Late yesterday, we had the release of the FOMC Minutes from the September 20-21 Meeting. The main difference between the hawks and the doves are on their views of the degree of spare capacity in the labour market, and the degree of confidence that inflation will pick up to the Fed’s 2% target. Despite that difference, the two camps are not so far apart with the Minutes noting the September decision was a ‘’close call’’ and ‘’that a reasonable argument could be made either for an increase at this Meeting or for waiting for some additional information on the labour market and inflation’’. Consequently, a December rate hike still looks highly probable assuming the labour market continues to improve. Against that backdrop, the market now prices in an 81% chance of a rate hike by December according to OIS, only marginally higher than Tuesday.
To mark my 1200th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day depending on market conditions. 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 57 points yesterday and is now ahead by 577 points for October having made 1142 points in September. The previous three months saw gains of 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
While the FOMC Minutes captured the market’s attention, for me the most instructive comments came from the Fed’s Dudley who serves as the FOMC Vice- Chair. He noted that ‘’there’s more slack in the labour market than is suggested than by just the Unemployment Rate’’ and with inflation below target ‘’we can be quite gentle as we go in terms of gradually removing Monetary Policy accommodation’’. That suggests after a likely December rate hike, it is going to be very gentle tightening cycle until the Fed see’s evidence of inflation picking up to 2% or wages growth at or exceeding 3%.
Against that backdrop, US Treasury Yields were 1-2 bps higher to 1.78%, with an earlier increase up to 1.80% unwound after Dudley’s remarks and the FOMC Minutes. Other major Sovereign Bond Yields essentially followed the moves by Treasuries the previous day, with German Bund Yields up 4.2 bps to 0.1%. Meanwhile UK Gilt Yields rose by a greater magnitude, up 6.4 bps to 1.0% helped along by comments by Prime Minister May.
There was little economic data out yesterday, with only US Job Opening figures (JOLTS) which fell 6.7% in August. Although below consensus, it was viewed as merely compensating for extraordinary levels and importantly, the quit rate was unchanged at 2.1% – suggestive of a tight labour market.
In FX space, it is a story of very slight US Dollar strength with the US Dollar up 0.2% across the board. Amongst G10 currencies, the outperformer was the British Pound, up 0.7% after some unwinding from Tuesday’s 1.9% fall. Most of the price action occurred before the European Markets opened and after I posted following a report that PM May had accepted Parliament should be allowed to vote on Brexit. The story was later clarified with Parliament not voting on trigging Article 50 but rather on having a discussion on the plans for Brexit.
This morning on the economic front we have German CPI at 7.00 am. This is followed at 1.30 pm by the US Import Price Index and the Weekly Jobless Claims. Finally at 2.45 pm we have the Bloomberg Consumer Comfort Index
At 5.15 pm the Fed’s Harker will speak on Economic Outlook in Philadelphia.
December S&P 500
The S&P traded lower to my 2128 buy level before having an a nice initial rally to 2137 which enabled me to cover this position at my revised 2130.50 T/P level as I wanted to be flat ahead of the Minutes. After the Minutes were released the S&P spiked to a 2139.50 high before spending the rest of the session trading lower. The S&P has strong support at the 2120 level which is an 8 month trend-line. Today my only interest in buying this market is on a dip lower to 2117/2122 with a 2112 stop. A break and close below 2114 will be a ‘Sell Signal’’ opening up the possibility of a move lower to 2070 over the coming days. My only interest in selling the S&P is still on a rally higher to 2141/2147 with a 2152 stop.
EUR/USD
The Euro is oversold on all the measures that I follow but until we get a buy extreme that sticks the market will probably continue to drift. The Euro has two strong supports at 1.0950 which is the July low and at 1.0915 which is the post Brexit reaction low. I am still flat the Euro and today I will leave my buy level unchanged at 1.0930/1.0970 with a 1.0895 tight stop.
December Dollar Index
No change as I am still long at 97.50 with the same 98.10 stop. If I am stopped out of this market on what is an extremely overbought Dollar, I will again look to sell the Dollar on any rally higher to 98.25/98.55 with a 98.80 tight stop.
December DAX
No change as I am still a small buyer on any dip lower to 10380/10440 with a 10330 stop. Given the weaker Euro I still do not want to be short the DAX at this time.
December FTSE
The FTSE finally hit my 6980 buy level before having a small rally back over 7000. As I wanted to be flat ahead of the FOMC Minutes I emailed my Platinum Members to exit this position at 6992 and I am now flat. Today I will again look to buy the market on any dip lower to 6930/6960 with a 6895 stop. My only interest in selling the FTSE is still on a rally higher to 7125/7155 with the same 7180 stop.
Dow Rolling Contract
The Dow just missed my 18045 buy level with a 18075 low print before rallying 100 points and I am still flat. Today I will lower my buy level slightly to 17940/18010 with a 17875 stop. Remember the Dow has strong support in this area and a break and close below 17900 is a ‘Sell Signal’. Given the level of this support I do not want to be short the Dow at this time, although I still believe the market will break lower eventually.
December BUND
The BUND traded lower to my average buy level at 163.25 before eventually rallying post the FOMC Minutes and comments from Dudley. This rally enabled me to cover this long position at my revised 163.45 T/P level and I am now flat. Today I will again look to buy the Bund on any further dip lower to 162.85/163.25 with a 162.50 stop which is just below the September low at 162.60. The Bund is oversold and due a rally.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1240/1247 with the same 1233 stop.
Silver Rolling Contract
I am still long at 17.85 with the same 16.95 stop. I will leave my exit level unchanged at 17.85 and I manage to cut this position for a breakeven, I will again look to buy the market on any dip lower to 17.40/17.70 with the same 16.95 stop.
Recent Comments