Post the FOMC yesterday, markets were steady until late morning headlines hit the screen suggesting the Italian government was in a quarrel with the two deputy PMs pushing for an increase in the deficit. The news triggered a sharp drop in the Euro which accelerated after stops were triggered. The jump in Euro and JPY cross currency bases with the 3 month tenor rate covering the end of 2018 also helped the USD while higher German inflation and mixed US data releases where largely ignored. Last night Italy’s coalition government agreed to a 2.4% budget deficit (above the 1.6% expected) and consequently the Euro remains under pressure. UST yields are steady and main European and US Equity Indices have closed marginally higher.
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@tradernoble.com for details
For anyone following my Platinum Service it made 150 points yesterday and is now ahead by 1233 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
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Currencies
News that the release of the Italian draft budget for 2019 had been postponed due to ‘’a difference of opinion’’ between the two Italian deputy PMs and Finance Minister Tria, with the former looking to increase the government expenditure plan, triggered a selloff in the Euro with the pair dropping 50 pips in the matter of minutes from 1.1751 to 1.170. The markets ignored the strong German CPI print (2.2% vs 1.9% exp. yoy) which points to upside risk the September Euro-Zone CPI print this morning.
The decline the Euro has accelerated this morning following confirmation that Italy’s coalition government has agreed on a 2019 deficit at 2.4 % of GDP during a late night cabinet meeting in Rome. Euro now trades at 1.1630.
In addition to Euro weakness, the bid in the USD has also been supported by a jump in EUR and JPY cross currency bases, reporting and regulatory compliance creates a desire/need for many institutions to hoard cash ahead of year end and with the 3 month tenor rate covering the end of 2018, the cost of borrowing USDs in the cross currency market has gone up. The Euro three-month cross-currency basis dropped to minus 40bps , from about minus 16 points on Wednesday, the biggest single-day decline since the 2009 GFC.
Meanwhile a raft of mixed US data releases (see details below) were largely ignored. Of note the large August Trade Deficit means that many will be looking to trim their Q3 GDP growth expectations by up 1%, although the jump in inventories also revealed is an offsetting force. That said one important take away was the large increase in imports (reflecting the domestic economy inability to cope with domestic demand) while the anemic export growth was also a disappointment.
AUD moves remain largely driven by external forces. Yesterday the pair came under pressure after a softer than expected China industrial profits print (9.2% y/y in Aug down from 16.2% in July) and later on the rise in the USD amid European woes, gave the Aussie another push lower. The pair now trades -0.62% lower at 0.7208 and its inability to make a sustain break above 0.73 is likely to embolden AUD bears.
In contrast the rise in USD has seen USD/JPY make a decisive break above 113, the pair now trades at 113.38 and its upward trend established early in September remains firmly in place.
Equities
After Wednesday’s swift decline post the FOMC decision to lift Interest Rates, US equities are seemingly now comfortable with the idea of higher rates with all major Indices recovering yesterday. The NASDAQ has led the charge, up 0.61% while the S&P 500 is +0.28% and the Dow is +0.21%. All major European Indices also closed with modest gains, although Italy’s FTSE MIB was the exception, down 0.62%.
Bonds
US yields are unchanged to slightly higher since Wednesday’s close and it is a similar story for much of Europe. 10y UST yields now trade at 3.05% and the 2y rate is at 2.83%. Of note Italian bonds closed relatively steady only a couple of basis points higher.
Commodities
Copper is the big loser (-1.93%) suggesting a higher degree of sensitivity to China news (soft IP data), aluminium and metals were also lower, 1.7% and 1.4% respectively. In contrast oil prices were up again with WTI +0.88% to $72.19 and Brent +0.4% to $81.68.
Economics
Initial Jobless Claims rose to 214K from 202K (revised from 201K), just slightly above the 210K consensus. The weather (hurricane Florence) appears to have accounted for the 12K rise, this impact likely to be temporary.
US Durable Goods orders were +4.5% m/m in Aug, well above the +2.0% consensus. Strength was led by the volatile civilian aircraft component. Ex-transportation orders were just +0.1% m/m, below the +0.4% consensus. The core capex orders series fell, but it had risen sharply in previous months.
US Q2 real GDP was unrevised at a +4.2% q/q annual rate. In line with consensus.
