The shift in tone from Central Banks in Europe and the US continued to drive financial markets, with stocks and bonds again selling off in what is turning out to be the most volatile trading week so far this year. The US Technology sector’s woes deepened as renewed selling in the year’s biggest winners sent software and chipmaker shares to the lowest levels in seven weeks, while investors rotated into banks after the Federal Reserve cleared them to repurchase stocks. The 10 – Year Treasury Note rate topped 2.26% while Government Debt in Europe sold off faster on hawkish comments from the ECB. Meanwhile the Euro hit its highest level in more than a year while Sterling rose for a seventh consecutive trading session.
To mark my 1350th 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 93 points yesterday and is now ahead by 937 points for June, having made 1071 points in May, 1376 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.
German and Spanish CPIs for June were released yesterday – in a limited data schedule – and pointed to a better-than-expected print from today’s Euro-Zone CPI by 0.1% if not 0.2%. That’s added support to the EUR/USD and Bond Yields in yesterday’s trading session, the Euro this morning at 1.1440. Euro Interest Rate markets are now pricing in a 90% chance of a 10bps hike from the ECB (from its current – 0.4% deposit rate) by the middle of next year. Germany’s CPI for June printed at 0.2%/1.5% (against 0.0%/1.3%) while Spain’s CPI was 1.6% y/y (consensus 1.5%). As a slight dampener, Italy’s (out yesterday) was a 0.2% miss, while France’s is this morning. German 10y bund yields rose 8.4bps against what has been a net 3.87bps rise in the US 10y Treasury.
While the Euro has been getting some support, AUD/USD testing in the higher 0.76s, assisted with iron ore up again in size overnight. The benchmark spot price for the red ore rose another $2.38/t to $64.71, up 14.0% so far this week. Chinese daily traded futures prices for iron ore and steel rebar have also been rising this week, as have base metals, LME copper up another 1.05% and 2.4% for the this week so far. And so, the AUD sits at the top of the leader board despite the VIX up 1.41 points to 11.44, with equities down on both sides of the Atlantic.
Talk this week of central banks moving to remove monetary accommodation has not hurt the AUD either. While the RBA is odds on to leave rates steady next week, the language in the Governor’s statement is likely to be tweaked to recognise the continuing improvement in the labour market and economic activity. Running against the tide of softer equities have been banking stocks. They have gotten a leg up after essentially passing phase II of the Fed’s stress tests, giving the green light for banks to buy bank stock and pay dividends as they see fit. The KBW Banks index is up 1.29% with the Dow down 0.78%, the S&P 500 by 0.86% and the Nasdaq by 1.44%.
The Canadian Dollar has also been supported from the continued reverberations from the more hawkish sounding BoC Governor this week and steadier oil prices. At the end of last week, the Canadian OIS market was pricing in a 36% chance of a hike at the upcoming 12 July BoC meeting. That pricing has arced up a tad more overnight to a now 72% probability, tacking on another 5% overnight.
Even the Pound has been getting some support, the new Government facing and getting through three votes over austerity, Brexit and getting the Queen’s speech passed.
In other news, Fed President Bullard said last night that it’s more prudent to announce the balance sheet adjustment at a press conference, making September more likely. That’s the way the market’s been thinking.
This morning on the Economic Front we have German Unemployment at 8.55 am and this is followed at 9.30 am by UK GDP, Total Business Investment and the Current Account Balance. Next at 10.00 am we have the now very important Euro-Zone CPI. This is followed at 1.30 pm by US Personal Income/Spending including the PCE Deflator. Finally at 2.45 pm we have the Chicago Purchasing Manager’s Survey.
Meanwhile the ECB Member Mersch will speak in Germany at 4.30 pm and I am sure he will mention the rise in both the Euro and Bund Yields which have sky rocketed this week.
September S&P 500
I cannot emphasise enough the importance of my Platinum Service especially on volatile trading sessions that we had yesterday when the S&P fell 40 handles before recovering 20 of those handles into the close. The reason that I mention this is the value and importance of my updated emails. Just like everyone else I also have bad trading sessions but the value of the Platinum Service is that if I do not like a position I can email you to get out quicker. For example when the DAX got slammed yesterday and the S&P had traded lower to my average buy level at 2434 I emailed my Platinum Members to exit this position on any move higher to 2432. The market subsequently traded to a rebound high at 2433.75 before the carnage hit. It is extremely rare that I will run to the sidelines but this is what happened yesterday. I subsequently emailed them again to buy the S&P on any dip lower to 2404 which the market filled with a 2402.25 low print before rallying back above 2420 into the close. Unfortunately having re-bought the S&P close to the bottom I covered this position at my 2409 T/P level and I am now flat. The price action at this time reminds me of what went on ahead of the mega crash in 1987 when we had a series of up and down moves like we are having now before we got the real sell-off. The same pattern occurred ahead of the 2001 9/11 sell-off and again in the month ahead of the 2008 Global Financial Crisis. Like everyone else I do not know when we are going to get the Black Swan Event that drives this market lower but remember we have has six Hindenburg Omen’s on the clock and going by the average PE for the past 90 years the Fair Value for the S&P is at 1655. I stick with my view that if you have a large exposure to equities in your pension fund you need to seriously think about reducing your risk. The Fed are intent in rising interest rates at a time when the economy as shown by money supply is slowing and as I have said countless time in the last 14 rate hiking cycles caused by the Fed, 11 have led to a recession. With the level of debt in the market place this is the last thing the US economy needs at this time. Today is month and Quarter End ahead of the July 4th US Holiday on Tuesday and is traditionally a positive trading period for the S&P. However yesterday’s move lower has done some serious technical damage. It is time to reduce position size and have wider stops given the volatility. Today I will again look to buy the S&P on any dip lower to 2398/2408 with a 2392 stop. My only interest in selling this market is on a rally higher to 2432/2439 with a 2445 stop.
