News of US-China trade talks revival, albeit at low levels, boosted risk sentiment during the London session yesterday while the positive mood was further enhanced by solid US earnings reports. The US has led the gains in equities and the improvement in risk sentiment along with gains in commodities helped the AUD and NZD outperform with EM FX also mostly stronger against the USD. The Turkish lira recovery stalled after the US threatened to impose more sanctions if Turkey continues to refuse the release of US Pastor Brunson.
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For anyone following my Platinum Service was flat yesterday and is still ahead by 165 points for August, having made 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
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China confirmed yesterday that Vice Commerce Minister Wang will lead a delegation to the US late in August in order to revive trade talks between the two countries. The initiative is reported to come from the US Treasury Undersecretary and would be ahead of the early September public consultation deadline on Trump’s plan for an additional $200bn of Chinese tariffs. The relatively low rank of the negotiators suggests the prospects of a quick resolution are low and accordingly markets reaction has been cautiously optimistic. Meanwhile, Trump’s economic advisor welcomed the news, but again reminded everyone that the president’s “toughness and willingness to continue this battle” shouldn’t be underestimated.
News of the meeting boosted risk assets during the day session and at the same time a weaker than expected CNY fixing also helped EM FX performed. Then a volatile session ensued following reports that Chinese authorities were taking steps to lean against further currency weakness. The news of banks in the Shanghai Free Trade Zone being banned from lending money to offshore saw fears of a funding squeeze, USD/CNY fell around 0.75% from 6.9348 to 6.8853 yesterday while the offshore renminbi (CNH) experienced its largest one day rise in more than a year (over 1%), the rest of USD/Asia followed China’s lead throughout the day with the USD softer across the board.
Currencies
So against a backdrop of improved sentiment , stronger EM FX and higher commodities, both the NZD and AUD are the top G10 performer over the past 24hrs, gaining about 0.3% against the USD and currently trading at 0.6589 and 0.7261 respectively. The mixed AU employment report did not elicit a big AUD reaction, the decline in the Unemployment Rate by one tenth to 5.3% was enough to offset the disappointment in the employment growth of -3.9k (Mkt: +15k, NAB: +25k). Looking through recent volatility, employment growth remains strong at +27k (in trend terms), well above the ~17k needed to keep the Unemployment Rate steady (assuming unchanged participation).
As a sign of cautiousness, USDJPY is still finding it difficult to trade above the 111 mark and despite the rebound in US equities, longer date UST yields are essentially unchanged to lower. Soft US data releases went unnoticed. (see more below).
After threating to break sub 1.13, the Euro looks to have stabilised just under 1.14. The rebound in TRY probably helping the cause, but is probably worth highlighting that simmering in the background Italian deputy PMs increased the pressure on the EU over fiscal room for infrastructure spending following the Genoa bridge tragedy. Italy’s fiscal budget battle is a story for September and October and that uncertainty makes it difficult to get too excited on the prospect for the Euro to trade back above 1.15 any time soon.
The USD Indices are marginally weaker on the day, although both the Bloomberg Dollar index and DXY remain close to their highest levels since mid-2017. After lambasting the USD’s strength in recent times, Trump hinted at a more positive attitude to the currency over Twitter, saying ‘’Money is pouring into our cherished DOLLAR like rarely before, companies earnings are higher than ever, inflation is low & business optimism is higher than it has ever been’’. A weaker than expected Philly Fed survey and slower Housing Starts data had little impact on the USD or US rates, which were slightly higher on the day (US 10 year Treasury +1bp to 2.87%).
Equities
US equities are the outperformers with the Dow Jones adding just under 400 points and the S&P 500 gaining about 0.8%. Walmart jumped ~ 10% after posting the strongest sales in more than a decade prompting the company to raise its full-year outlook. The results boosted food retailers to their best gain since November. European equities also closed mostly higher, after a bad day in Asia mostly weighted down by technology shares.
Bonds
Rates are sideways to slightly lower. US 10s are around 2.87% while the German Bund again closed unchanged after another sideways trading session.
