It has now been six from seven in terms of core US CPI undershooting expectations (six months at 0.1% including Friday’s September print and just one at the 0.2% consensus estimate that has prevailed for each of these seven months). So core CPI rose by just 0.7% in the past six months, or 1.4% annualised. No matter, Fed chair Janet Yellen spoke in Washington yesterday afternoon, and was reasonably emphatic in saying that “My best guess is that these soft readings will not persist, and with the ongoing strengthening of labour markets, I expect inflation to move higher next year. Most of my colleagues on the FOMC agree”. One who apparently doesn’t is Chicago Fed president Charles Evans (a current FOMC voter) who after the CPI data said that the data ‘didn’t seem encouraging’.
To mark my 1450th 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@tradernobele.com
For anyone following my Platinum Service it made 17 points on Friday and is now ahead by 287 points for October, having made 447 points in September, 1560 in August, 1096 in July, 1023 in June, 1076 in May, 1375 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 1600 points.
Market-wise, the surprise on Friday was perhaps that pricing for a December Fed rise did not come down more. It slipped by only about 4% to 73% using Fed Funds futures. The Yellen comments should though be serve enough to stop them slipping back further.
Also surprising was to see the DXY Dollar Index end the NY session fractionally higher on the day (+0.04%) for a loss of 0.8% on the week and the broader BBDXY index – 0.04% for a 0.6% weekly loss. DXY is now about 1.5% back from its early October highs having rallied by about 3.5% in the prior month or so.
A slightly soggy Euro, pulled down earlier in the day by a Bloomberg ECB sources story suggesting the ECB might agree when it meets this month to leave a QE bond buying end-date open. This doesn’t disguise the fact though that EUR/USD fully retraced the initial sharp bounce post the CPI data.
The unexpected strength of the early October Michigan Consumer Sentiment reading (to a 13-year high) and slightly better than expected core Retail Sales data was part of the story behind the USD recovery, though one could equally have pointed to the dip in 5-10 year inflation expectations in the Michigan survey, to 2.4% from 2.5%, as justifying further scaling back of December Fed tightening risk. The Fed cares about this measure, though judging from the Yellen speech mentioned above, evidently not enough to stand in the way of further gradual policy normalisation.
The Australian Dollar, closely followed by NZD, were the main beneficiaries of the US Dollar slump post the CPI data, subsequently holding gains (as did the JPY) while the dollar elsewhere spent most of the NY afternoon recouping earlier losses. AUD/USD ended +0.86% at 0.7887 and NZD +0.8% to 0.7181, the NZD market earlier Friday seemingly travelling with some confidence that NZ First Leader Winston Peters will today declare his hand in favour of an alliance with the Nationals.
Also helpful to the cause of the AUD on Friday was a bounce in iron ore prices, +$2.40 to $62.53 for the 62% fines Qingdao benchmark, following an earlier mini-surge on the Dalian futures market. This looked to be driven by Friday’s China trade data, showing iron ore imports in September above 100 million tonnes for the first time (102.8mn) and up from 93 million tons last September. Substitution of higher grade ores for poorer local concentrates in the context of stricter environment controls is part of the story here, but which obviously has not been enough to prevent a 22% drop in the 62% fines (high grade) benchmark over the course of September and through mid-October, ahead of steel production curbs heading into winter. So Friday’s gain was probably more psychology driven than anything else. That said, news over the weekend of much stronger than expected China credit growth last month (¥1820bn for the broad Aggregate Social Financing measure, up from €1,480bn in August) goes some way toward assuaging concerns about a (lack of) credit-driven slowdown in activity – and relate commodity demand – in coming months.
This morning on the Economic Front we have Euro-Zone Trade Balance at 10.00 am and this is followed at 1.30 pm by the only US data today namely Empire Manufacturing. Finally we have Canadian Existing Home Sales and Business Outlook at 2.00 pm and 3.00 pm respectively.
December S&P 500
The S&P traded in just a 5.5 Handle range on Friday which must be one of the lowest on record with volume extremely low as shown by the fact that it closed substantially below its 10 and thirty day daily averages. After we got the CPI release the S&P traded higher to my 2555 sell level before having a small sell-off to a 2550.50 low print and this sell-off enabled me to cover my position at my revised 2554 T/P level and I am now flat. With the CNN Greed & Fear Index continuing to sell-off closing at 73 on Friday it may be an indication that the main Indices are running out of steam. I will continue to be a seller on rallies until we finally do get a sell extreme that sticks and today my sell level will be from 2559/2566 with a 2571 stop. Meanwhile I will leave my buy level unchanged from 2532/2538 with the same 2527 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 2506/2514 with a 2500 stop.
EUR/USD
I am still flat the Euro and today I will leave my buy level unchanged from 1.1755/1.1790 with a 1.1720 stop. I still do not want to be short the Euro at this time especially as I still believe we will have one more look above 1.20 in the coming weeks.
December Dollar Index
I am still flat the Dollar and today I will be a small buyer if the Dollar trades lower to 92.25/92.60 with a 91.95 stop. I will continue to be a seller on any further rally to 93.35/93.75 with a 94.05 stop.
December DAX
No change as I am still a buyer on any dip lower to 12850/12900 with a 12805 stop. I still do not want to be short the DAX at this time.
December FTSE
I am still flat the FTSE and will continue to look to buy the market on any dip lower to 7425/7460 with the same 7395 stop. I still do not want to be short the market ahead of the all-time high at 7585 from earlier this year.
Dow Rolling Contract
Ahead of the CPI release the Dow traded higher to my initial 22890 sell level. As I had a close by sell in the S&P I emailed my Platinum Members to exit any short Dow position ahead of the CPI release at my revised 22883 T/P level and I am still flat. Unfortunately I cannot do anything about the low volatility only to repeat that these are dangerous markets and will roll over sooner rather than later especially with so much optimism built in. I will continue to be a buyer on any dip lower to 22590/22660 with a 22530 stop. Today my sell level will be from 22945/23005 with a 23060 stop.
New Addition
December NASDAQ
I am going to experiment and make a daily call on the NASDAQ for the next few weeks. Traditionally the NASDAQ is more volatile than both the Dow and S&P and has a reasonable 2/3 points spread with most spread betting firms.
The NASDAQ has strong resistance from 6150/6200 and today I will be a seller in this area with a 6235 stop. First support for the NASDAQ is from 5970/6020 and I will be a strong buyer on any dip to here with a 5920 stop.
December BUND
It appeared that market sentiment had reached its limit of insanity with the advent of negative-yielding Government Bonds. Why would someone take their own money and buy a bond that they were guaranteed to lose money on if they held it to maturity? And yet there are trillions of dollars and Euros of these bonds on the market. However this extreme optimism has not much abated as shown by the fact that Bloomberg reported last week: The Bloomberg Barclays Euro High Yield Index (i. e., Junk Bonds) is yielding 2.93%, while the Bloomberg Barclays USD High Grade Index ( i.e., Investment Grade ) is yielding 3.14%. It is now cheaper for European companies with the worst credit rating to borrow than it is for American companies with the best credit rating. Bloomberg calls this unprecedented, I call it utter madness.
I am still flat the Bund and today will now raise my buy level slightly to 161.10/161.50 with a 160.75 stop.
Gold Rolling Contract
No change as I am still a small seller on any further rally to 1312/1320 with the same 1326 stop. I am not going to chase the Gold market higher and today I will leave my buy level unchanged from 1274/1281 with a 1268 stop.
Silver Rolling Contract
No change as I am still a buyer on any dip lower to 16.85/17.15 with a 16.55 tight stop.
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