Speaking aboard Air Force One on Friday afternoon, President Donald Trump threatened to sharply escalate the US trade war with China, saying his administration could move ‘’very soon’’ to impose tariffs on $200bn in imports from Beijing, with levies on a further $267bn in products ‘’ready to go on short notice’’. This added fresh safe haven support to a US dollar rally forcing AUD/USD below 71 cents in the process – that had had earlier been driven by the strength of the August US payrolls report, in particular the 0.4% jump in average hourly earnings which lifted annual wages growth to 2.9% from 2.7% (alongside a 201k NFP print and unchanged 3.9% unemployment rate). US bond yields jumped to their highest levels in a month, both Two and Ten Year Treasury yields adding 7bp. This did not harm equity sentiment though; rather it was the Trump tariff news that sent stocks lower in the last two hours of the New York day.
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For anyone following my Platinum Service it made 118 points on Friday and is now ahead by 407 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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Currencies
The US dollar benefited from both higher rates and safe-haven demand on Friday, the Swedish Krone the only G10 currency to buck the trend, strength put down to profit taking on long EUR/SEK positioning in front of yesterday’s general election. Preliminary results make it unlikely that any party will secure a majority of seats in Riksdag. Voters handed Sweden’s ruling party its worst ever election and delivered a parallel shift to a far right party with supremacist roots. In Sweden however, an absolute majority is not required to govern as long is there is not an absolute majority against the ‘’winning’’ bloc. Nothing obviously positive for SEK in the results so far, with the far-right Swedish democrats, polling just under 20%, seemingly in a position to exert significant influence on whatever government is formed.
Other than SEK, Sterling fared the least worse, still benefiting from the mid-week indications of a more conciliatory attitude from the EU towards agreeing the basis for a Brexit transition arrangement after March 2019, albeit there remains a healthy degree of scepticism that any such agreement will have enough substance to enable the UK parliament to sanction it by making a so called ‘’informed decision’’ (the FT is referring to latest developments in terms of ‘’blind Brexit’’).
The Australian Dollar was Friday’s standout loser, following by the NZD, extending the local session break below the May 2016 0.7145 low. AUD/USD traded briefly below 0.71 with a low of 0.7099 recorded an hour before the end of NY trade (close 0.7106). Contributing to its late day weakness was the jump in USD/CNH (to 6.87from sub-6.85) and with that a fall in ADXY, on the Trump quotes that he was prepared to add tariffs on another $269bn of imported Chinese goods to the immediately threatened but not yet confirmed $200bn, so as to mean tariffs on the entirety of Chines imports: Trump’s Economic Advisor Larry Kudlow said on Friday that the administration still had a decision to make on the tariff rate(s), the volume of goods to apply tariffs to, and the timing of any action. There is also some suggestion of a Trump-Xie meeting later next month.
On the week, BBDXY is up 0.5% and DXY 0.25% with NZD outdoing the AUD for the wooden spoon, down 1.3% versus 1.1% for AUD. Meanwhile the Euro closed at 1.1550 which is just above the key 1.1500/1.1530 support level.
Equities:
Higher US yields, driven largely by the strength of the hourly earnings component of the payrolls report, did not take much of a bite out of US equities but the later day Trump tariff quotes did, the S&P 500 off 0.22% with 10 of the 11 sectors down on the day with real estate and utilities the two worse performing (both off by more than 1%). On the week, all major bourses are in the red with Europe again underperforming the US and the NASDAQ underperforming other US Indices as some of the big tech. counters struggle in the face of either forecasts of lower chip demand or anti-trust concerns weighing on the e-commerce behemoths (e.g. Amazon off almost 5% on the week, Intel and Apple both by around 4%).
Bonds and Fed speak:
Higher sovereign yields everywhere on Friday post-US payrolls and which accounted for the bulk of the movement over the whole week but with little movement in the US 2/10s curve (0.3bps flatter on Friday but 0.3bps steeper on the week). US 2-year notes ended 7bps higher on Friday and are .7bpd up on the week to 2.703% and 10s were up 6.7bps on Friday and 8bp on the week to 2.94%
Fed speakers on Friday included Cleveland President Loretta Mester who said a solid August jobs report and growing momentum in the U.S. economy underlined her support for continued gradual interest-rate increases this year. ‘’Today’s report is a strong one,’’ Mester said Friday in an interview on the sidelines of a conference in Boston. ‘’This gradual path we are on, I have been a supporter of that and I continue to be a supporter of that, ‘’We still have an accommodative monetary policy,’’ she said. ‘’In that environment we should moving toward neutral.’’
