U.S. Equity Markets finished the day higher after getting whipsawed throughout the session as Treasury yields plummeted to levels unseen in years amid concerns about the prospect of a global recession. The S&P 500 swung more than 1% from its high to low for a 12th straight day in volume more than a third above its 30-day average before finally ending the day up. Treasuries also suffered whiplash. The 10-year Treasury yield slid below 1.5% for the first time in three years, while the 30-year dropped under 2% for the first time. Trade headlines set investors on edge, though volatility has gripped markets for most of August since Donald Trump escalated his spat with China. Walmart’s strong results and Retail Sales that topped estimates did give bulls ammunition. But big declines weighed on indexes as Tapestry Inc. tumbled more than 20% on poor sales and General Electric sank more than 10% on accusations of financial fraud. Cisco Systems fell the most in two years after blaming a slowing global economy for a weak outlook.
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Equities
The trade war still hung over markets, with discordant headlines sending risk assets on a wild ride throughout the day. Stocks sold off after China said it would retaliate against fresh tariffs before bouncing back after official comments struck a more conciliatory tone. President Donald Trump added to concern by saying any deal with China must be “on our terms.” European assets took a jolt when a top official at the European Central Bank said stimulus measures would exceed investor expectations next month, according to a Dow Jones report. The common currency turned lower against the US Dollar and stocks erased losses before finishing lower
The S&P 500 Index rose 0.3% to close at 2848 while the Dow Jones Industrial Average rose 0.5%. The Nasdaq 100 was little changed. Meanwhile the Stoxx Europe 600 Index dropped 0.3%.
Currencies
Here is a summary of the main changes in F.X Markets:
The Bloomberg Dollar Spot Index was steady.
The Euro fell 0.2% to $1.1112.
The British Pound gained 0.4% to $1.2110.
The Japanese Yen fell 0.1% to 106.00 per dollar.
Bonds
The morning volatility continued a bout of turmoil sparked two weeks ago when Trump escalated his trade war with China. The uncertainty the rising tensions caused and growing signs of a slowing global economy inverted a key version of the U.S. Treasury yield curve for the first time in 12 years, exacerbating the flight from risk assets. The yield on 10-year Treasuries decreased seven basis points to 1.51% while the two-year yield fell 10 basis points to 1.48%. Meanwhile in Europe Germany’s 10-year yield dipped six basis points to -0.713%, a new all time record low.
Commodities
Gold futures rose 0.4% at $1,533.20 an ounce.
West Texas Intermediate crude declined 1.1% to $54.64 a barrel.
This morning on the Economic Front we have the Euro-Zone Trade Balance at 10.00 am. This is followed at 1.30 pm by U.S. Housing Starts and Building Permits. Finally, at 3.00 pm we have the University of Michigan Consumer Sentiment Index.
September S&P 500
As flagged at length in yesterday’s commentary the High Trin led to a decent rally off early morning lows as the S&P whipsawed from positive to negative all session before finally closing 0.3% higher. Yesterday’s S&P plan worked well with the market trading lower to my 2820 buy level before rallying to my 2835 T/P level and I am still flat. While the Dow closed just below it’s 200 Day Moving Average, the S&P’s equivalent is below the market at 2796. The 2795/2815 area should continue to act as strong support and trading could be tricky later in today’s session as most traders will want to home flat for the weekend. Today my only interest in buying the market is on a dip lower to the above area with a 2785 tight stop. Given how oversold the market is I still do not want to be short the S&P at this time.
EUR/USD
Late in yesterday’s session the Euro traded lower to my 1.1098 buy level. I am still long and today I will leave my T/P level unchanged at 1.1120. I will also raise my stop slightly to 1.1049.
September Dollar Index
I am still flat the Dollar with the same 98.40/98.80 sell level. If executed I will have a stop at 99.10.
September DAX
I am still on the sidelines with the DAX as I do not like the fact that the Eurex where the DAX trades is closed from 9.00 pm to 7.00 am every day. I am going to stay flat and hopefully I will have a better edge in this market next week.
September FTSE
My FTSE plan worked well with the market trading lower to my 7020 buy level before rallying to my revised 7050 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 6970/7010 with a 6935 stop.
Dow Rolling Contract
The Dow did close below its 200 Day Moving Average on Wednesday while last night it closed just at this level which comes in at 25589 this morning. Worrying for the bulls we still have 10 confirmed Hindenburg Omens on the clock from May 2019. This is extraordinary and warns that the stock market is in danger of a collapse at some time over the coming months. Yesterday my Dow plan worked well with the market trading lower to my 25280 buy level before rallying to my 25380 T/P level with a 25700 high print and I am now flat. Today I will again look to buy the Dow on any dip lower to 25150/25320 with a 25060 stop. For the bulls to regain control the Dow needs to break and close over 26340.
September NASDAQ
My NASDAQ plan also worked well with the market trading lower to my 7400 buy level before rallying to my revised 7450 T/P level and I am now flat. Just like the Dow and S&P above I am not going to chase the NASDAQ higher at this time and today my only interest in buying this market is on a dip lower to 7390/7440 with a 7335 wider stop.
September BUND
Bond markets across the globe are in melt-up. On Wednesday the Ultra-Long Bond Futures Contract went limit up in minutes as the yield declined below 2% for the first time in its history while the 10 Year broke 1.50%. With Yield levels at record lows as shown by the German Bund which closed at -0.71% last night, it only takes a small movement higher in yields for buyers of these bonds to loose a lot of their capital. In the U.S with the yield on the 30-year bond at a record low rate, the effective duration is about 21 years. If yields were to rise by just 1% across the curve, it would mean ‘’a staggering’’ loss of 21% in the market value of the Bond. However in saying all that my Bund trading has been poor lately as I keep trying to pick a top in the market. Shortly after I posted yesterday morning I was stopped out of Wednesday’s average 178.15 short position at 178.70. Subsequently I went short again at 178.78 with a tight 179.10 stop and again I was stopped out of this position and I am now flat. Today I will again look to sell the Bund from 179.70/180.20 with a 180.55 stop.
Gold Rolling Contract
No Change as I am still a seller on any rally higher to 1548/1560 with the same 1569 stop.
Silver Rolling Contract
No Change as I am still a buyer on any dip lower to 16.40/16.80 with a higher 16.05 stop. If I am taken long I will have a T/P level at 17.01.
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