Soft economic data releases and mixed corporate earnings reports have combined to extend the losses in European and US equity markets. Safe haven demand, amid concerns over the global growth outlook and future equity earnings growth have pushed US Treasury yields lower and the US Dollar is stronger against most currencies with European currencies the major under performers while CAD is the strongest G10 currency after a hawkish hike from the Bank of Canada. The NASDAQ plunged 4.4% to have its worst trading day since 2011 and is now down 12% from its August highs.
To mark my 1700th 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@tradernoble.com for details
For anyone following my Platinum Service it made 105 points yesterday and is now ahead by 1623 points for October, having made 1276 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. 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
Prior to yesterday, the FX market was mostly a bystander to the equity jitters seen in previous days. But a combination of soft European PMI prints alongside additional falls in equity indices has triggered a more meaningful reaction in FX Rates.Risk aversion driven by an extension to European and US equity sell offs has boosted the USD across the board. Softer than expected European PMI prints triggered a sharp drop in the Euro and it has provided further fuel to the notion that global growth is slowing against a backdrop of rising inflationary pressures and higher borrowing rates.
Looking at USD indices, the broader Bloomberg Dollar Spot Index has made a decisive move above its previous year to date high of 1196 in mid-August and now it is toying with a break above 1200, a level not seen since mid-June last year. The narrower DXY index currently trades at 96.40, 33pips below its year to date high of 96.73.
The Euro’s sharp decline from 1.1470 to 1.1398 currently has been one big driver for the USD gains over the past 24 hours. The softer than expected European PMI prints were the initial trigger for the move lower in the Euro, EZ PMIs for October were weaker than expected, continuing their softening of late. Services came in at 53.3 against expectations of 54.5. Manufacturing was also soft at 52.1 against expectations of 53.0. A look at the sub-Indices painted a fairly bleak picture, pointing to a broadly based decline while also dismissing the notion that the slowdown could be attributed to temporary factors (impact from auto emission regulation one prominent example). The sub-Indices revealed a slowdown in rates of growth across all the main measures of business performance: output, new orders and employment, so in addition to Italian budget dramas and Brexit uncertainty, Europe now also needs to absorb the prospect of a slowdown in economic growth. The next level of support for the Euro is the August low around 1.1300 and while no changes to policy guidance is expected from the ECB this afternoon, my sense is that at his press conference Draghi is likely to strike a caution tone emphasizing the Bank guidance is very much dependent on incoming data.
Looking at other G10 underperformers Sterling is down 0.8% to 1.2887, with ongoing negative headlines on Brexit offering no support. PM May has survived another day with her speech before the backbench 1922 committee apparently well received. Meanwhile the EU’s Tusk noted that there is ‘’no guarantee hard Irish border can be avoided’’ and that Brexiteers were 100% responsible for the Irish-border problem. So no new news on the Brexit front.
A hawkish Bank of Canada rate hike has helped the CAD to outperform all G10 currencies with the pair briefly trading sub 1.30, before the equity rout drove a broad base bid on the USD. The Bank of Canada hiked its policy rate by 25bps for a fifth time this cycle to 1.75% and offered a hawkish outlook dropping previous language about a ‘’gradual approach’’ and indicating that rates will need to ‘’rise to a neutral stance to achieve the inflation target’’. BoC officials Poloz and Wilkins indicated the need for ‘’flexibility’’ with every meeting ‘’live’’ and flexibility to hike either more quickly or slowly.
Equities
The S&P500 is down just over 3% and the big headline is that it has now erased all the gains for the year to date. Disappointing earnings from AT&T and Texas Instruments drove declines in the communications and semiconductor groups, while a better than expected earnings report from Boeing was only a minor offsetting force. Earlier in the session the Stoxx Europe 600 index closed down 0.2%, its sixth consecutive daily decline.
Bonds
US Treasury yields have drifted lower, in line with weaker US equities. The 10-year rate is down 4.8bps to 3.109% and the 2y10y curve is a couple of bps flatter at 26.8bps. Core European yields also declined a few bps while the Italian 10y sovereign rate climbed 1.4bps to 3.599%.
Commodities
It has been a mixed trading session for commodities with Brent, Gold and the LMEX Index down around half a percent while iron ore, steam coal and WTI oil are up between 0.20 and 0.40%.
Economics
Riksbank held rates with a continued steer towards a December or February rate hike.
