Equity market sentiment has turned sour again in the past 24 hours. The Shanghai stock market fell 2.94% yesterday (it is now down a cool 11.9% so far this month and 24.8% year to date), spilling over into softer European markets. The Eurostoxx Index was down 0.51%, the E600 Banks Index down 1.69% and Milan’s market off 1.89%. Not surprising then that bonds rallied, with the exception of Italy and its Southern European markets on EC officially-telegraphed concerns over Italy’s Budget plans. US main board stocks have closed softer again, the NASDAQ again leading, down 2.06% and the FAANG stocks by 2.96%.
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 178 points yesterday and is now ahead by 1254 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
The USD has found some more support again, though it has been as much from softness in counterparts rather than renewed appetite for the big dollar, it seems. The Euro is looking a little brittle over Italy woes, while Sterling still has Brexit to deal with along with this week’s softer CPI and, yesterday, a slight miss on Retail Sales. (Retail Sales ex fuel declined 0.8% somewhat weaker than the -0.4% consensus.) The CAD is being held back by further softness in oil prices (as is NOK the more so), while the souring of risk sentiment has weighed on the AUD and to a lesser extent, the NZD.
Despite a 3 point rise in the VIX overnight to 20.55 and for a time some softness in the RMB, the AUD edging lower but toward 0.71, testing lower in sympathy with equity market volatility. The Yen has out-performed, while the Swiss Franc has been steady. Chinese growth numbers loom today for the AUD.
Economics and Bonds
EU Commissioners Dombrovskis and Moscovici sent a ‘’please explain’’ letter to Italian Finance Minister Tria noting that Italy’s fiscal plans for 2019 constitute “an obvious significant deviation” from EU rules. The size of the deviation from the structural improvement of 0.6% of GDP recommended by the EU Council is “unprecedented in the history” of the Stability and Growth Pact (big words!), the EU Commission warning of “particularly serious non-compliance’’ with EU fiscal rules. The EC is seeking a response by noon (European time), Monday Oct. 22
This has seen pressure on Italian short end and term bond markets, the Italian 2y yield jumping 17.5bps to 1.523% (Germany’s is -0.616%) and 10s up 13.8bps to 3.686. BTP 10s are back to their highs. Spanish, Portuguese, and Greek bond yields also rose in high grade market where there was some switch from equities to bonds.
The economic news out of the US continued to reflect growth momentum. The Philly Fed Index for October printed at a still strong 22.2, almost unchanged from 22.9 and slightly above consensus, while Weekly Jobless Claims were a still very low 210K (in line with consensus) and still pointing to a job market that is as tight as it has been since Neil Armstrong walked on the moon for those of us old enough recalling that grainy black and white TV vision. The Conference Board’s Leading Index rose 0.5% in September, up at a 6m annualised pace of 5.6% still pointing to a solid growth outlook. Next month, stocks will be something of a headwind, one of the ten components along with the yield curve.
Uber-Monetary Policy dove St Louis Fed President Bullard was speaking last evening and again he was extolling the virtues of leaving Interest Rates on hold in his usual methodological manner. To support his view, he presented a paper on a re-stylised R-star, the neutral real Fed funds rate. (You can see his paper here<https://www.stlouisfed.org/~/media/files/pdfs/bullard/remarks/2018/bullard_memphis_economic_club_18_october_2018.pdf?la=en >.) His thesis is that the economy’s growth spillover to inflation has been severely attenuated (a flatter Phillips curve) by a factor of 10. He also suggests using real-time inflationary expectations to calibrate inflation. Time will tell who is right. Bullard is not a voter this year but will be next and no doubt will be one of the ‘’couple’’ of FOMC members cited in the Minutes who do not favour rates moving into restrictive territory.
Fed Governor Quarles was also speaking and among other comments noted the significant doubt around the level of the NAIRU and that the Fed can gradually raise rates without becoming restrictive. As I noted yesterday, the median FOMC estimate of the accommodative/restrictive rates border is 2%-3%.
