Markets treaded water ahead of the FOMC and with the Statement and projections in line with expectations we have seen limited reaction post. The removal of the word ‘’accommodative’’ did elicit an initial wiggle in US Treasury yields and the US dollar, but with the dot projections unchanged for 2018,2019 and 2020 and affirmation by Fed Chair Powell that the removal of the word ‘’accommodative’’ did not mean a tighter policy path ahead. However in his press conference Fed Chair Powell mentioned that stocks are high historically by some valuation measures, which led to a 200 point sell-off in the Dow into the close. UST yields drifted lower with the move led by the back end of the curve, the USD is higher and US equities ended the day modestly lower. CAD is the G10 underperformer following Canadian officials suggestion that a NAFTA deal is unlikely to be agreed before this week’s deadline. This morning the RBNZ left its policy rate and guidance unchanged as expected.
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@tradernoble.com for details
For anyone following my Platinum Service it made 20 points yesterday and is now ahead by 1083 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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FOMC
The Fed raised the Funds rate by 25bps to a range to 2-2.25% as expected and removed the word ‘’accommodative’’ in the Statement, the removal of the word was a nod to the widely held view that the policy rate is getting pretty close to neutral. That said no longer been accommodative, does not mean policy will be turning restrictive with the Fed’s projections for the Funds Rate essentially the same as before. Another hike in December looks like a done deal with 12 of 16 members now favouring a move (in June we had 8 out of 15), the median dots for 2019 ( 3.125%) and 2020 ( to 3.375%) are unchanged and still suggests three hikes should be expected next year and two more in 2020. The market currently prices around a 75% probability for a December hike and almost two more hikes are priced in 2019.
It is also worth noting that in order to raise the median forecast for rate hikes next year to four, at least four FOMC members need to lift their forecast, so for now that looks like a high hurdle. As for the new 2021 dot, like 2019, the median dot is also at 3.375%, but with a wide 2.125%-4.125% range. Finally the longer-Term dot was raised to 3% from 2.875%, may be reflecting an improvement in productivity (as per Fed Member Brainard’s view) and also may be reflecting the inclusion of a new dot from Fed Clarida.
Outside of the removal of the accommodative policy stance, the Statement was basically unchanged. That leaves the FOMC describing economic activity rising at a strong rate, while the labour market, household spending and business investment have all grown strongly. GDP forecasts for 2018 were raised to 3-3.2% from 2.7%-3.0%, while 2019 was pushed up from 2.2-2.6% to 2.4-2.7%. That likely reflects growing suspicion the tax cuts and reforms have a way to go yet before the supportive impact fades. Growth returns to a level more consistent with trend of 1.8%-2.1 in 2020, before 1.8%-2.0% for the longer-run.
Currencies
Although the USD went up and then down post the FOMC announcement, the net effect sees the USD almost exactly where it was prior to the announcement. In G10 AUD is little changed and it has essentially erased yesterday’s intra-day gains which came about from a jump in Chinese equities and a better than expected NZ business activity/confidence readings. The AUD now trades at 0.7230 with the downtrend line from the late January high still unchallenged. A weekly close above 0.7285/00 is now needed to get tech analyst excited that a break higher is likely.
The CAD has come under pressure following news that this week’s NAFTA deadline could come and go without a deal. Speaking in New York PM Trudeau said that ‘’We will keep working as long as it takes to get to the right deal for Canada,’’. The U.S. has said it will sign a deal with Mexico by the end of November, with or without Canada. CAD now trades at 1.30, 0.50% lower relative to levels this time yesterday.
Bonds
US Treasury yields were drifting lower ahead of the FOMC announcement and after an initial spike, the move lower in yields continued into the close with longer dated tenors leading the way. 10y UST yields ended the day 5bps lower at 3.048% and the 2y rate closed down 2.4bps at 2.817% with a net curve flattening result. The 2y10y curve now trades at 23bps.
Equities
US equities ended the day lower with all three major indices losing ground into the close and after the FOMC announcement. The S&P was -0.33%, Dow was -0.40% and NASDAQ closed -0.21%. Early in the session European equities closed higher across the board and Chinese equities were the outperformers in Asia, buoyed by news that MSCI was considering increasing the weights of Chinese shares in its global indices
Commodities
It has been a quiet 24 hours for commodities and notably oil prices did not get much support from US Energy Secretary Rick Perry remarks that U.S. strategic oil reserves won’t be tapped to expand global supplies
Economics/Central Bank Speak
– ECB chief economist Peter Praet said today that risks to growth are mounting, but noted that so far, he has not seen any impact on real data.