Euro-Zone PMIs for October were weaker than expected, continuing their softening of late. Services came in at 53.3 against expectations of 54.5. Manufacturing also soft at 52.1 against expectations of 53.0
US New Home Sales fell 5.5% to 553K from a downwardly-revised 585K in August, well below the consensus, 625K. There was also a negative net revision to the previous 3 months of -55k, so whichever way you one slices it, it is not a good report. No doubt Hurricane Michael played a part, but downtrend since the start of the year reflects other factors at play, including higher borrowing rates (mortgages rates are now at a 7 year high)
This morning on the Economic Front we have German GFK Consumer Confidence at 7.00 am and the IFO Business Climate Survey at 9.00 am. The ECB meets this morning and although no change in policy guidance is widely expected (12.45 pm), a degree of cautiousness seems likely given US/China trade tensions, recent equity sell-off plus Brexit/Italian uncertainties. I think the ECB confidence in Core Inflation picking up has increased amid stronger wage indicators and we may get some guidance on the Bank’s re-investment policy, although I suspect this is more likely to be a focus at the following meeting in December. Finally at 1.30 pm we have the Dragi press conference, the US Weekly Jobless Claims, Durable Goods Orders and Wholesale Inventories.
December S&P 500
Initially my S&P plan worked well with the market trading lower to my 2722 buy level before rallying to my 2730 T/P level with a 2750 high print. Unfortunately I bought the market again at 2720 with a tight 2710 stop that was quickly filled and I am still flat. Thankfully I left the market alone for the rest of the day. The S&P has now closed lower for six straight days and 13 out of the past 15 trading sessions since the high made on October, which is the longest streak in nearly two years. The 50 Handle sell-off in the last 90 minutes of trading could well be the capitulation stage especially as the S&P is already 20 Handles higher as I go to press. There is now doubt the market is oversold given that the VIX spiked to close at 26.32 last night for a near 20% rise from Tuesday’s close. The Daily Sentiment Index has now fallen to 10% while the McClellan Oscillator closed at – 190 last night. Today I will again look to buy the market on any dip lower to 2628/2648 with a 2615 stop. I will now lower my sell level to 2750/2765 with a 2775 stop.
EUR/USD
The Euro finally traded lower to my 1.1393 buy level. I am still long with a now lower 1.1290 stop and a lower 1.1415 T/P level. I will look to add to this position on any move lower to 1.1330 especially as we have the Dragi press conference at 1.30 pm to look forward to. If any of the above levels are hit I will be back with a new update for my Platinum Members.
December Dollar Index
The Dollar finally traded higher to my 96.25 sell level. AS I am already long the Euro I covered this short Dollar Position at 96.15 and I am now flat. Today I will again look to sell the Dollar on any further rally to 96.55/96.95 with a 97.25 stop.
December DAX
My DAX plan worked well with the market trading the whole of my buy range at 11205 before rallying to my revised 11255 T/P level and I am now flat. The accelerated move lower meant that the DAX closed at its lowest level in two years. The market is now severely oversold and needs to break back above 11400 to contain this sell-off. The next level of support for the DAX is from 10880/10980 and today I will be a buyer on any dip to this area with a 10810 stop.
December FTSE
My FTSE plan worked well with the market trading lower to my 6920 buy level before rallying to my 6945 T/P level and I am now flat. The FTSE is now severely oversold and on course to post its worst month in many years. Today In will again look to buy the market on any dip lower to 6800/6850 with a 6760 tight stop.
Dow Rolling Contract
Another rollercoaster ride for the Dow yesterday with the market falling nearly 800 points from its intra-day high. This sell-off saw the Dow hit my average buy level at 24775. I am long in small size with a now lower 24825 T/P level and the same 24580 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
December NASDAQ
I was lucky with my NASDAQ call yesterday as after the market hit my average buy level at 7025 I emailed my Platinum Members to exit any long position at 7055. Subsequently the NASDAQ ended the day with a 4.4% decline to post its worst trading session since 2011. Since the 9.00 pm Cash close the market has rallied over 100 points so far making it difficult to hang on to any position. I am still flat the market and today my only interest in buying is on a further dip lower to 6680/6740 with a 6625 stop.
December BUND
The Bund finally traded higher to my 160.20 sell level. With equity markets in retreat I emailed my Platinum Members to exit any short position at 160.10 and I am now flat. The huge rally in the Bund over the past few weeks shows how slow the Euro-Zone recovery is and that certainly showed up in yesterday’s awful PMI data. The next resistance area for the Bund is from 160.70/161.20 where I will be a seller with a 161.55 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1212/1222 with the same 1203 stop.
Silver Rolling Contract
I am still flat Silver and I will continue to be a buyer on any dip lower to 14.25/14.65 with the same 13.80 stop.
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