Commodities
Zinc (+4.0%) and Lead (5.86%) led the rebound in commodities with copper up 1.80% and aluminium (1.14%) also having a good day. Oil prices edged up just under 1%.
Economics
– The Philadelphia Fed Index fell sharply to just 11.9 from 25.7, well below the consensus, 22.0
– July Housing Starts rose 0.9% to 1,168K, well below the consensus, 1,260K. But permits rose 1.5% to 1,311K, in line with expectations.
– Norway held Interest Rates unchanged yesterday as expected, setting up markets to expect its first tightening in seven years next month.
This morning on the Economic Front we have Euro-zone Current Account and CPI at 9.00 am and 10.00 am respectively. This is followed at 1.30 pm by Bank of Canada CPI Report. Finally at 3.00 pm we have US University of Michigan Consumer Sentiment.
September S&P 500
Having written at length in yesterday’s Daily Commentary why I thought the S&P would hold the key 2790/2810 support level, news that China is willing to meet with the US to try and resolve the trade dispute between the two countries was certainly a supporting factor behind yesterday’s aggressive move higher again proving how difficult it is to be short the S&P despite the prevailing negative sentiment in the markets. The S&P closed almost 1% higher as unfortunately the market missed my 2819 buy level with a 2825 low print before rallying to an intra-day high above 2850. I am still flat and today I will now raise my buy level to 2825/2834 with a 2817 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2798/2808 with a 2792 stop. I still do not want to be short the market at this time.
EUR/USD
No change as I am still a buyer on any dip lower to 1.1260/1.1320 with a 1.1215 stop. The Euro has strong resistance from 1.1500/1.1540 and today I will be a small seller on any rally to this area with a 1.1575 stop.
September Dollar Index
No change as I am still a seller on any rally higher to 96.80/97.25 with a 97.55 stop. Given the extreme sentiment towards the Dollar I still do not want to be long the market at this time.
September DAX
Despite the massive 400 point rally in the Dow yesterday both the DAX and FTSE found it difficult to move higher. I am reluctant to chase the DAX at this time and today I will leave my buy level unchanged from 12010/12090 with the same 11960 stop. Ahead of the weekend I still do not want to be short the market at this time.
September FTSE
Having got stopped out of the FTSE on Wednesday near the lows of the day it was frustrating to see the FTSE miss my buy level yesterday before the market rallied. I definitely have to start thinking about wider stops as my overall view has been correct but these inter week sell-offs can be brutal as we have seen in these illiquid markets. Today I will move my buy level higher to 7445/7495 with a 7395 wider stop.
Dow Rolling Contract
The only good thing about yesterday was we had no sell levels in the Dow. It was so frustrating to get stopped out of my long position on Wednesday at 25070 to see the market rebound 600 points off that day’s lows yesterday as the Dow tagged on a gain of 1.8% with Walmart leading the charge with a 9% gain after posting impressive earnings. Other leaders were Boeing, Cisco and Caterpillar. Yet again both the 50 and 200 Day Moving Averages have contained any weakness in both the S&P and Dow as they have done for most of the year to date. The Dow should has strong support from 25270/25430 and today I will be a buyer on any dip to this area with a 25140 stop. If the market can break last week’s 25693 high then we should see a quick move higher to the next strong resistance at 26000.
September NASDAQ
The NASDAQ lagged yesterday’s move higher in both the S&P and Dow. I am still flat and today I will leave my buy level unchanged from 7290/7335 with the same 7245 stop.
September BUND
The Bund again traded in a narrow range yesterday and I am still flat. Today I will again leave my buy level unchanged from 162.10/162.50 with a 161.70 stop. Meanwhile I will leave my sell level unchanged from 164.20/164.60 with a 165.05 stop.
Gold Rolling Contract
No change as I am still long Gold at an average rate of 1171.50 with the same 1156 stop. I will leave my T/P level unchanged at 1185 which the market just missed yesterday with a 1183 high print. If any of these levels are hit I will be back with a new update for my Platinum Members.
Silver Rolling Contract
I am still flat Silver which outperformed Gold yesterday. Today I will now raise my buy level to 14.05/14.45 with a 13.70 stop.
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