Yesterday’s US Non-Manufacturing ISM Report was very strong , with not only the headline read of 57.1 more than reversing the August drip – and the best since October 2015 – but driven by a leap in New Orders Sub Series to 60.1 from 51.4. Meanwhile the Employment Index printed 57.2 from 50.7, which was its strongest read this year. At the same time glancing at the Atlanta Fed’s latest GDPNow estimate for third Quarter GDP growth, we see it stuck at 2.2%, unchanged from Monday. In short, their estimates for private sector consumption and business investment have both been lifted slightly post the ISM Survey, but the Atlanta Fed now see a drag from net exports of 0.13% of GDP in Q3 after the August Trade figures, whereas on Monday they had a 0.13% positive contribution.
To mark my 1200th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested in this deal they can contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 6 points yesterday and is now ahead by 139 points for October having made 1132 points in September and 1782 points in August. The previous three months saw gains of 1682, 2550 and 1532 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
We also had a somewhat mediocre ADP Employment estimate of 154K down from 165K and 175K expected, but this will not have any economist reaching to downgrade their expectations for tomorrow’s Non-Farm Payrolls estimates which is currently at 172K. If anything the ISM Employment Sub Series may warrant some upward revisions.
While it is tempting to attribute the decent showing by US stocks to the ISM report, the truth is the energy sector led the gains in the broader Indices thanks to another lift in oil prices. Crude prices are up either side of $1 with Brent now at $51.78 which is its best level since the end of June. While hopes of OPEC formally agreeing production cuts next month is the background driver, concerns that hurricane activity in North America could disrupt both production and shipping which look to me to be the immediate driver of the latest gains.
Stock market gains have seen the VIX back on a 12 handle for the first time in a week, though this is providing no benefit to either the AUD or NZD – the latter in particular which is the second worst performer in the last 24 hours.
Most relevant to these currencies just at the moment may be the rising Global Bond Yield environment, led on Tuesday by the report that the ECB is thinking about tapering its QE Bond buying programme after the scheduled March 2017 end date and now augmented by the strong ISM data. 10 Year Bunds closed up another 5 bps yesterday while US Treasuries rose 2-3bps.
Falling Bond prices is not the ideal environment to be continuing for yield just at the moment.
This morning on the economic front we have German Factory Orders at 7.00 am followed by Construction PMI at 8.30. Next we have UK New Car Registrations and UNIT Labour Costs at 9.30 am. The ECB will release its Minutes from its latest Monetary Policy Meeting last month at 12.30 pm. Finally we have the US Weekly Jobless Claims and Bloomberg Consumer Comfort Index at 1.30 pm and 2.45 pm respectively.
December S&P 500
The up one day down the next continued for the S&P yesterday with the market having a nice rally on the ISM Report before a late sell-off. As I mentioned to my Platinum Members by email yesterday afternoon, it is my opinion that the Fed and in particular will do whatever it takes to keep the stock market form falling aggressively ahead of the US Presidential Elections in just over five weeks as they want Clinton to get elected in order to keep her job. I am still flat the S&P and despite the positive reaction to the S&P yesterday I am reluctant to chase this market higher. Today I will still look to buy the market on any dip lower to 2127/2134 with a wider 2119 stop. Remember a break and close below 2120 could well see the market accelerate to the downside.
EUR/USD
Yet again the Euro traded in a narrow range as focus turns to the ECB Minutes from its Meeting last month. I will leave my buy level unchanged at 1.1130/1.1170 with the same 1.1095 stop. I still do not want to be short the Euro at this time especially with the rising Bond Yields which if this scenario continues we will eventually see the Euro break higher.
December Dollar Index
I am still flat the Dollar and today I will leave my sell level unchanged at 96.60/96.90 with a 97.30 stop.
December DAX
The DAX continues to outperform in the expectation that we will get a favourable settlement with Deutsche Bank whose share again rose by 1% yesterday. I am not going to chase this market higher and today I will leave my buy level unchanged at 10370/10430 with the same 10325 stop.
December FTSE
The FTSE finally took a breather yesterday after its huge run higher to all-time highs on Tuesday. I am still flat the market and today given how overbought the FTSE is trading, I will now lower my buy level slightly to 6930/6960 with the same 6895 tight stop.
Dow Rolling Contract
Given the strong ISM data yesterday I would have expected the Dow to have rallied further but a late fade again raises the expectation that we may eventually see a break of the key 18000 major support level. There is no doubt the rising Bond Yields is a concern as shown below. I do not want to risk buying this market at the wrong level and today I will only raise my buy level slightly to 18090/18150 with a 18040 stop. If I am taken long and mange to T/P on any long position or I am stopped out of this trade I will be an aggressive buyer on any dip lower to 17890/17950 with a 17840 stop.
December BUND
My long 164.90 Bund position from Tuesday, unfortunately missed my revised 165.10 T/P level yesterday with a 165.03 high print before stopping me out of this position at 164.45. Subsequently I emailed my Platinum Members to re-buy the Bund at 164.15 before the market rallied which enabled me to cover this position for a small gain at 164.31 and I am now flat.
I was doing some homework on my flight to the US on Tuesday in relation to the world debt and in particular the current Central Bank Debt. This is not a pretty picture with the total debt an incredible $11.6 Trillion. That is how high ‘’the unprecedented worldwide surge’’ in negative yielding Bonds went in September. After falling in July and August, the total initial value of Bonds that lose money when held to maturity was up 6.1%. June remains the peak month at $11.9 Trillion. In terms of distribution Japan leads the way with $5.7 Trillion, while Europe accounts for most of the rest. The vast majority, about 85% is Government Debt. This is representative of the Global Central Banks effort to fight deflation with more deflation. The longer it persists the more distorted the debt markets will become. One of the key repercussions is the debasement of credit quality. According to Goldman Sachs a rise of just 1% in Bond Yields could spark a $1 Trillion loss for bond investors. To put this sum in context, that is more than the entire realised losses of non-guaranteed mortgages during the last financial crisis.
With the speculation increasing that the ECB are going to stop its QE, it is time to start to put on a short position in the Bund. Today I will look to sell the Bund initially in small size from 164.70/165.00 with a 165.40 stop.
Gold Rolling Contract
Thankfully Gold hit my 1277 T/P level shortly after lunch yesterday before the market fell again. As I had been stopped out of my Bund position I covered my long Gold trade at 1273.50 and I am still flat. The Daily Sentiment Index Reading fell to just 8% which is just above the 5% reading in November that led to a large rally. Today I will again look to buy Gold on any dip lower to 1251/1258 with a 1243 stop.
Silver Rolling Contract
No change as I am still long the market at 17.85 with the same 18.05 T/P level which is just above yesterday’s 18.02 high print. If I manage to T/P on this position I will again look to buy Silver on any subsequent dip lower to 17.40/17.75 with a 16.95 stop, especially as the DSI for Silver is below 10%.
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