A 625bp rise in Interest Rates from Turkey’s central bank ignited a sharp rally in the Lira which in turn has dragged most (but not all) Emerging Market currencies up in its wake as well as boosting the Euro. The latter also benefited from a relatively positive tone to ECB President Draghi’s post Council Meeting press conference. The US dollar and Treasury yields have taken a hit from lower than expected US CPI, while President Trump’s latest tweet on trade policy has punctured some of the optimism about a near term trade deal with China following news on Wednesday of a resumption of relatively high level talks. Meanwhile US CPI downside surprise depresses USD and US yields.
To mark my 1675th 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 was flat 100 points yesterday and is still ahead by 580 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
I have a YouTube Channel which contains recent interviews I have given. This can be viewed by clicking HERE Please subscribe to this for new interview notification
August headline US CPI came in at +0.2% against 0.3% expected while the more important core (ex-food and energy) reading printed 0.1% versus the 0.2% expected. Moreover, it was a low 0.1% (0.08%) which had the effect of pulling the yr/yr rate down to 2.2% from 2.4% in July (and 2.4% expected). The miss was largely due to a sharp fall in Apparel prices (clothing to you and me) which fell 1.6% in the month and was the steepest monthly fall since 1949, subtracting some 0.05% points off the monthly core print. Outside of Apparel, other price moves were largely as expected with inflation indicators still pointing to elevated price pressures.
The numbers beg the question whether misses on both Core and Headline CPI signal the topping out of the rate of inflation in the US? In short I think not. Alternative measures of Core Inflation which strip out volatile price moves like Apparel, such as the Cleveland Fed’s Trimmed Mean, were stronger at 0.16% m/m. Inflation indicators such as the ISM Prices Paid and the NFIB Actual Price Charged continue to point to elevated price pressures which historically have correlated to rising inflationary pressures. As such, I think the data overall still supports the Fed continuing along its rate hike path.
The USD (DXY) fell by about 0.5% straight after CPI, to its lowest levels this month and putting it back near the bottom than the top of the mid-June through mid-September range. The policy-sensitive 2-year Treasury yield also fell, by 3.5bps to 2.73% initially, though it has retraced (to 2.75%) on higher German yields from a slightly more positive ECB (see below). As one London analyst noted, the market reaction was likely exaggerated by markets looking the other way following the recent crop of stronger US economic data. Markets remain fully priced for a rate hike heading into the September FOMC meeting and are 80% priced for another in December.
ECB and Bank of England spring no big surprises
Expectations of fireworks at Thursday’s ECB post rate meeting press conference were not exactly elevated and in the event observers did not hear anything particularly startling. But markets proved to be in a reasonably upbeat mood as Draghi toed a relatively upbeat message despite new quarterly staff forecasts that shaved a tenth off 2018 and 2019 economic growth as risks relating to protectionism gain more prominence. Draghi said, ’’We are observing an underlying strength of the economy that makes us think the downside risks are going to be mitigated by the improvement in the labour market and rising wages’’.
This saw Bund yields rise from 0.41% to 0.44% and in the process helped stem the post-US CPI decline in US Treasury yields. Draghi confirmed a tapering of the Asset Purchase Programme (QE) from 30bn to 15bn per month from October 1st and a complete end by December, as per prior guidance, with rates not expected to rise until after the summer of 2019.
The BoE meeting was even less eventful. The Bank saw recent data as indicating that growth and wages were tracking a little stronger than it had anticipated in August, but not to such an extent as to change its broader outlook, which is for a very gradual path of rate hikes over the coming few years.
Turkey delights EM markets with 625bp policy rate rise, boosting EM FX
Just ahead of the Turkish central bank’s latest policy decision, President Erdogan was out saying that while he respected the central bank’s independence, ‘’we should cut this high interest rate’’. As if to underscore the former comment, the central bank then raised its one week repo rate by 625bps, to 24%, almost double the +325bps median expectation. This set the stage for a 4% appreciation in the Lira, a move which helped support EM currencies more broadly (already enjoying tailwinds from Wednesday’s news that Sino-US trade talks were set to resume). ZAR, CLP, COP, RUB and MXN all up by more than 1% and ARS and BRL the only EM currencies weaker on the day. The JPM EMCI index is 0.75% higher on the day (albeit TRY has an 8.33% weight in the index).
G10 Currencies
In the immediate wake of yesterday’s better than expected Australia Employment print (+44k) AUD/USD had jumped from 0.7175 to 0.7200 but failed to hold on to the 0.72 handle. Immediately post the US CPI print, AUD lifted to a high of 0.7229 from 0.7180.
