Risk-on persists with the Dow and S&P hitting new all-time highs on light volume. The markets were helped by US data set signalling positive momentum, Treasury yields little changed but the USD continues its recent retreat. The EUR/USD finally broke and closed over the key 1.1720 resistance level to close at 1.1770 and now well above its early August low of 1.1301.The New Zealand Dollar was a star performer after yesterday’s stellar read on GDP blows away expectations. Sterling also a good performer as Retail Sales strengthen in August; Irish border Brexit question still not resolved takes some wind out of Sterling’s sails after May post-Salzburg presser; EU apparently now less conciliatory.
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It has been another risk-on session, US equities reaching new records, Treasury yields trivially higher, but the USD continues its retreat seen over recent days. Data released over the past 24 hours has been positive in NZ, the UK, and in the US adding some more support for the risk-on mood. The Norges Bank lifted Interest Rates for the first time in seven years but downgraded its longer term rate expectation. The NOK under-performed.
Currencies
While the USD has been on the back foot again, the two currencies that have out-performed over the past 24 hours have been the Kiwi and Sterling.
The NZD jumped 40 pips from 0.66 on the release of the much stronger than expected Q2 GDP, up 1.0%, double the RBNZ 0.5% forecast and the strongest in five years. It was right at the top end of economists expectations, the market also alert to a possibility that some recent under-performing data might have spilled over to the GDP report, which was not to be. The Kiwi continued to garner support through the London session yesterday and further as the USD retreated.
The strong data dampened market expectations for future NZ OCR rate cuts, with OIS pricing for the August-2019 meeting up 3bps, to now suggest ‘’just’’ a 25% chance of a rate cut by then. The 2-year swap rate ended the day up 3bps to 2.035%, while 5-10 year swap rates were up in the order of 4-4.5bps. The sustained strength of the NZD spilled over into a higher NZD up on all the key crosses, ranging from 0.2% against GBP and EUR to 1.3% on NZD/JPY.
Sterling whipsawed but still finding some economy support
The other currency that has performed well has been Sterling. The currency was pushing higher into the release of the August Retail Sales report, benefiting from the pull-back in the USD and some tailwinds from what appeared to be a more conciliatory EU attitude to Brexit over recent times in the lead up to the Salzburg EU summit dinner the night before. Retail Sales surprised in a large way to the topside, Retail Sales in August on an excluding fuel basis up 0.3%/3.5%, well above the -0.2%/2.4% expected, Sterling’s positive reaction also assisted by upward revisions.
PM May then held a press conference early afternoon to report on the Salzburg meeting that by all reports was apparently quite a testy affair. Despite all the apparent bonhomie of late, it seems that the UK and the EU have reached an impasse over the EU. The lead story on the FT was ‘’EU ambushes May over Brexit plan’’. EU leaders warned PM May that her economic plan for Brexit ‘’will not work’’ and gave her four weeks to save the exit talks. French President Macron said that ‘’no blind deal’’ will be done with the UK and that Brexit must hurt and only liars said it would be easy. PM May is now working on a new proposal on Northern Ireland to take back to the EU shortly.
Economics
The US economy reports again painted a positive picture of the US economy. The Philly Fed Index for September beat expectations (though some analysts suggest its level and the lower Empire State reading points to a lower ISM this month after the over-60 reading last month), Weekly Jobless claims were the lowest since the Apollo 11 moon landing, while US household net worth rose again in Q2, aided by stellar stock market and higher house prices, nice sweet support to consumer spending. Also, and something I am back to watching more, the Conference Board’s Leading Index was up another 0.4% in August, pointing to a further extension of the cycle.
The Norwegian Central Bank raised rates for the first time in seven years, lifting its deposit rate from 0.50% to 0.75%. The hike was entirely expected, coming with guidance that another hike is likely coming in early 2019. But the NOK lost some ground against the Euro, the Central Bank saying that it expects the key rate to be at 1.22% by the end of next year, down from 1.26% in its previous forecast and some expectations for a higher rate path.
