Inflation is back in vogue, and (in the US) it is being kept lower by a stronger US Dollar and lower Commodity prices. That provided a theme from the FOMC Minutes and has reversed some of yesterday’s market moves, as we all watched the Chinese yo-yo’ing equity market. We start the day with European equities much lower, as the US having stemmed some gains before the close in what was a wild trading session for the all the US Stock Indices. Bond Yields are generally lower, and Gold prices are up. The USD fell sharply after the Minutes, with the EUR outperforming.
For anybody following my new Platinum Service it lost 85 points yesterday and is now ahead by 972 pints for August. The previous two months saw gains of 1810 and 3045 points respectively.
Oil prices are down to lows not seen since 2009 for WTI, coming on the back of an official report showing an increasing glut of supply. This is likely to further weigh on commodity prices related to energy and growth, and their related currencies. But it also gets interesting, in that the Fed spent a long time discussing inflation, in which they are not totally convinced that it shall meet their 2% target at the going rate. And that is partly due to declining energy prices, and partly due to the stronger USD. The Minutes were not all dovish, given that “most” members felt that the time to begin normalising policy is “approaching.” But there were perhaps more concerns about inflation than market participants had expected. The concerns about the labour market were mostly gone, so we turn to inflation.
This concern was added to in light of the earlier release of the CPI data, adding to confirmation bias. That data showed that headline inflation was a little under expectations (0.1%mA, 0.2E, 0.3P) due to a drop in energy prices but also a one-off drop in airline fares. This one-off had a bigger influence in the core inflation missing expectations by the same amount as the headline. Shelter, or housing, which is a bigger proportion of inflation than energy rose. But with the Fed shifting its gaze a little, yesterday’s miss played into the general sentiment and pushed out pricing for the FOMC hike mostly beyond September. So while the FOMC minutes suggest that the effects of a stronger USD and lower energy prices will abate, there are cautions, and we are likely left obsessively monitoring all and every price indicator released.
They also showed some concerns about the weakening growth indicated by the events in China (Greece was deemed dealt with). These are still playing out. Yesterday we saw further sharp declines in the equity market, but a liquidity policy from the PBoC called the MLF (medium term lending facility) which provides funding to banks to ease intra-bank liquidity concerns provided around CNY110bn to 14 banks. This was to counter the rise in short term Bond Yields which continued yesterday, despite Tuesday’s injection of funds via 7 day repos. There is much written about the likelihood of a RRR cut soon and markets will be monitoring for other easing measures to allay concerns.
In Europe, Germany ratified its bailout funds to Greece, not without objections, but the funds will be paid. Earlier this morning Kazakhstan’s currency which is called the tenge plunged 23% after the country relinquished control of its exchange rate becoming the latest Emerging Market to prop up its currency before the US raises interest rates. This Emerging Market situation is now getting very serious with most of these currencies breaking so much that a lot have exceeded their 1998 previous crisis levels.
This morning on the economic front we have UK Retail Sales and the CBI Trends Total Orders at 9.30 am. This is followed at 12.30 pm by the ECB’s Nowotny speaking on Europe’s Crisis. At 1.30 pm we have the US Weekly Jobless Claims. Finally at 3.00 pm we have the Philly Fed Business Outlook, Existing Home Sales and the Leading Index.
September S&P 500
Yesterday was the most frustrating trading session that I have had in the S&P in a very long time as after I was stopped out of my long 2087 position which was initiated shortly before I posted the S&P then traded lower to my 2074 buy level. I correctly called for a nice rally over the FOMC Minutes but 30 minutes before their release I was stopped out of this position at 2068 which was just above the 2067 low before the market went on to have a 26 Handle rally to 2093 and I am now flat. As I mentioned above what is going on in the Emerging Markets is scary and to me is not getting enough press. Most of these EM currencies have been slaughtered against both the Euro and the US Dollar and once we get the August Options Expiry out of the way tomorrow we could see some nasty fire- works in all the main stock markets. This morning the S&P is again flirting with its 200 Day Moving Average but as I have mentioned countless times this year we need to break and close below 2035/2040 for me to turn really bearish. Looking at yesterday’s FOMC Minutes it is hard to see how the Fed can raise rates in a meaningful way as there is no chance of inflation hitting its 2% target not when we are seeing the rout that is going on in commodity prices. Maybe the Fed will do a token rate hike before the end of the year but to me it is difficult to see the start of a major ‘lift off’ in rates. This morning the S&P is trading near the bottom of its Bollinger Band but is nowhere near the bottom of its Williams Index. Given the fact that we have the Options Expiry tomorrow I will again look to buy the S&P but only on a dip lower to 2049/2054 with a 2044 stop which is just below the 2047 low made early last week. I still do not want to be short the S&P at this time.
