The US ADP Employment Report yesterday printed +200k, seemingly confirming that the US economy continues to create more than enough jobs each month to keep the Unemployment Rate trending down to – and through – the so called NAIRU rate (below which further labour market strength risks accelerating inflation). ADP also confirms that in 2015 to date, the US Manufacturing sector has seen net job losses, following 5 consecutive years of gains since 2009. Alongside, six of the Regional Feds who produce Monthly Manufacturing sector surveys (New York, Philadelphia, Richmond, Kansas City, Dallas and Chicago) all report their respective manufacturing sector to be contracting – again for the first time since 2009.
For anybody following my new Platinum Service it made 60 points yesterday to close the month of September with a gain of 2833 points. The previous three months saw gains of 2195, 1810 and 3045 points respectively.
Of course, the response from Fed officials and many private economists is that since Manufacturing only represents about 12% of the US economy, it doesn’t really matter and that policy is made for the entire economy which continues to pump out the aforementioned ~200k new jobs each month. But if US interest rates were not currently near zero, you’d seriously question why anything thinks the Fed would have its finger evenly remotely on the interest rates trigger at this juncture. At the same time, it’s worth noting that manufacturing recession is more a global than US-centric phenomenon (Japan, China to name but two of the world’s other big four economies) and looks to be more symptomatic of a deficiency in global demand than a strong US Dollar. But that doesn’t make the case for higher interest rates any more compelling.
Fed speakers added nothing to the Fed policy debate yesterday, Fed chair Yellen saying only that the economy had seen ‘significant improvement’ since the crisis. Thanks Janet. Other economic news of note yesterday included confirmation – after Tuesday’s weaker German inflation data – that the Eurozone slipped back into deflation in September (-0.1%) albeit the core measure that now gets more prominence at the ECB, was steady at 0.9%. UK GDP was unrevised at 0.7% in Q2 through the year-on-year estimate was lowered to 2.4% from 2.6%.
For markets, Month/Quarter end flows look to have been the dominant influence across asset classes. This has allowed for a decent rally in global equities and where most indices are showing gains either side of 2% and additional demand for US Treasuries that sees 10-year yields closing out the month on their lows (2.03%). FX performance has been mixed. 4pm fixing-related flows look to have provided support for the JPY but net supply of EUR, GBP and AUD.
On the latter, the IMF has just come out with its annual review of the Australian economy in which it flags risk of a hard landing for the housing market and argues the Australian dollar is ‘still on the strong side’ and ‘may weaken further as the Fed removes stimulus. It says the RBA could ease further if growth rebound disappoints. This is all fully consistent with the IMF’s current innate pessimism and broader warnings about risks to the EM world in general and commodity exporters in particular.
On the economic front China begins its National Day holiday week today (markets are closed through next Thursday, as is Hong Kong today) but this isn’t preventing the release of first the official China PMIs covering both manufacturing and services which printed higher than expected overnight leading to a continuation of yesterday’s rally in global equity markets as they open substantially higher this morning. This morning we have German, Euro-Zone and UK Manufacturing/Services PMI at 8.55 am, 9.00 am and 9.30 am respectively. At 12.30 pm we have the US Challenger Jobs Cuts while at 1.30 pm we have the Weekly Jobless Claims. Finally at 3.00 pm we have the ISM Manufacturing.
December S&P 500
Thankfully I had no sell levels across any of my Equity markets that I cover yesterday as it is very rare that I will be short ahead of a Quarter/ Monthly end to markets especially with all the re-balancing that goes on at this time. I am still flat the S&P as the market did not close the now ‘Open Gap’ from Tuesday’s close at 1874.75 to yesterday’s Chicago low at 1888. As I have mentioned countless times in my Daily Commentary all ‘Gap’s get filled and we are seeing that this morning with the previous ‘open Gap’ from last week at 1913/1924 now been filled. This morning’s move sees the S&P trading at 1927 which is 23 Handle’s higher that last night’s Chicago close at 1904. I just cannot see all of this morning’s ‘Gap’ been left unfilled especially when the market has very strong resistance from 1930/1950. For these reasons I will be a small seller from 1931/1936 with a 1940 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller from 1955/1962 with a tight 1966 stop which is just above the ‘Open Gap’ left from two weeks ago.
EUR/USD
The Euro traded lower all day yesterday with the market eventually hitting my 1.1185 buy level. I am still long and today I will leave my stop the same at 1.1130 on this position. If I am stopped out of this trade I will again be a buyer on any further dip lower to 1.1070/1.1110 with a 1.1045 stop.
December Dollar Index
The move higher in the Dollar this morning has finally hit my 96.60 sell level. I am still short and today I will lower my stop on this position to 97.00.
December DAX
I was again very unlucky with my DAX buy level which just missed my 9560 buy level with a 9579 low yesterday afternoon which is very frustrating when you see the DAX trading 200 points higher this morning. Thankfully we were not short and today I will be a small seller on any further rally to 9830/9890 with a 9940 stop. Given the extent of yesterday/today’s move higher I do not want to be long the DAX at this time.
December FTSE
The FTSE has now rallied over 5% since Monday’s low print. Thankfully we were not short as just like the US Markets I will be very rarely short over a Month/Quarter end. This morning with the market trading over 6100 the next resistance for the FTSE is at 6150 and today I will be a seller on any further rally to 6145/6175 with a 6205 stop. I do not want to be long the market at this time.
Dow Rolling Contract
The Dow closed yesterday with its first back to back Quarterly losses in over four years which could be significant as we start trading in October which traditionally is one of the weakest trading months of the year. I am still flat the Dow as thankfully we had no sell levels in the Dow over the past week with the market now trading over 500 points higher form last Tuesday’s low print. The next resistance level for the Dow is from 16500/16600 and today I will be a small seller on any further rally higher to 16530/16580 with a 16630 stop. I do not want to be long the Dow at this time.
December BUND
My short 156.30 BUND position finally worked out yesterday morning with the BUND having a nice sell-off which enabled me to cover this position at my 156.00 T/P level and I am now flat. Today I will again be a seller on any rally higher to 156.35/156.65 with a 156.85 stop.
Gold Rolling Contract
Gold has been extremely heavy over the past few weeks with the market making lower highs despite the equity markets getting slammed. Yesterday Gold traded lower to my 1114 buy level. Subsequently I emailed all Platinum Members to exit this position at 1117 as I was already long the Euro and Silver and I wanted to cut my risk and I am now flat Gold. Today I will again be a small buyer on any move lower to 1096/1106 with a 1089 stop.
Silver Rolling Contract
No change as I am still long at 14.75 with the same 14.30 stop.
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