EUR/USD
The Euro is overbought on a Daily and Weekly basis and has serious resistance at 1.1450/1.1460 which is a two year trend line. This on top of the record long positions by the large speculators should make it difficult for the Euro to break 1.15 on this run. Today I will still be a small seller from 1.1465/1.1505 with the same 1.1535 stop. I will also leave my buy level unchanged from 1.1310/1.1350 with the same 1.1270 stop as I do not want to chase this market given its overbought condition.
September Dollar Index
Yesterday after I posted the Dollar stayed at my 96.45 buy level for a while before eventually rallying to a rebound high at 95.72 and I used this rally to exit this position as emailed to my Platinum Members at 95.60 and I am now flat. Today I will again look to buy the Dollar on any dip lower to 95.00/95.35 with a 94.70 stop.
September DAX
Incredibly the DAX fell 400 points from its 12730 high print shortly after I posted yesterday in one of these biggest routs in a market that I have seen since Brexit. There is no doubt the ramifications of the doubling in Bund Yields is not helping especially with CPI beginning to creep higher. Yesterday after the DAX hit my initial 12590 buy level the market rebounded to a high at 12630 and given the tepid bounce in the market I covered this long position at my revised 12610 T/P level. That was the good news as unfortunately I re-bought the DAX again at 12480 before getting stopped out of this position at 12430 and I am now flat. I know most of you do not trade the DAX given how volatile this market can be. The DAX has a huge ‘’Open Gap’’ from round one of the French Election at 12210/12110 and I will be a very aggressive buyer if the DAX trades lower to this level over the coming days with a 12060 stop. The DAX has support from yesterday’s low at 12335 which is the 100 Day Moving Average and today given how oversold we are trading I will be a small buyer from 12280/12330 with a 12245 stop.
September FTSE
The continued rebound in Sterling is really hurting the UK equity market at this time. Yesterday after the FTSE traded the whole of my 7300/7330 buy range which put me long at an average 7315 rate I emailed my Platinum Members to exit this trade on any rally back to 7300. Thankfully after I sent that email the FTSE rallied back to 7322 before following the other main Indices lower and I am still flat. The FTSE has strong resistance at 7320 and today I will be a seller from 7315/7345 with a 7375 stop. My only interest in buying the FTSE is on a dip lower to the May Low at 7176 buy been a buyer from 7160/7195 with a 7130 stop.
Dow Rolling Contract
It is a long time since all my four Indices got filled on the same day especially with a large difference in each of my buy ranges. Having watched and lost money on my initial three buy levels in the other Indexes I waited to buy the Dow near the bottom of my buy range at 21290 before emailing my Platinum Members to exit any long position at 21325 and I am now flat. The Dow subsequently sold off to bottom at the previous all-time high at 21169 which I mentioned earlier in the week as good support before the market rallied 160 points off this low into the close. You may have caught some of this move but I did not pull the trigger myself. Today I will again look to buy the Dow on any dip lower to 21130/21200 with a 21075 stop. Despite the aggressive sell-off in the Dow I want to see the market close below 21150 before I look to set up a short position.
September BUND
My Bund plan worked well as after the market traded lower to my 162.25 buy level we had a nice rally back to 162.57 and this move higher enabled me to cover this position at my revised 162.52 T/P level and I am now flat. This morning the Bund is resuming its sell-off with the market now trading at 161.90. This is an incredible move given the fact that the Bund was trading at 165.33 on Tuesday morning ahead of Dragi’s speech. Today I will be a small buyer on any further dip lower to 161.20/161.60 with a 160.90 tight stop.
Gold Rolling Contract
It is interesting that despite the sell-off in risk assets that Gold could not rally. I am still flat and today I will leave my buy level unchanged from 1224/1232 with a 1218 tight stop.
Silver Rolling Contract
After Silver traded lower to my 16.60 initial buy level I emailed my Platinum Members to exit this position at my revised 16.71 T/P level and I am now flat. Today I will again look to buy Silver on any dip lower to 16.10/16.45 with a 15.80 stop.
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