While the market’s focus was expected to be primarily on the US CPI print for August, there was much more market action across the Atlantic with Sterling soaring on the back of a near term Interest Rate rise warning from the Bank of England. Although the BoE left its Base Rate steady at 0.25% as expected, it was the clear warning from Governor Carney who said he was with the majority of his fellow MPC members, most seeing the need for some withdrawal of stimulus likely ‘over the coming months’ if growth continues and underlying inflation continues to rise. Of course this warning is conditional on the response from consumers and business, including in the aftermath of this warning. But with two external members of the nine MPC members voting for a rate hike, there’s a sufficiently strong view that’s emerged that last year’s emergency rate cut support needs to be reversed. At the end of the day, the market has taken seriously the BoE’s clear warning that “some withdrawal of monetary stimulus was likely to be appropriate over the coming months in order to return inflation sustainably to target”.
To mark my 1425th 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. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 4 points yesterday and is now ahead by 159 points for September, having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
The labour market will be a key metric to follow; clearly this week’s lowest UK Unemployment Rate since the early 1970s resonated with the MPC. The Pound soared, as did Gilt Yields. USD/GBP spiked higher by two big figures from 1.32 to about 1.34, sitting just that level this morning. EUR/GBP is now trading at 0.8880 which is a huge 425 point sell-off in the last two weeks. The Pound was the clear-out-performer among the major FX leader board, up 1.41%. UK 10 year gilt yields rose 9bps to 1.23 as the market priced in a 50% chance of the BoE hiking at its next (2 November) meeting (up from a 10% chance), and 80% priced by the 14 December meeting (up from 36% pre-BoE).
US inflation for August (another of the diminishing pre-Harvey and Irma data set) printed toward the stronger side of expectations but there was not material USD relief rally to speak of, nor a surge in US Treasury yields. (More threats from the North Korean leader – the latest to turn the US into ashes – might have supported Treasuries selling to a degree.) Headline CPI rose 0.4% for annual growth of 1.9%, a tenth more than expected while core inflation in the month rose 0.2% as expected, but annual core inflation at 1.7% y/y was a tenth higher than the 1.6% consensus.
The result supported Bond Yields and the USD at the margin. The pricing for the 13 December meeting rose from a 50% chance to 57%. With the activity side of the economy holding up, this report plays to the prospect that inflation medium term holds the prospect of still being on track to gradually return to the 2% target. It will be interesting to see what changes if any Fed Chair Yellen and her colleagues make to their Fed funds rate forecasts at next week’s FOMC meeting.
This morning on the Economic Front we have Euro-Zone Trade Balance and Labour Costs at 10.00 am. This is followed at 1.30 pm by US Empire Manufacturing and Retail Sales, and at 2.15 pm by Industrial Production. Finally at 3.00 pm we have Business Inventories and the University of Michigan Consumer Sentiment.
In the European session this morning there are two ECB speakers, the ECB’s Daniele Nuoy (Head of the Bank’s Supervisory Board) speaking on “Shadow Banking: Intermediation beyond Banks”, followed by the ECB’s Sabine Lautenschlager speaking on “Banking Union: How to make existing pillars more effective?” Neither is focussed on ECB monetary policy.
December S&P 500
Thankfully we have the Quadruple Expiration for September today as this has been one of the slowest trading weeks of the year so far. Unfortunately the S&P just missed my 2485 buy level with a 2487 low print before rallying and then selling off slightly on the latest missile launch over Japan by North Korea. It does not matter what potential bearish news is thrown at the US stock market which just ignores any bearish news and keeps trading higher. This may change next week after we have Yellen and the FOMC Meeting on Wednesday. I am still flat the S&P and today I will now lower my buy level slightly to 2477/2483 with a 2472 stop. Despite the severely overbought condition of the S&P, I still do not want to be short the market at this time.
EUR/USD
The lack of liquidity in the markets is scary as we get these quick moves followed by a reversion to the mean. Yesterday after the US CPI data was release the Euro sold off 60 points and in the process stopped me out of my long 1.1915 position at 1.1860. Thankfully I had a lower more aggressive buy level at 1.1840 which was subsequently filled before the Euro rallied again back above 1.19 and I was able to T/P on this large position at 1.1878 and I am now flat. As I said yesterday as long as the Euro can hold the 1.1800 support level then I still see one more test of the 1.20/1.21 resistance area. Today I will again look to buy the Euro on any dip lower to 1.1795/1.1830 with a 1.1760 stop. I still do not want to be short the Euro at this time.
December Dollar Index
Unfortunately the Dollar just missed my 92.60 sell level with a 92.43 high print before selling off to sit at 91.80 this morning. Today I will lower my sell level slightly to 92.35/92.75 with a 93.05 stop. My only interest in buying the Dollar is on a further sell-off to 91.10/91.50 with a 90.75 stop.
December DAX
Following the aggressive move higher in the DAX earlier in the week, the DAX has traded sideways in a very narrow range since. Today I will continue to look to buy the DAX on any dip lower to 12390/12440 with the same 12350 stop.
December FTSE
The renewed strong of Sterling coupled with the expectation of a near-term rise in UK Interest Rates saw the FTSE get hit hard yesterday which is in complete contrast to the other major Indices which continue to trade at or near all-time highs. Yesterday the FTSE traded the whole of my buy range which now has ne long at 7265. The market is oversold and trading at the bottom of its Daily Bollinger Band while more importantly EUR/GBP is trading outside the bottom of its Daily Bollinger Band and at the bottom of its Williams Index, implying we are due a sell-off in Sterling after the huge move higher witnessed so far this week. Today I will lower my stop slightly to 7210 and if I am stopped out of this position I will be a more aggressive buyer on any further dip lower to 7170/7200 with a 7140 stop.
Dow Rolling Contract
Yesterday the Dow traded higher to my 22190 second sell level before having a small sell-off. As I still expect some upward price action ahead of the Expiration today I emailed my Platinum Members to cut this second position at 22172. I am still short in tiny size from last Monday at 22030 and today I will add to this position on any further move higher to 22250/22310 with a 22365 stop. Despite the Dow closing at a new all-time high last night the McClellan Oscillator again weakened to close at a +95 print from +110 on Wednesday. If I am taken short again I will then use any sell-off to 22150 to cover all of my short position. If this scenario plays out I will be back with a new sell range for my Platinum Members. The massive sell-off in Bitcoin this week just shows how quickly a market can turn bearish
December BUND
I am not having much luck this month as after getting stopped out of the Bund yesterday morning at 161.60 the market rallied to a rebound high at 162.03 thus missing yesterday’s 162.05 sell level before getting hit hard on the BoE news. Unfortunately the Bund stopped shy of my 161.30 buy level with a 161.37 low print before rallying strongly and I am still flat. Today I will raise my sell level slightly to 162.15/162.45 with a 162.70 stop. I will also lower my buy level to 160.85/161.15 with a 160.50 stop.
Gold Rolling Contract
Gold also just missed my 1314 buy level with a 1315.70 low print before rallying back above 1330. I am not going to chase this market higher and today I will leave my buy range unchanged from 1306/1314 with the same 1299 stop.
Silver Rolling Contract
No change as I am still long at 17.87 with the same 17.45 stop.
Recent Comments