It has been news filtering out over the past 24 hours of the Trump/Republican tax plan that understandably gathered the attention of markets and gotten US Dollar bulls re-energised. The USD has been stronger, up another 0.48% since the Tokyo close yesterday, US stocks higher, as are bond yields. It has not only been the plan that has the support of the “Big 6” that optically suggests this has more political momentum with the prospect of it getting passed into law. The release late yesterday of the tax reform plan document (a nine page document) that has widespread backing from his fellow Republicans, a step-up from the 2-pager he released several months ago. Details of the plan were leaked out yesterday, and this supported the US Dollar, carrying though to more support overnight.
To mark my 1425th 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. This offer is open to both new and existing members and if anyone is interested in this offer can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 53 points yesterday and is now ahead by 382 points for September, having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
The plan includes a cut to corporate tax from 35% to 20% and cuts to individual tax rates, but leaving to Congress the decision of whether to create a higher tax bracket for top earners. A one-off tax reduction for companies to repatriate offshore profits was included as well as removal of some deductions and general tax simplification measures. The Committee for a Responsible Budget is estimating the cost of this plan at $2.2tr over 10 years, an estimate north of the $1.5tr estimate being bandied around recently, an estimate that was expected to add 0.5-0.75% annually to growth.
Adding some more support to the tax proposals, US Durable Goods orders for August were on the stronger side of expectations, headline and core orders both rising, core orders up 0.9% after an upwardly revised 1.1% July gain, pointing to further growth in business equipment investment spending ahead. It will be interesting to see how this tracks in the months and quarters ahead in the wake of the tax cuts.
While the USD has been on the ascendancy, the Canadian Dollar has been at the bottom of the FX ladder, succumbing to a very cautious speech from BoC Governor Poloz. The speech was laced with “caution” and “uncertainty” ahead phrasing, Poloz saying that the Bank will proceed cautiously as it assesses the performance of the economy. According to Governor Poloz, there is a heightened level of uncertainty “about how the economy is performing”. This all in his first speech after the second rate rise this year. The CAD is 0.75% lower against the US$ than yesterday’s Asia close with the C$ OIS market paring back expectations for another rate rise by the December 6 meeting from a near certainty to a still high 80% chance.
Meanwhile, the RBNZ has left its policy rate unchanged at 1.75%, as expected with this announcement coming after the US Markets closed last night. There has been little overall reaction from the Kiwi, having tested a little higher through yesterday but back around 0.72 where it pivoted for most of the past 24 hours.
The UK released its CBI Distributives Trades/Retailing report for September and looking at it on face value, you could only describe it as a blockbuster. The Retailing Sales net balance jumped from -10 to +42, the highest since September 2015, since well before last year’s Brexit poll vote. This report gave some support to Sterling, though it gave that brief rally back from USD strength. Expected sales for October jumped too. Whether this is a sign of underlying resilience in consumer spending, more consumer-friendly High St pricing remains to be seen.
The IMF released one of its analytical chapters that will accompany next month’s World Economic Outlook forecast update. This might seem somewhat obscure, but this one is very relevant to wages and inflation targeting. The chapter was “Recent Wage Dynamics in Advanced Economics: Drivers and Implications”. This topic is of germane to the currently low wages across advanced economies and efforts to lift wages and get inflation back to target. In a well written piece, the IMF draws attention to structural factors, to low productivity and involuntary part-time employment as holding back wages. They counsel against the use of super-accommodative monetary policy to target this structural weakness.
This morning on the Economic Front we already had the release of the German GFK Consumer Confidence which came in weaker at 10.8 versus 11.0 expected. At 10.00 am we have the Euro-Zone Business Climate Indicator and this is followed at 1.00 pm by German CPI. Next at 1.30 pm we have the US Weekly Jobless Claims, Wholesale Inventories and the Trade Balance. Finally at 4.00 pm we have the Kansas Fed Manufacturing Activity Index.
There are some other speaking events in the London session, and of those ECB Chief Economist Peter Praet speaking at a Congress in Berlin might be the pick and of course we are alert to the possibility that Guy Debelle – speaking at a BoE “20 years on” independence from government conference – though it seems his speech is tilted more generally to the CB independence issue than current market issues. But you never know. His speech is titled “Central Bank Independence In Retrospect”. There is more Fed speak this afternoon with George and Bostic, with Stanley Fischer and BoE Governor Mark Carney also speaking at the BoE conference.
