An uneventful end to the week but one where mild upside surprises in US Industrial Production and PPI helped deliver slightly higher US treasury yields out to 10 years and a marginally firmer US Dollar. In FX, DXY ended the NY session +0.08%, the broader BBDXY also +0.08% (AUD/USD just failed to revisit 0.74, closing in NY +0.26% at 0.7379. EM currencies were mostly +/- less than 0.5%, though BRL added 1%. The latter move may not survive long after tens of thousands of Brazilians hit the streets (and beaches) yesterday to demand the impeachment of President Rouseff in relation to the Petrobras (“Car Wash”) corruption scandal.
For anybody following my New Platinum Service it made 200 points on Friday and is now ahead by 782 points for August. The previous two months saw gains of 1810 and 3045 points respectively.
USD/CNY ended Friday’s onshore China session at 6.3912, falling from 6.40 in the last half hour of trade and suggesting PBoC directed buying of CNY. USD/CNH also dipped right at the end of the NY session, to 6.4493 from 6.4555. We’d suggest this means PBoC will be hoping to set Monday’s fix no higher than Friday’s 6.4010 and that is what happened with the fix set at 6.3969 earlier this morning. There’s no strong signal from Friday’s RMB moves for AUD (or NZD) today, the overall message from Friday being that the guts of the CNY devaluation orchestrated by the PBoC’s starting last Tuesday is probably behind us. Fixation with the daily CNY fix threatens to quickly become ‘so last week’.
We should now quickly return to fretting about the Fed. In rates, US 2s ended the NY session +1.5bps at 0.7218% with the market-implied probability of a September rate rise lifting to 46%. 10 year Treasuries added 1.2bps to 2.1977%. US stocks finished modestly firmer, the S&P500 +0.39% at 2091.5. As for the data, US July industrial production beat expectations at +0.6% (0.3% E) though June was revised down to 0.1% from 0.3%. Manufacturing rose by 0.8% (0.4% expected) with June revised to -0.3% from 0.0%. US July PPI rose by 0.2% for the headline (Final Demand) index (+0.1%E, +0.4% P) to be -0.8% Y/Y from -0.7% and – 0.9% expected. Core (ex food and energy) PPI was stronger than expected at +0.3% (0.1%E, 0.3%P) to be +0.6% Y/Y (0.5% E, 0.8%P). The University of Michigan’s August preliminary Consumer Sentiment Index fell to 92.9 from 93.1, against expectations for rise to 93.5, though the current conditions reading at 107.1 from 107.2 was better than the 106.5 expected. Their 5-10 year inflation expectations reading slipped to 2.7% from 2.8%, while the one year measure held steady at 2.8%.
Earlier Friday, the first estimate of Eurozone Q2 GDP fell shy of expectations at +0.3% (0.4%E, 0.4%P) after France reported flat GDP on the quarter (+0.2%E) and Germany +0.4% (0.5%E). Final July EZ CPI was unrevised at 0.2%, as was the core measure at 1.0%.
This morning on the economic front the only data of note to be released is the Euro-Zone Trade Balance at 10.00 am. This is followed by US Empire Manufacturing and the NAHB Housing Market Index at 1.30 pm and 3.00 pm respectively. Finally just before the US markets close we have the Net Long Term TIC Flows.
September S&P 500
The S&P plan worked very well on Friday as the market had a nice dip mid-morning after I posted which enabled me to go long at 2074 before the market had a nice rally to my T/P level at 2081 as outlined earlier to my Platinum Members and I am now flat. Friday’s low at 2073 could well be the low for the week especially with the August Options Expiry coming up this Friday as ahead of these Monthly Expirations the S&P tends to put in a low on the Thursday/Friday in the week ahead of this event. Most of the initial devaluation by the PBoC is probably behind us for the time being and with the ‘Open Gap’ from last Monday at 2099 I would expect this gap to be filled quickly. Today I will be a buyer on any dip to 2079/2084 with a 2074 stop. My only interest in selling the S&P is on a rally higher to 2103/2108 with a 2112 stop.
EUR/USD
The EUR plan also worked well on Friday as the market traded lower to my 1.1100 buy level after lunch. As I had a good day’s trading on Friday I emailed all my Platinum Members to exit this position at 1.1120 especially after we could not break the now key 1.1140 resistance level and I am now flat. Today my only interest in buying the Euro is on a dip lower to 1.1020/1.1050 with a 1.0990 stop. I will still be a buyer on any break higher of 1.1220 with a 1.1180 stop.
September Dollar Index
No change as I am still a small seller from 96.80/97.10 with the same 97.30 stop.
September DAX
The DAX had a nice sell-off shortly after I posted on Friday with the market trading lower to my 10940 buy level before having a nice rally after the US markets opened which enabled me to cover this position at 10995 and I am now flat. Today I will again look to buy the DAX in small size on any dip lower to 10930/10980 with a 10880 stop. My only interest in selling the DAX is on a rally higher to 11190/11240 with a tight 11270 stop.
September FTSE
My long 6540 FTSE position worked very well on Friday as just after I posted the FTSE spiked higher to 6600 which enabled me to cover this position at 6595 as outlined earlier to my Platinum Members and I am now flat. Subsequently the FTSE got hit hard again to the downside which is a real worry for stock markets in general as the FTSE has led most of the major moves lower over the past 18 years. However for me to get bearish on this market I need the FTSE to break and close below the now major support at the 6440/6480 support zone. Today I will again look to buy the market on any dip lower to 6520/6545 with a 6495 stop. If I am taken long and subsequently stopped out I will be a very aggressive buyer in front of 6450 with a 6410 stop.
Dow Rolling Contract
I am still flat the Dow and despite the fact that we got the ‘Death Cross’ (where the 50 Day Moving Average closes below the 200 Day Moving Average) coupled with the host of confirmed Hindenburg Omen’s registered on the clock the Dow is oversold after its 1200 point sell-off over the previous 10 weeks, this may not be the week to press the downside especially the way we have bounced back after the PBoC devaluation of the Yuan and the fact that the Options Contracts for August expire on Friday. For this reason I will be a small buyer on any dip lower to 17400/17450 with a 17360 stop.
September BUND
I am still flat the BUND and with the firmer equity markets this morning I am going to lower my sell level to 154.80/155.20 with a 155.50 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1100/1109 with the same 1093 stop.
Silver Rolling Contract
No change as I am still long at 15.30 with the same 14.95 stop as the market just missed my 15.70 T/P level on Friday with a 15.64 high.
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