US advance goods deficit jumped to $75.8bn from $72.0bn, well above the $70.6bn expected by consensus. The Imports of goods rose 0.7%, marginally above expectations but exports unexpectedly fell by 1.6%, the third straight fall of more than 1%. All the decline in exports was in the “industrial supplies’’ component, which includes oil, where exports dropped by 5.9%. While a correction industrial supplies looks likely next month, yesterday’s numbers suggest trade will subtract around 1% to Q3 GDP numbers. That said the inventories data was stronger than expected and leaves exactly what expectations for a Q3 GDP reading around 3%
US Wholesale inventories were +0.8% m/m, above the +0.3% consensus, following +0.6% m/m (unrevised).
This morning on the Economic Front we have UK GDP at 9.30 am and this is followed at 10.00 am by Euro-Zone CPI. At 1.30 pm we have Canadian GDP and US PCE. Finally we have the Chicago Purchasing Managers Survey and the University of Michigan Consumer Sentiment at 2.45 pm and 3.00 pm respectively.
The ECB’s Praet speaks at a conference in Frankfurt at 1.35 pm.
December S&P 500
Yet again we saw early buying of the US Stock Indices shortly after the Markets opened in Chicago with the S&P rallying to my 2916 T/P level on my latest long 2912 position and I am now flat. With today being Month and Quarter End I would expect the downside to be limited despite the weak opening to the Futures Markets this morning. Today I will again look to buy the S&P on any dip lower to 2902/2910 with a 2895 stop. I still do not want to be short the S&P at this time.
EUR/USD
Thankfully after I posted yesterday the Euro finally traded higher to my 1.1715 T/P level on my 1.1695 long position. Subsequently I emailed my Platinum Members to re-buy the Euro on any dip lower to 1.1630 and this position was filled early this morning. I am still long and I will now lower my T/P level on this position to 1.1645 with a now higher 1.1595 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
December Dollar Index
I am still flat the Dollar as the market again traded higher. Today I will now raise my buy level to 93.50/93.90 with a 93.15 stop.
December DAX
The DAX which initially was weak after I posted yesterday morning turned around and managed to rally over 200 points as yet again anyone attempting to go short got slammed. Today I will now raise my buy level in the DAX to 12180/12245 with a 12115 stop.
December FTSE
With Sterling again selling-off it is very difficult not to be long the FTSE which is again the strongest market of the main Indices over the past week. Today I will now raise my buy level to 7400/740 with a 7365 stop.
Dow Rolling Contract
The Dow was testing my 26340 stop level just as I posted yesterday morning. Hopefully by the time you got to read my commentary the Dow was trading higher before the market rallied to my 26430 T/P level with a move above 26550 and I am now flat. As I said to my Platinum Members yesterday until we break the 50 Day Moving Average it is a waste of time and money in trying to short the US Indices due to the aggressive snapbacks each time. Today I will now look to buy the Dow on any dip lower to 26150/26300 with a 26070 stop.
December NASDAQ
The Buy Extreme for the NASDAQ continues off the 7480 support level with the market hitting a high yesterday of 7658. I am still flat the market and today I will now raise my buy level to 7530/7570 with a 7495 tight stop. I am still have a target price of 7750/7800 for this market.
December BUND
My Bund plan worked well with the market trading lower to my 158.10 buy level before rallying to a rebound high this morning of 158.76. That is the good news, unfortunately as I was having a good day yesterday I wanted to protect these gains and I covered my long position for a breakeven and I am now flat. Today I will again look to buy the Bund on any dip lower to 157.75/158.20 with a 157.40 stop.
Gold Rolling Contract
As I was long Silver I waited to buy Gold which I did at 1184. I emailed my Platinum Members explaining that I did not like the price action in Gold and to exit any long position at 1187 and I am now flat. Gold must hold the August low of 1160 or else we could see another sharp move lower. Today I will again look to buy Gold on any dip lower to 1163/1173 with a 1155 tight stop.
Silver Rolling Contract
Silver traded lower to my 14.20 buy level before rallying to my revised 14.30 T/P level overnight and I am now flat. Today I will again look to buy the market on any dip lower to 13.65/14.05 with a 13.30 stop.
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