EUR/USD
The Euro plan again worked well yesterday as shortly before lunch the Euro traded lower to my 1.1030 buy level before having a nice rally which enabled me to cover this position at 1.1065 as outlined earlier to my Platinum Members and I am now flat. Finally we are seeing some Dollar weakness as I mentioned above there is no chance of a meaningful lift off in US Interest Rates at this time and to me this Dollar is totally miss-priced. The Dollar has resistance at 1.1200/1.1250 and then major resistance at 1.1450. A break of the latter will see a move higher to the 38.2% retracement of the whole move lower since May 2014 at 1.1800. For these reasons I will move my buy level higher to 1.1060/1.1100 with a 1.1025 stop.
September Dollar Index
Unfortunately the Dollar just missed my 97.25 sell level after I posted yesterday morning and I am still flat. The fact that we tried so many times to break the key 98.00/98.50 resistance level and have failed so far could be significant and could well lead to a move lower to the 93.50 now major support. Today I will move my sell level lower to 96.70/97.00 with a 97.35 stop.
September DAX
My DAX plan worked very well yesterday as shortly after I posted the DAX traded lower to my 10740 buy level before having a nice rally which enabled me to cover this position at 10790 as outlined earlier to my Platinum Members and I am now flat. This morning the DAX has again gapped lower and is now trading comfortably below its 10650 previous support from the Greek crisis at the end of June. However the DAX is trading at the bottom of its Bollinger Band while interestingly the Williams Index has given a small buy signal. Today I will be a small buyer on any dip lower to 10520/10570 with a 10470 stop. I will also be a small seller on any rally higher to 10730/10780 with a 10850 stop.
September FTSE
The FTSE was the weakest of the main stock markets yesterday with the market selling off hard as I posted yesterday morning. The very quickly traded to the bottom of my buy range just as I posted at 6525 before eventually stopping me out of this position for a small loss at 6395 and I am now flat. This morning the FTSE is trading outside the bottom of its Bollinger Band and is at the bottom of its Williams Index which is historically does not happen too often. For this reason I will again be a small buyer on any further dip to 6330/6360 with a wider 6295 stop.
Dow Rolling Contract
Unfortunately the Dow plan did not work out well yesterday as after the Dow traded lower to my 17400 buy level the market just missed my 17490 take profit level with a 17480 high before stopping me out of this position at 17330 and I am now flat. The price action in the Dow is very worrying ever since it made its high back in May. There is no doubt the strong Dollar is having a major impact on earnings. The Dow which had another volatile trading session and will have strong resistance at yesterday’s post FOMC rally at 17500/17550 where I will be a seller on any move higher to this level with a 17620 stop. My only interest in buying the Dow today is on a dip lower to 17160/17220 with a 17095 stop which is just below the lows made early last week.
September BUND
With the sell-off in equities over the past 24 hours I have waited to sell the Bund until this morning when the BIUND hit the top of my sell level at 155.35. I am still short and I will leave my stop the same at a tight 155.75.
Gold Rolling Contract
The big question is whether the recent low at 1071 is the ultimate low in Gold after its huge sell-off from its 2011 high over 1900. Certainly the buy extreme left in the market over the past few days is encouraging and today I will raise my buy level to 1118/1125 with a 1113 stop which is just below yesterday’s low print.
Silver Rolling Contract
My long 14.90 Silver position worked well yesterday as shortly after lunch Silver had a nice rally which enabled me to cover this position at 15.30 as outlined earlier to my Platinum Members and I am now flat. Today I will again look to buy the market on any dip to 14.90/15.20 with a 14.60 stop.
Recent Comments