Commodities
Commodities were generally softer, again led by WTI off 1.45% to $68.74 and Brent down 0.89% to $79.34. Base metals were lower, gold marginally so, while the bulks were mixed, iron ore pulling back after a recent rally.
This morning on the Economic Front we have UK Public Sector Net Borrowing at 9.30 am. Finally we have Canadian CPI at 1.30 pm. We have no US data while the Fed’s Kaplan speaks in New York at 2.00 pm
December S&P 500
What a day as volatility returned with a vengeance. Shortly after the S&P traded to my average buy level at 2779 the market made an initial low of 2768 before rallying to a rebound high of 2786 and this move enabled me to cover my long position at my revised 2783 T/P level as emailed to my Platinum Members and I am now flat. Subsequently the S&P made a new low of 2757 before managing to scramble back above its 200 Day Moving Average into the close. We have had a nice week and I do not want to take unnecessary risk with these gains heading into the weekend. Today my only interest in buying the S&P is on a dip lower to 2743/2753 with a 2736 stop. I will now lower my sell level to 2810/2820 with a 2828 stop.
EUR/USD
Thankfully the Euro rallied to my 1.1520 T/P level on my latest 1.1500 long position before lunch and I am still flat. Subsequently the Euro got hit hard into the New York close with the market not helped by the worsening Italian Political situation. Today I will again look to buy the Euro on any dip lower to 1.1370/1.1410 with a 1.1335 stop. Meanwhile I will now lower my sell level to 1.1535/1.1575 with a lower 1.1610 tight stop.
December Dollar Index
I am still flat the Dollar and today I will again raise my sell level to 96.30/96.70 with a 97.05 stop. The 96.50/97.00 is strong resistance for the Dollar and should lead to an initial sell-off on any test today.
December DAX
My DAX plan worked well with the market trading lower to my 11620 buy level before rallying to my 11655 T/P level and I am now flat. Unfortunately the DAX did not hold the key Head & Shoulders pattern and if the market closes below 11500 this evening it could well see an acceleration to the downside next week. The DAX has support at last week’s 11400 low print and today I will be a small buyer on any dip lower to 11320/11390 with a 11265 stop.
December FTSE
My FTSE plan worked well but you had to be quick as after the FTSE hit my 6970 buy level we quickly bounced to my 6990 revised T/P level and I am now flat. With Sterling getting hit hard again I would expect the FTSE to have limited downside potential from here. For that reason I will again look to buy the market on any dip lower to 6920/6960 with a 6880 stop. I still do not want to be short the market at this time.
Dow Rolling Contract
The Dow had another roller coaster day with the market getting hit hard to trade the whole of my buy range before a late rally again saw the market hold its 200 Day Moving Average which now comes in at 25158. As I was already long both the S&P and NASDAQ I waited to buy the Dow at a price of 25380 before exiting this position at a price of 25440 and I am now flat. Subsequently the Dow made a recovery high of 25485 before falling 240 points. I am still flat and nervous. The release of the Chinese GDP will certainly be a factor as what happens the Dow today. My only interest in buying the market is on a further dip lower to 24050/24200 with a 23940 wider stop. Ahead of the weekend I do not want to be short the market at this time.
December NASDAQ
After the NASDAQ traded the whole of my buy range for an average long position at 7155 I emailed my Platinum Members to exit any long position at 7168 and I am now flat. The NASDAQ has good support from 7010/7060 and today I will be a buyer on any dip to this area with a 6975 stop.
December BUND
The BUND rallied hard yesterday on the flight to safety argument with Italian Bonds and European Equity markets getting hit hard. I am still flat not trusting this rally at all. I do not have an edge in the Bund at this time and I will continue to stay on the sidelines.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1200/1212 with a 1192 stop.
Silver Rolling Contract
No change as I am still long at 14.65 with a now lower 14.75 T/P level. I will again look to add to this position on any move lower to 14.25 with the same 13.80 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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