Dallas President Robert Kaplan says the Fed should move toward neutral interest rates, and while they probably won’t invert the yield curve in the process, he will be keeping an eye on it. ‘’I don’t have to make that judgement yet, because it won’t be until spring or middle of year 2019 before we could reach it’’.
And finally Boston Fed President Rosengren noted ‘’if things work out well for the economy, and that is what I expect and hope, then we will be in a situation where we need to have somewhat restrictive policy over time.’’
Commodities:
Very mixed performance in commodities Friday, amongst the base metals in particular, with no particular theme evident across the whole commodity complex: On the week, iron ore and steel-making coal that have both risen by some 3% while precious metals and exchange traded industrial metals are all lower, as is oil.
This morning on the Economic Front we have UK GDP, Industrial Production and Trade Balance at 9.30 am. We have no other data of note from either the Euro-Zone or the U.S. Finally this afternoon the Fed’s Bostic discusses Economic Outlook at 4.00 pm.
September S&P 500
My S&P plan worked well with the market again trading lower to my 2868 buy level before rallying 10 Handles. This move higher enabled me to cover my long position at my revised 2871 T/P level and I am now flat. The good part about Friday’s call is that no matter which of my four Indices that got triggered you were able to make points. It is amazing that after a small sell-off in the S&P from the end of August highs that all the bears suddenly come out of the woods saying that the market has topped and we are going to crash. My own view is long-term I am really bearish but I still believe that whatever low is put in over the next 4/6 weeks will be followed by a melt-up in the markets into year-end and continuing into at least the first quarter next year. This view of mine will hold as long as the key 50 Day Moving Average at 2825 is not broken. I know we have a series of Hindenburg Omens on the clock with the market registering its 4th consecutive HO on Friday which is obviously a worry and needs to be respected. Today I will be a small seller on any further rally to 2894/2902 with a 2909 stop. Short-term the S&P is holding the key 2860 support level and I will continue to be a buyer on any dip lower to 2859/2867 with a 2852 stop.
EUR/USD
Late on Friday with the Euro trading close to my initial 1.1560 buy level I emailed my Platinum Members to cancel any buy level in the Euro as I wanted to protect last week’s gains plus I did not want to have a long position ahead of yesterday’s Swedish elections. I am still flat and today my only interest in buying the Euro is on a dip lower to 1.1460/1.1505 with a 1.1425 stop.
September Dollar Index
Early this morning the Dollar traded higher to my 95.50 sell level. I have now covered this position here for a small gain at 95.42 and I am now flat. Today my only interest in selling the Dollar is from 95.85/96.25 with a 96.65 stop.
September DAX
My DAX plan also worked well with the market trading lower to my 11890 buy level before having a nice rally. With four of my Indices hitting at or near the same time I covered this long position at my revised 11905 T/P level and I am still flat. Today I will again look to buy the market on any dip lower to 11810/11880 with a 11755 stop. Given how oversold the DAX is trading I still do not want to be short the market at this time.
September FTSE
The FTSE traded lower to the bottom of my buy range at 7240 before also rallying to my revised 7270 T/P level and I am now flat. Last week was the worst week for the FTSE in over six months. This sell-off sees the FTSE now severely oversold and today I will again look to buy the market on any dip lower to 7205/7245 with a 7160 stop.
Dow Rolling Contract
The Dow just missed my 25780 buy level before rallying nearly 200 points and I am still flat. I still do not want to chase the Dow higher and today I will leave my buy level unchanged from 25620/25780 with the same 25525 stop. I will also be a small seller on any further rally to 26160/26300 with a 26380 stop.
September NASDAQ
My NASDAQ plan worked very well as the key 7360/7400 support level held as expected. After the market hit my 7400 buy level we quickly bounced to my 7435 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7365/7405 with a 7330 tight stop. I still do not want to be short the NASDAQ at this time.
December BUND
No change as I am still a buyer on any dip lower to 159.10/159.50 with the same 158.85 tight stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1177/1185 with the same 1169 stop.
Silver Rolling Contract
I am still long the market at 14.15 with the same 13.75 stop. With sentiment at such extreme levels I am still looking for a rally to develop in Silver. Today I will leave my T/P level unchanged at 14.40.
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