December S&P 500
My S&P plan worked well with the market initially trading lower to my 2498 buy level before rallying to my revised 2500.50 T/P level. Subsequently I emailed my Platinum Members to re-buy the S&P on any dip lower and this was filled at 2494 before the market rallied 15 Handles on the Trump Tax plan. Unfortunately I covered this position too early at 2497 and I am now flat. There is no doubt the 2492 level is key short-term support in a severely overbought market. I will continue to look to sell the S&P on any rally higher to 2520/2527 with a 2533 stop. My only interest in buying the S&P today is on a dip lower to 2490/2496 with a 2485 stop.
EUR/USD
It took a while but finally my long Euro position worked well having first traded to a 1.1716 low print before rallying late afternoon to a 1.1776 rebound high and this rally enabled me to cover my long position at my 1.1765 T/P level and I am now flat. As mentioned yesterday the 1.1660 level is key support as a break and close below here opens up the possibility of a move lower to 1.1200/1.400 before a more sustainable bottom is put in. However the Euro is oversold and trading at the bottom of its Daily Bollinger Band and Williams Index. Today I will now look to buy the Euro on any dip lower to 1.1680/1.1725 with a 1.1645 stop. Given how oversold the Euro is trading I do not want to be short the market at this time.
December Dollar Index
I am still flat the Dollar which is due a correction after it’s recent near 300 point rally. Today I will leave my buy level unchanged from 92.40/92.80 with a 92.10 stop. The Dollar has strong resistance from 94.10/94.40 and I will be a seller in this area with a 94.70 stop.
December DAX
The DAX started to rally just as I posted yesterday morning with the market coming nowhere close to my buy level. Thankfully we had no sell levels for most of September as yet again short positions have got slammed. Traders love bear markets as the movements are quicker but until we get a sell level that lasts for more than a few days it is pointless in trying to pick a top despite how severely overbought the equity markets are trading. Today I will now raise my buy level to 12540/12590 with a 12505 tight stop. Given how strong the 12750 resistance level is, I will be a small seller on any further rally to 12750/12790 with a 12825 tight stop.
December FTSE
The sideways boring action for the FTSE shows no sign of coming to an end which is frustrating. I am still flat the FTSE which came close to my 7235 buy level before rallying late. I am not going to chase this market and will today I will lower my buy level slightly to 7180/7215 with a 7155 tight stop. Given the discount of the Futures Market to the Cash FTSE, I do not want to be short the market at this time.
Dow Rolling Contract
The renewed strength of the US Dollar sees the Dow struggle over the past few trading sessions in comparison to the S&P. The McClellan Oscillator has closed at near the same level for the past four trading sessions which is highly unusual and signals that we will get a strong move sooner rather than later. Today I will continue to add to my already short position on any rally higher to 22400/22450 with the same 22510 stop. I will continue to be an aggressive buyer on any dip lower to 21830/21910 with a 21770 stop.
December BUND
Unfortunately my Bund plan did not work well as after the Bund trade the whole of yesterday’s buy range I was long at an average rate of 161.07. Subsequently I emailed my Platinum Members to exit this position on any rally back to 161.10 but the rebound high was 161.07. This morning I was stopped out of this long position at 160.60 and I am now flat. There is no doubt given the meagre yield on the Bund it is making it extremely difficult to trade as every time we get a decent sell-off like we have seen in the past 36 hours traders are worried that they will miss the potential of a huge down move that is coming for the Bund as these low yields are not sustainable. Today I will again look to buy the Bund on any dip lower to 159.30/159.75 with a 159.00 stop. Given how oversold the Bund is trading I will wait for a rally to ensue before looking to set up a short position.
Gold Rolling Contract
There is no doubt that the extreme bullish sentiment towards Gold is having a major impact on the market at this time with every rally being sold. Yesterday after Gold traded lower to my 1283 buy level we only had a small rally off my buy level to a 1289 rebound high. As I was already long both the Euro and Silver, I emailed my Platinum Members to exit any long position at 1285 and I am still flat. Gold has really strong support from 1260/1268 which must hold or else we run the risk of an acceleration to the downside. Today I will be a buyer from 1262/1269 with a 1256 stop. Gold is oversold and trading at the bottom of its Daily Bollinger Band and is why I have no interest in being short the market.
Silver Rolling Contract
No change as I am still long at 17.00 and will continue to look to add to this position on any further move lower to 16.60 with the same 16.35 stop.
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