numbers will need to be exceptionally weak to challenge supremely confident market expectations of the Fed proceeding with its next ‘’gradual’’ quarter point lift to the Fed Funds target range on September 26th (to 2.0-2.25%). Realistically, only a significant stock market correction (a la August 2015 which derailed an otherwise planned September 2015 first Fed rate hike) stands between the Fed and further tightening.
Market consensus for August NFP stands at 198k after a relatively soft 157k in July with the Unemployment rate seen falling to 3.8% from 3.9%. Average Hourly Earnings growth at the consensus 0.2% m/m would leave the yr/yr rate steady at 2.7%.
Finally Fed Members Rosengren, Mester and Kaplan are all speaking this afternoon at 1.00 pm, 2.00 pm and 5.45 pm respectively.
September S&P 500
My S&P plan again worked well yesterday with the market trading the whole of my buy range for an average long position of 2873. As four of my Index calls hit near the same time I covered this long S&P position at my revised 2876.50 T/P level and I am now flat. The good part about yesterday’s session is that no matter which Index you bought you were able to make some nice points. I know most Members will be reluctant to have more than three open positions at the same time. The S&P closed back above 2880 as yet again we saw some buying into the close as we wait for the NFP data at 1.30 pm. As I mentioned over the last few days that as long as the S&P can hold the initial support level at 2850/2860 I will continue to be a buyer on dips. For me to turn longer-term bearish I need to see a break and close below the 50 Day Moving Average at 2822. Today I will again be a buyer on any dip lower to 2860/2868 with a 2853 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2841/2849 with a tight 2835 stop. I still do not want to be short the S&P at this time.
EUR/USD
No change as I am still a buyer on any further dip lower to 1.1520/1.1560 with a 1.1485 stop. I will also leave my sell level unchanged from 1.1700/1.1740 with a 1.1775 stop.
September Dollar Index
The Dollar traded in a narrow range yesterday as the market goes on hold ahead of the NFP data. I am still flat and today I will leave my sell level unchanged from 95.50/95.90 with a 96.25 stop.
September DAX
As I was already long both the S&P and NASDAQ in reasonable size I waited to buy the DAX which I did at a price of 11940. Subsequently I emailed my Platinum Members where I was long and I lowered my T/P level on this position to 11995 which was thankfully filled into the New York close and I am now flat. The DAX closed outside the bottom of its Daily Bollinger Band and this development should slow any aggressive sell-off from here. Today I will again look to buy the market from 11820/11890 with a 11765 stop. Given how oversold the DAX is trading I still do not want to be short the market at this time.
September FTSE
Similar to the DAX above I waited to buy the FTSE which I did at a price of 7315 before exiting this position at my revised 7345 T/P level and I am nnow flat. The FTSE is also trading outside the bottom of its Daily Bollinger Band after this week’s aggressive sell-off. Today I will again look to buy the market from 7240/7280 with a 7210 stop.
Dow Rolling Contract
The Dow continues to outperform both the S&P and NASDAQ and the big question is how will this scenario continue? As a result I am reluctant to chase the Dow higher and today ahead of NFP I will leave my buy level unchanged from 25620/25780 with the same 25525 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 25240/25380 with a 25150 stop.
September NASDAQ
The NASDAQ also traded the whole of my buy range for an average long position of 7440. As I had too much exposure I also covered this position for a small gain at 7452 and I am now flat. Despite the aggressive sell-off in some tech stock this week the NASDAQ needs to break and close below the key 7360/7400 support level. The 50 Day Moving Average comes in this range at 7370. Today I will be a buyer on any dip to this area with a 7315 tight stop. I no longer want to be a seller of the NASDAQ at this time.
December BUND
The September Contract expired yesterday and I have now rolled to the December Contract. The December Contract trades at a much lower price of 160.20 well below yesterday’s September price of 162.50. The Bund has strong support from 159.20/159.60 and today I will be a buyer on any dip to this area with a 158.85 tight stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1177/1185 with a 1169 stop.
Silver Rolling Contract
I mentioned yesterday that the Daily Sentiment Index has fallen to just 8% bulls and that this low reading has led to large rallies in Silver in the past. On top of this the Managed Money Accounts are short 34,529 Futures Contracts, which is the largest bearish bet since early April when they were short a record 39,604 Contracts. As a result of this valuable information I went ahead and bought Silver yesterday afternoon at 14.15 with a 13.75 stop. For now my T/P level on this position will remain at 14.40.
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