It has been a modestly positive past 24 hours for risk assets, higher US Treasury yields boosted US banks, but US Tech shares underperformed. The USD is little changed in Index terms while Emerging Market FX recovery continues helped along by Chinese premier Li Keqiang promise not to devalue the yuan. AUD and NZD benefit from the EM recovery with a paper from the RBA suggesting the AUD TWI could rise in a widespread trade war further helping sentiment for the Australian Dollar.
To mark my 1675th issue of TraderNoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day To demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoblecom for details
For anyone following my Platinum Service it made 45 points yesterday and is now ahead by 927 points for September, having made 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, and 879 points in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Currencies
The US Dollar is little changed in index terms with DXY now trading at 94.53, close to levels seen this time yesterday. That said a closer look at G10 currencies shows a distinct outperformance by the most risk sensitive pairs with the AUD leading the gains (+0.64%) followed by the NZD (+0.52%), SEK and CAD (both up +0.40%). The improvement in EM sentiment appears to have been the main drivers for the gains in these currencies helped along by comments from Chinese Premier Li Keqiang yesterday afternoon that China won’t devalue its currency to stimulate exports.
The Premier’s comments of course need to be put in the context where the CNY has depreciated just under 10% since US trade tensions began around May/June this year. The Premier’s comments are encouraging as they indicate that China won’t actively use its currency as a weapon in its trade scuffle with the US, but as we have seen in recent months this does not necessarily mean that China will prevent the CNY from weakening if market forces push the currency lower. Note too that the US Treasury is due to release its semi-annual FX report in October, so avoiding a lower CNY ahead of the report is probably a good idea.
AUD traded to an intra-day high of 0.7275 and NZD traded up to 0.6623 and although both antipodean currencies have eased a few basis points in the past few hours, the upward trend established since September 12 still remains intact. A short squeeze in both currencies amid an ease in EM concerns is definitely one factor at play and based on our fair value models both currencies still look cheap, suggesting the recovery could extend for a bit longer. Of course an escalation in US led trade tension would spoil the party with President Trump threat to kick start the process for tariffs on an additional $263bn a palpable risk.
Further helping sentiment for the AUD, prompted by a freedom of information request, the RBA released an internal paper suggesting the AUD TWI could actually appreciate in a worst case trade war scenario of the US applying 20% tariffs on all goods imports from all countries then Australia could be less exposed than other economies that rely more on global trade flows and manufacturing.
CAD also managed to perform despite disappointing NAFTA news. Time is ticking down to get Canada on board with a new NAFTA deal before the critical end-September deadline and sources suggest that a deal is unlikely to be reached this week. Sticking points include the dairy sector and dispute resolutions and sources say that Canadian officials are warning that they are prepared to see the next deadline pass if they do not get an agreement they can live with.
Sterling punched higher, up through 1.32, after UK inflation data came in stronger than expected, adding to the chance of a Bank of England rate hike by May next year. Sterling then unwound all its gain after the Times reported that UK PM May is said to reject Barnier’s improved Irish Brexit offer. Later, an official from PM May’s office confirmed that the UK cannot accept any Brexit offer from the EU that treats Northern Ireland as a separate customs territory. The pair now trades at 1.3174 and focus turns to EU response to PM May’s Brexcit presentations.
Equities
European equities closed higher across the board, but US equities had a mixed session. US Banks led the gains in the S&P500 helped along by a steepening in the US curve, but US tech shares traded lower with the NASDAQ down -0.08% not helped by 1.5% decline in Microsoft shares after a dividend hike disappointment
Interest Rates
The US Treasuries curve continues to push higher, with the 10-year rate reaching 3.09% intra-day, a four-month high. This is being driven by increased Fed rate hike expectations. Market pricing for Fed rate hikes next year has ramped up over recent days so that two full hikes are now priced through 2019 in addition to high chance of two further hikes priced for the remainder of this year. This has moved the market closer to the Fed’s implied median three rate hike projection for 2019.
Commodities
Another mixed session in commodities, Zinc jumped over 3%, but lead declined 2.4%. Meanwhile most other commodities were little changed.
