The US Dollar rose 0.6% across the board since I posted yesterday morning in reaction to stronger than expected US GDP growth and a stellar ADP Payrolls print. Equities were also supported, up 0.5% in US and Europe. The upwardly revised GDP figures are the first hints that “hard data” in the US is finally catching up with the “soft data”. Although possibly being a ‘This is What You Came For’ moment for markets, movements in yields were more muted with Treasuries and Fed pricing little changed. The market still only prices a 26% chance of a rate hike by December and only one is fully priced by the end of 2018 compared to the Fed’s dot points of four.
To mark my 1400th 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 can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 80 points yesterday and is now ahead by 1520 points for August, having made 1096 points in July, 1023 in June. 1076 in May, 1376 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.
First to the data. US Q2 GDP growth was upwardly revised to an annual rate of 3.0% from 2.6% (2.7% expected). The 3.0% mark now brings it closer towards where softer indicators suggest it should be. The driver of the upward revision was the US consumer with consumption growth revised to 3.3% annualised from 2.8%. ADP Payrolls were also out and were very strong, up 237k in August and well above the consensus pick of 185k. At first blush that is suggestive of upside risks to tomorrow’s more important Non-farm Payrolls, but as many analysts note ADP is far from infallible and August tends to be a soft month for payrolls – consensus sits at 180k.
European data was also very strong with German CPI at 1.8% y/y in August (1.7% expected). Overall that suggests underlying inflation has strengthened in Europe and supports a tapering of the ECB’s asset purchase program. Euro-Zone Consumer Confidence was also strong, hitting its highest level since July-2007!
The lack of reaction in the Interest Rates market was surprising. US 10 year Treasuries traded in a tight range of 2.13- 2.15% and ended the session at 2.13%. It is not clear why Treasuries were so unresponsive to the data – perhaps a combination of month end flows and concerns over the debt ceiling. On the debt ceiling, S&P said “failure to raise the debt limit would likely be more catastrophic to the economy than the 2008 failure of Lehman Brothers and would erase many of the gains of the subsequent recovery”. Despite that, most analysts still expect the debt ceiling to be raised in time and the tragic events with Hurricane Harvey is also cited as acting to pressure a quick deal to fund disaster relief and reconstruction.
The US Dollar (DXY) rose 0.6% across the board on the news, checked only once by Trump’s tweet on North Korea. Trump tweeted: “The US has been talking to North Korea, and paying them extortion money, for 25 years. Talking is not the answer!” Markets were unfazed, seeing the tweet more as bluster and Defence Secretary Mattis was also quick to clarify “we’re never out of diplomatic solutions”. Nevertheless, the DXY at 92.9 is around the levels seen in mid-2016 having more than fully retraced the initial Trump-reflation trade. Most models continue to suggest the US Dollar has 8% Trump discount.
Other major currency pairs were correspondingly lower: Euro (-0.7%); Yen (-0.5%); Pound (0.0%); Aussie (-0.6%); Kiwi (-0.8%). The Aussie had a volatile intra-day session having initially spiked by 0.4% to be within a hairs breadth of the 0.80 level at 0.7997 on better than expected construction figures yesterday, but gave this back and more on US Dollar strength to end the day 0.6% lower.
The Kiwi also had some excitement, dipping 0.5% on comments by outgoing RBNZ Governor Wheeler who said “A lower New Zealand Dollar is needed to increase tradable inflation and help deliver more balanced growth”, but the dip was short lived after more positive comments. Nevertheless, the stronger US Dollar saw the Kiwi back down to finish -0.8% on the day.
Late last evening President Trump gave his speech on tax reform. The market has had zero reaction with detail lacking despite Trump stating “I don’t want to be disappointed by Congress, you understand me?”. Trump merely restated his initial dot points of aiming for an ideal goal of a 15% corporate tax rate, down from the current 35%, partially paid for by eliminating some deductions and boosting economic growth.
This morning on the Economic Front we have German and Euro-Zone Unemployment Rate at 8.55 am and 10.00 am respectively. Also at 10.00 am we have the latest CPI data from the Euro-Zone. This is followed at 1.30 pm by the US Weekly Jobless Claims and Personal Income/Spending including the very important PCE Deflator, followed by Canadian GDP at 2.30 pm. Finally we have the Chicago Purchasing Manager’s Survey and Pending Home Sales at 2.45 pm and 3.00 pm respectively.