Taking some of the heat out of the EM (and AUD) rallies since Wednesday night has been President Trump’s latest tweet on trade where he said the US felt ‘’no pressure to make a deal..Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs and making products at home. If we meet, we meet’’ (Sic).
The set-back from AUD has brought it down to the middle from near the top of the G10 pack with the EUR and (curiously) the CHF topping the leader board with gains of just over half a percent, EUR/USD touching 1.17 post ECB and US CPI (1.1705 now). USD/JPY briefly kissed the 112 level – its best since the start of August (111.95 now).
Equities
US stocks jumped at the open on the weaker US CPI data which have gone some way to dousing any concerns the Fed might need to step up the pace of tightening. The S&P 500 has subsequently flat-lined for most of the session to end +0.5% (Dow +0.6%, NASDAQ +0.75%). This follows a somewhat mixed session for European equities but where the Eurostoxx 50 finished up 0.2%. Healthcare and IT were the two best performing S&P sectors.
Commodities
Oil prices are +/- $1.50 lower, reportedly on some easing of supply concerns (not for any tangible reason I can see) and after Trump’s latest trade tweets. Industrial metals are mixed but copper is up 0.6% and iron ore up 50 cents. Meanwhile Gold is unchanged at 1206 this morning.
This morning on the Economic Front we have Euro-Zone Trade Balance at 10.00 am and this is followed at 11.00 am by the Bank of England Governor Carney Speech. Next we have US Retail Sales and Import/Export Price Index. This is followed at 2015 pm by Industrial Production. Finally at 3.00 pm we have the University of Michigan Consumer Sentiment Index and Business Inventories.
At 2.00 pm the Fed’s Evans is speaking on the Economy.
September S&P 500
The S&P continued to build momentum following Tuesday’s Upside Key Day Reversal with a 20 Handle rally from where I marked prices 24 hours ago. The 50 Day Moving Average has now moved higher to 2844 as yet again one short position after another gets slammed. Yes the stock market is severely overvalued but as I mentioned earlier in the week a topping process can take many months and even years to form. I still have a target level for the S&P at 3060 and this will continue to be my view unless we get a sell extreme that lasts for more than a few days or a confirmed break of the 50 and 200 Day Moving Averages. Otherwise there is no point in being short and as long as these averages hold, I will continue to be a buyer on dips. Today I will now move my buy level higher to 2892/2900 with a 2885 stop.
EUR/USD
Despite the huge interest rate differential between US and European Yields the US Dollar got hit hard yesterday. Technically the Euro is looking better and a break and a break and close over 1.1750 opening up the possibility of a move higher to 1.1870, and maybe 1.2100 over the coming weeks. Today I will now move my buy level higher to 1.1620/1.1660 with a 1.1580 stop. I no longer want to be a seller of the Euro at this time.
September Dollar Index
The Dollar is now trading 0.6% lower on the back of the weaker US CPI and nothing negative on the Euro by Dragi at yesterday’s press conference. The Dollar has strong support from 93.40/93.80 and today I will be a buyer on any dip to this area with a 92.95 stop.
September DAX
The DAX has also build value above Tuesday’s 11850 low print as thankfully we have had no sell levels in the market this week. The break and close above 12050 is short-term positive as the market needs to correct its oversold condition. Today I will now raise my buy level to 11960/12020 with a 11915 tight stop.
September FTSE
Frustratingly the FTSE twice missed my 7270 buy level by a few points before rallying and I am still flat. The FTSE is struggling on the back of the stronger Pound and this morning’s speech by BoE Governor Carney will determine today’s price action. I am going to leave my buy level unchanged from 7230/7270 with the same 7195 stop.
Dow Rolling Contract
This morning the Dow is finally trading above its August highs as I still look for the market to challenge and eventually close above its January 26 high at 26613. I am still flat the Dow and today I will now raise my buy level to 25950/26080 with a 25880 stop.
September NASDAQ
The NASDAQ has now left a large buy extreme off Tuesday and Wednesday’s 7400 support level. I am still flat and today I will now raise my buy level to 7480/7525 with a 7435 stop.
December BUND
No change as I am still a small buyer on any dip lower to 158.70/158.10 with a 158.35 stop.
Gold Rolling Contract
The weaker US Dollar is finally beginning to help the precious metals to rally off severely oversold conditions. I am still flat Gold and today I will again raise my buy level to 1186/1195 with a 1179 stop.
Silver Rolling Contract
Late yesterday I emailed my Platinum Members to re-buy Silver which I did at a price of 14.18. I am still long and I will now raise my stop on this position to 13.80. I will now lower my T/P level on this position to 14.35 and if any of the above levels are filled I will be back with a new update for my Platinum Members.
Recent Comments