– New Home Sales rose to 629K from a downwardly-revised 608K in July, in line with consensus. Through the volatility, New Home Sales data continue to show more strength than the Existing Home Sales data, but there appears to have been some loss of momentum in recent months, consistent with the signal from the homebuilder survey.
This morning on the Economic Front we already had the release of the German GFK Consumer Confidence which came in at 10.6 versus 10.5 expected. At 9.00 am we have Euro-Zone Consumer Confidence, Money Supply and the Economic Bulletin. This is followed at 1.00 pm by German CPI. Next we have US Weekly Jobless Claims, GDP and Durable Goods Orders at 1.30 pm. Finally we have Pending Home Sales and the Kansas City Manufacturing Index at 3.00 pm and 3.30 pm respectively.
Today is a busy one for Central Bank speakers with Dragi 2.30pm, BoE Carney 3.00 pm, ECB’s Praet 5.00 pm followed by the Fed’s Kaplan and Williams at 5.30 pm and 9.30 pm respectively.
December S&P 500
The S&P initially traded sideways to higher following the release of the FOMC Statement and Powell press conference. However in the last thirty minutes of trading the S&P got hit hard into the Chicago close and in the process recorded a Downside Key Day Reversal. This move lower saw the S&P hit my 2912 buy level. I am still long and I will only add to this position on any further move lower to 2900 with a 2894 stop. I will now lower my T/P level on this position to 2916 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
EUR/USD
My Euro plan worked well with the market trading lower to my 1.1730 buy level before rallying 70 points after the release of the FOMC Statement. However as I did not want to have a position over the announcement I covered my long position at my revised 1.1737 T/P level. Subsequently the Euro this morning has traded lower to my second buy level at 1.1695 as emailed to my Platinum Members. I am still long and I will leave a tight 1.1665 stop on this position. I will now lower my T/P level on this trade to 1.1715. If any of the above levels are hit I will also be back with a new update for my Platinum Members.
December Dollar Index
I am still flat the Dollar and today I will now raise my buy level on this position to 93.30/93.65 with a 92.95 stop.
December DAX
The DAX has again traded sideways over the past 24 hours despite the weaker US markets. I am still flat and today I will now lower my buy level to 12130/12190 with a 12085 stop.
December FTSE
The renewed selling in Sterling prevented the FTSE Market from selling off and I am still flat. I am not going to chase this market higher and today I will leave my 7370/7410 buy level unchanged with the same 7335 stop.
Dow Rolling Contract
Since last Monday’s high the Dow has fallen 361 points while the NASDAQ has risen 190 points to yesterday’s intra-day high. This is massive divergence between two of the main US Indices and can be interpreted either way. The one worry that I have for the Dow is the fact that we could only spend two trading days above the January 26 high before selling ensued. Yesterday the Dow sold off over 200 points into the close. As I am already long the S&P I waited to buy the Dow which I did in small size at 26380. Unfortunately the Dow just missed my revised 26440 T/P level overnight with a 26433 rebound high. I am still long and I will now lower my T/P level on this position to 26420. We are having a good month and I do not want to risk the gains made already. As a result I will now raise my stop on this position to 26340 which is just above the overnight low. If I am stopped out of this position I will be a more aggressive buyer on any further dip lower to 26100/26250 with a 25995 stop.
December NASDAQ
No change as I am still a buyer on any dip lower to 7480/7520 with the same 7455 stop.
December BUND
The BUND is a very frustrating market to trade. Since I was stopped out of my recent long position at 157.80 which was 10 points above the low the Bund has rallied strongly. I am still flat and today I will now raise my buy level to 157.70/158.10 with a 157.35 stop.
Gold Rolling Contract
Gold essentially has not moved in over 5 weeks. I am still flat and today I will continue to be a small buyer on any dip lower to 1178/1186 with a 1171 tight stop.
Silver Rolling Contract
Late yesterday Silver traded lower to my 14.32 buy level before having a small rally to my revised 14.45 T/P level and I am now flat. Silver continues to outperform Gold but we need Gold to join Silver in moving higher or else the danger is that both of these metals have another leg lower before we finally see more than a temporary bottom. Today I will again look to buy Silver on any dip lower to 13.80/14.20 with a 13.45 lower stop.
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