September S&P 500
Unfortunately the S&P just missed my 2440 buy level with a 2442.50 low print before rallying back above 2458. As I have been saying consistently for the past few years you just cannot be short these stock markets until we finally get a sell extreme that takes out some key levels. These stock markets are controlled by the Central Banks as shown by the alleged $80 billion that the Swiss National Bank have invested in the US Markets. Nobody can compete with the scale of their investments and that is only one Central Bank. The increase in volatility over the past few weeks has not increased in volume which is surprising. However markets should return to normal on Tuesday after the US Labour Day Holiday on Monday. Today I will now raise my buy level to 2445/2451 with a 2440 stop. I still do not want to be short ahead of tomorrow’s NFP data and a US Bank Holiday on Monday.
EUR/USD
I wrote in Tuesday’s Daily Commentary that currency markets tend to finish a severely overbought condition with a spike and reversal. Certainly this has been the case in the Euro which subsequently spiked to a 1.2070 high print that morning before falling over 200 points to this morning’s 1.1867 low print. Late yesterday the Euro traded lower to my 1.1885 buy level. As I wanted to be flat overnight I emailed my Platinum Members to cut this position at 1.1892 and I am still flat. The next support level for the Euro is at 1.1825 and I would prefer to get long near this level as there is a better chance of a rally from here. So today I will again look to buy the Euro on any dip lower to 1.1795/1.1835 with a 1.1760 stop. I will also lower my sell level to 1.1970/1.2010 with a 1.2040 stop.
September Dollar Index
Unfortunately the Dollar also just missed my 92.15 buy level before rallying strongly as expected and I am still flat. There is a fair chance that Tuesday’s 91.50 low print will hold for a few weeks given how oversold the Dollar had got. Remember on January 3, this year the Dollar was trading at 103.80, showing what a huge move lower we have witnessed. Today I will now raise my buy level to 92.15/92.55 with a 91.80 stop.
September DAX
Even though my Platinum Service made 80 points yesterday, it could have been so much more as so many of my calls missed by small margin. This also happened to the DAX which missed my 11950 buy level before finally rallying over 100 points on the weaker Euro. The break and close over 12,000 could be significant and today I will now raise my buy level to 11940/11995 with a 11895 tight stop.
September FTSE
I am still flat the FTSE which traded to a 7343 low print against my 7335 buy level after I posted before following the other Indices higher. However the small sell-off in Sterling from severely overbought conditions is hampering the FTSE’s rise. Today I will leave my FTSE buy level unchanged from 7300/7340 with a 7270 stop.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 21835 buy level before rallying to my revised 21870 T/P level and I am now flat. Despite the small rally in the Dow, the market underperformed both the S&P and the NASDAQ. Today I will again look to buy the Dow on any dip lower to 21790/21850 with a 21740 stop. I will also look to sell the Dow on any further move higher to 20050/21120 with a 21180 stop which is just above the July all-time high at 21179.
September BUND
Frustratingly the Bund missed my 165.35 sell level with a 165.31 high print before selling off and I am still flat. This is one of the great anomalies for me the low yield in the Bund despite the pick-up in German growth. It is insane in my opinion but as I keep reminding myself ‘’markets remain illogical longer than I can remain solvent’’. Today I will now lower my sell level to 165.25/165.55 with a 165.75 stop which is just above Tuesday’s 165.70 rebound high.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1299 buy level overnight. As I am already long Silver and keeping with my theme of banking points when available I emailed my Platinum Members that I cut this position at 1302.80 and I am now flat. Gold has very strong support from 1280/1300 and I would expect any test of the former level to be met by strong buying. Today I will again look to buy Gold from 1280/1287 with a 1274 stop.
Silver Rolling Contract
No change as I am still long Silver from Tuesday at 17.35. I will still only add to this position on any subsequent move lower to 17.00 with a 16.80 stop. I am concerned that Silver continues to underperform Gold and I will now lower my T/P level on this position to 17.50. If I manage to T/P at this level I will be back with a new update for my Platinum Members.
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