Equities ex tech shares and commodities have had a decent past 24 hours with Morgan Stanley leading the gains in financials. Soft US Housing data and a less hawkish Fed Chair Powell combined to drive a small steepening of the UST curve. The USD struggled to retain early session gains with a rebound in commodities helping commodity linked currencies perform. AUD is toying with a move above 74c and NZD is almost back above 68c. Meanwhile Sterling cannot find any loving with a soft CPI report dragging the pound to a new year to date low.
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For anyone following my Platinum Service it made 10 points yesterday and is now ahead by 597 points for July, having made 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Fed Chair Powell’s testimony before the House Committee yesterday afternoon was not that dissimilar to Tuesday’s appearance before the Senate. At the margin, however, some of Powell’s remarks had a less hawkish tilt relative to the previous day. On inflation Powell noted that although the core reading had converged to the Fed’s 2% target, the Fed was still ‘’slightly more worried about lower inflation’’. In another slightly dovish remark, Powell said ‘’we are close to full employment, maybe not quite there’’, which seems a little surprising given the US Unemployment rate is 4%.
On trade news we had a couple of good sound bites that have also helped risk sentiment. Following on from similar remarks made by Mexican officials on Tuesday, President Trump said a US-Mexico trade deal was ‘’getting closer’’ and the US Administration may seek a deal with Canada at a later date. Meanwhile ahead of the 25th July meeting next week with European Commission President Junker, US president Trump said that ‘’if we don’t negotiate something fair, then we have tremendous retribution, which we don’t want to use, but we have tremendous powers’’. But on a more upbeat remark, Economic Advisor Larry Kudlow said Junker ‘’is bringing a very important free-trade offer’’. Next week Wednesday could bring some important news on the US-EU trade dispute.
So while we have not seen big moves in markets. US equities performance continues to provide a positive backdrop for Develop Market (DM) equities. Meanwhile the picture in Emerging markets (EM) remains mixed, EM FX ex Asia for instances is having a good month, the appeal of carry amid a declining volatility environment has seen the MXN and ZAR record gains close to 5% with recent trade sound bites also favouring the MXN fortunes of late. Meanwhile in Asia, the market remains weary of China’s equity market and CNY weakens. The Shanghai Composite Index had another down day yesterday and USD/CNY is now back above the 6.70 mark. The latter obviously reflect markets concerns over US-China trade tensions and while we wait for a resolution (hopefully a positive one) it is difficult to see the AUD making material gains even if risk appetite remains buoyant in DM markets, but not in Asia.
Equities
US Financial led the gains in US equities with Morgan Stanley leading the way after a decent earnings report that beat most estimates. For a change, technology shares were the laggers, the NASDAQ Index closed slightly in the red with Microsoft and Apple amongst the underperformers. Early in the New York session, major European equity Indices closed with gains between 0.3% and 0.80%.
Rates
Fed Chair Powell’s testimony and softer US data played into a mild steeping of the UST curve. The 2y rate closed a tad lower at 2.61% (-0.5bps) and the 10y year rate edged 1bps higher to 2.87%. A move above to 2.87% has proven to be an unsurmountable test for the 10y tenor in July, that said at 2.87% the 10y UST yields is now at the top of its 2.81%-2.88% held over the past three weeks, a break above 2.88% could open the path for a move above 2.90%,so it is probably worth keeping an eye on it.
Currencies
The USD had a day of two halves. DXY climbed to an intra-day high of 95.401 early in the session, boosted by a decline in Sterling after a soft CPI print, but later in the session gains in commodities helped commodity linked currencies perform forcing the USD to give back some of its early gains. DXY now trades at 95.09.
The pound fell to a new year-to-date low of 1.3010 in the wake of the CPI report, although it has since recovered to 1.3060. Despite the move in the currency, the market still assigns around an 80% chance of a BoE rate hike at its meeting next month. UK Parliament is due to go into recess next week, returning in early September, although Brexit and UK politics will remain a headwind for the Pound for some time.