Economics
US Housing Starts rose 9.2% in August, with the bulk of the gains coming from a 27.3% rise in multifamily starts. Single-family starts underwhelmed with a 1.9%increase. Building Permits fell to 1229K from 1303K, below the 1310K consensus.
UK August Inflation was higher than expected with Headline of 2.7% y/y (2.4% expected) and Core of 2.1% (1.8% expected). Much of the beat came from recreation, culture and clothing which can be volatile at times.
This morning on the Economic Front we have UK Retail Sales at 9.30 am. This is followed at 1.30 pm by the latest US Weekly Jobless Claims and the Philly Fed Manufacturing Survey. Finally we have Existing Home Sales and Consumer Confidence at 3.00 pm.
Later at 4.15 pm the Bundebank President Weidmann is speaking.
December S&P 500
I have now rolled to the December Contract which is trading 6 Handles premium to the Cash S&P. Yesterday the September S&P just missed my buy level before rallying and I am still flat which is a good time to roll to the December Contract. Yesterday the S&P was held back on one hand by the soft NASDAQ and pulled higher by the much stronger Dow. This morning the December Contract is trading at 2914. I am still looking for new highs across the board as long as we can hold the now 2880/2890 key support area. Today I will be a buyer of the December Contract on any dip lower to 2899/2907 with a 2893 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 2878/2885 with a 2871 stop. I still do not want to be short the S&P at this time.
EUR/USD
My Euro plan worked well with the market trading lower to my 1.1650 buy level before rallying to my 1.1675 T/P level and I am still flat. Today I will again look to buy the Euro on any dip lower to 1.1610/1.1650 with the same 1.1575 stop. I still do not want to be short the Euro at this time despite the 10 Year Treasuries again closing over 3.00%.
December Dollar Index
The Dollar again traded in a narrow range and I am still flat. I will continue to be a buyer on any dip lower to 93.30/93.65 with the same 92.95 stop.
December DAX
I have now rolled to the December Contract which trades at a 21 point discount to the Cash DAX. Most importantly the DAX has continued build value over the key 12000 support level. This is key as it comes on top of the recent test of the major 11750/11850 support level. I am getting more and more bullish of the DAX after a difficult few months for the market. Today I will now be a buyer in the December Contract on any dip lower to 12020/12090 with a 11950 stop.
December FTSE
I have now rolled to the December Contract which is trading at a 40 point discount to the Cash FTSE. Yesterday I was very unlucky with my September Buy level as the market just missed getting hit by 3 points before having a quick 60 point rally and I am still flat. The fact that the Cash FTSE closed over 7300 yesterday is bullish and if the market can continue to build value above this level then the recent aggressive sell-off may be near an end. For this to happen the December Contract needs to hold above the 7220/7260 support area. Today I will be a buyer of the December Contract on any dip lower to 7230/7270 with a 7195 stop.
Dow Rolling Contract
As expected the Dow is closing in fast on its January 26 high of 26613. The rise in US Treasuries above 3.05% saw the Bank Stocks rally 2% yesterday and this is key for the Dow rallying to new all-time highs. Today I will now raise my Dow buy level to 26150/26290 with a 26075 stop.
December NASDAQ
I have now rolled to the December Contract which trades at a premium of 30 points to the Cash NASDAQ. I am still flat and today I will now be a buyer of the December Contract on any dip lower to 7435/7475 with a 7395 stop.
December BUND
No change as I am still long the Bund at 158.75 with the same 158.30 stop. I will now lower my T/P level on this position to 158.87 which is just below yesterday’s high. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Gold Rolling Contract
I am still flat the Gold market and today I will again raise my buy level slightly to 1185/1193 with a 1178 stop.
Silver Rolling Contract
My Silver plan worked well yesterday with the market trading lower to my 14.15 buy level before rallying to my 14.35 T/P level and I am now flat. As long as Silver can hold the August low of 13.91 and the December 2015 low of 13.62 it should only be a matter of time before we see an aggressive move higher. Today I will again look to buy Silver on any dip lower to 13.90/14.20 with a 13.55 stop.
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