Commodities and Bonds
Oil prices were somewhat lower yesterday, base metals were generally higher (copper the exception), as was gold, while iron ore and coal prices were a little lower yesterday. Trump teed off against OPEC, saying: “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” There has been little change in major bond markets over the past 24 hours, US Treasury yields little changed, 2s up 1.27bps to 2.8034% but 10s unchanged at 3.0626%.
This morning on the Economic Front we have German and Euro-Zone Markit PMI Manufacturing/Services at 8.30 am and 9.00 am respectively. This is followed at 9.30 am by UK Public Sector Net Borrowing and at 12.00 pm we get the Bank of England Quarterly Inflation Report. Next we have Canadian Retail Sales and CPI at 1.30 pm. Finally we have US Manufacturing PMI at 2.45 pm.
December S&P 500
Despite the 10 consecutive Hindenburg Omens registered so far this month both the Dow and S&P as expected made new all-time highs which is no surprise given today is Quarterly Expiration. This is a key move higher and the previous high for the December S&P at 2921.50 should act as good initial support on any test. Today I will now raise my buy level to 2917/2924 with a 2911 tight stop. The S&P is now overbought and trading above the top of its Bollinger Band and Williams Index. The market has resistance from 2952/2959 and today I will be a small seller in this area with a 2967 stop.
EUR/USD
Finally the Euro broke and closed over its key 1.1720 resistance level which had held the market on five previous occasions. I am still flat and today I will now raise with a my buy level to 1.1680/1.1725 with a 1.1635 wider stop.
December Dollar Index
The Dollar traded lower to my 93.55 buy level. I am still long and I will now look to add to this position on any further move lower to 93.15 with a lower 92.80 stop. I will leave my T/P level unchanged at 93.70 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
December DAX
The DAX has now rallied almost 600 points off the key 11750/11850 support level. This rally had to happen to prevent the inverted Head & Shoulders from breaking the 11750 neckline which has a target price of 10000. The DAX has strong resistance above here from 12460/12520 and I will be a seller on any rally to this area with a 12580 stop. I will also raise my buy level to 12200/12280 with a 12140 stop.
December FTSE
Yesterday the FTSE held the key 7220/7260 support area before having its strongest rally in a few weeks. I am still flat and despite the stronger pound I will raise my buy level to 7280/7320 with a 7245 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow surged these past few days with the market rebounding off last Tuesday Morning’s early 25850 low print to rally 900 points so far. This move higher sees the Dow close at a new all-time high and well above its Daily Bollinger Band and Williams Index which should mean a pull back after we get the Quarterly Expiration out of the way later today. The Dow has small resistance from 26960/27120 and today I will be a seller in this area with a 27190 tight stop. I will also raise my buy level to 26420/26580 with a 26350 stop.
December NASDAQ
The NASDAQ has now left a buy extreme off the key 7500 pivot point. As a result I will now raise my buy level to 7510/7550 with a 7465 stop.
December BUND
After coming close to my 158.30 stop level yesterday, thankfully the Bund turned around and rallied to my 158.87 T/P level on my 158.75 long position and I am now flat. Today I will again look to buy the market on any dip lower to 158.10/158.55 with a 157.70 stop.
Gold Rolling Contract
I am still flat Gold which is trying to break higher. We have strong resistance at 1212 and today I will continue to be a buyer on any dip lower to 1188/1196 with a higher 1181 stop.
Silver Rolling Contract
The big question is has Silver put in a bottom? Given the extreme negative sentiment towards the market I am inclined to believe that it has. Yesterday after the market traded lower to my 14.20 buy level I covered this position at my revised 14.28 T/P level and I am now flat. Today I will now look to buy the market on any dip lower to 13.95/14.35 with a 13.55 stop which is still below the December 2015 low print of 13.62.
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