The improvement in risk sentiment following positive trade sound bites and Powell’s less hawkish remarks helped commodities performed (more below) which in turn lifted the likes of NZD, CAD and AUD. The kiwi has led the gains again within G10 (+0.18%) and now trades at 0.6794 and the AUD is up 0.12% currently trading at 0.7398.
Commodities
Zinc is up 3.50% while oil prices are up close to 1% boosted by an unexpected drawdown in US inventories and a drone attack on an ARAMCO refinery. Gold is unchanged, Dr Copper is +0.55% and Aluminium is the one exception, down 0.25%.
This morning on the Economic Front we have UK Retail Sales at 9.30 am. This is followed at 1.30 pm by the US Weekly Jobless Claims and the Philly Fed Business Outlook. Finally at 3.00 pm we have the Leading Index.
Blackstone, Bank of New York Mellon (both before market open) and Microsoft (after market close) are amongst the US companies reporting earnings today.
September S&P 500
I am still flat the S&P which again just missed my buy level by a couple of Handles before trading to a rebound high so far at 2818. Worryingly the internals are still weak with the McClellan Oscillator only improving slightly to still close with a negative reading of -16. Despite my concerns I still believe the S&P to be a buy on dips as long as we hold the key 2760/2770 support level. Today I will leave my buy level unchanged from 2795/2803 with the same 2788 stop. The S&P has small resistance from 2832/2840 and today I will be a seller on any rally to this area with a 2846 tight stop.
EUR/USD
Just as I posted yesterday morning the Euro traded lower to my second buy level at 1.1630 with a 1.1602 low. This had me long at an average rate of 1.1650 before the market finally rallied late afternoon to my 1.1660 T/P level and I am now flat. Today I will again look to buy the Euro on any dip lower to 1.1565/1.1605 with a 1.1535 stop. My only interest in selling the Euro is on a rally higher to 1.1750/1.1790 with a 1.1830 stop.
September Dollar Index
No change as I am still a buyer on any dip lower to 94.00/94.40 with a 93.60 stop. I still do not want to be short the Dollar at this time.
September DAX
I am still flat the DAX which had a brief sell-off before the market re-grouped and rallied into the close. Despite the positive finish I am reluctant to chase this market higher especially as we have now rallied over 750 points over the past 10 days. Today I will raise my buy level slightly to 12570/12630 with a 12520 stop. Despite my concerns I still do not want to be short the DAX at this time.
September FTSE
The FTSE continues to underperform the other main Indices despite the weakness in Sterling. I am still flat and today my buy level will remain unchanged from 7520/7560 with the same 7495 stop.
Dow Rolling Contract
The Dow has now closed higher for five straight days and nine of the past 10 sessions as all ‘’open Gaps’’ from the last month have now been filled. I am still flat the Dow as I look for the market to eventually test the key 25350/24500 resistance area where I will still be a small seller with a 25570 stop. Meanwhile I will raise my buy level to 24900/25050 with a 24830 stop.
September NASDAQ
The NASDAQ made another new all-time high intra-day yesterday before having small sell-off into the close. I am still flat the market and today I will leave my buy level unchanged from 7280/7340 with a 7235 wider stop. The NASDAQ has strong resistance from 7490/7540 and I will be a seller on any rally to this area with a 7575 stop.
September BUND
The BUND just missed my 163.25 sell level with a 163.20 high print and I am still flat. Today I will lower my sell level to 163.15/163.55 with a 163.85 stop. I still do not want to be long the Bund at this time as I have a strong belief that this market will eventually accelerate to the downside given its insanely low yield.
Gold Rolling Contract
No change as I am still long Gold at 1227 with the same lower T/P level at 1230. I will continue to look to add to this position on any further move lower to 1215 with the same 1209 stop. If any of the above levels are hit I will be back with anew update for my Platinum Members.
Silver Rolling Contract
The DSI for Silver has fallen to just 9% bulls. At the same time the DSI for Platinum and Copper is at 10% and 11% respectively. In my opinion this is setting up these metals for a large move higher over the coming weeks. I am still long the market at 15.90 with the same 15.25 stop and 16.00 T/P level. If any of the above prices are hit I will be back with a new update for my Platinum Members.
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