A broad risk on rally that started in the Asia continued after I posted yesterday morning driven by expectations of a lower damage bill from Hurricane Irma and the absence of geo-political headlines with North Korea not launching an ICBM on Saturday as many had feared it would. Equities rose (S&P 500 +1.1%), Bond Yields gapped higher (US Treasuries +8.0 bps), Gold fell (-1.5%), while the US Dollar was stronger (DXY +0.7%). For Interest Rates (and FX) market the key question is whether the risk on rally represents a genuine ‘’Start me up moment’’ given where US Treasury yields and the US Dollar are at the moment.
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 lost 70 points yesterday and is now ahead by 183 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.
First to Hurricane Irma. As the sun rose on Monday it revealed that while Hurricane Irma was no doubt devastating, it was likely to cause less damage than many had feared. Munich Re forecasts that worldwide insurance losses from the event are likely to be in the order of $20-30bn, well below the initial fears of more than $65bn. Thankfully my home on Marco Island where the hurricane hit escaped as the flood waters never reached our building with only a few roof tiles down which is amazing considering the winds were over 130mph when the eye hit the island. The surge was only 2/3 feet and not the 10/15 feet as predicted.
Equities rose in response led by financials and insurers – the S&P500 insurance sub-index rose 1.6% – with the overall S&P500 up 1.1%. Also in the background was the upcoming United Nations vote on North Korea where the US has moderated proposals for an oil embargo and a naval blockade in order to garner support from China and Russia – instead it looks there will be a cap on oil imports.
US Treasury yields gapped higher, finishing up 8.0 bps to 2.13% and back at the levels where they were early last week instead of plumbing the lows seen in November. Market pricing for a December rate hike has also edged back to a 46% probability whereas on Friday it was 33% with the lower damage bill now less likely to weigh on the Fed’s December meeting. There is though still only one rate hike fully priced by the end of 2018 compared to the Fed’s dot points of four and it is likely a run of better CPI or wage numbers will be required to get the market to shift pricing any higher – that makes Thursday’s CPI figures very important.
In FX, the typical risk on rally theme dominated. The safe havens fell sharply with risk aversion unwinding: Yen -1.4% and Swiss Franc -1.3%. The US Dollar rallied (DXY +0.7% to 91.95) while other major currency pairs were lower: Euro (-0.7% to 1.1954); Aussie (-0.4%); Kiwi (-0.1%); CAD (-0.4%).
Comments by ECB speakers had little impact on the Euro. Coeure gave mixed soundings on the exchange rate. He noted that “there are three forces, of roughly equal strength, that help to explain the Euro’s marked appreciation in recent months: improved Euro area growth prospects, an exogenous component and a tightening in the relative monetary policy stance vis-à-vis the U.S.” and that “pass-through is likely to have been lower in recent years”. Nevertheless if “exogenous shocks…persistent [it] can lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook”. Overall it seems the ECB is okay with the recent strength in the Euro, but would be cautious of it going any further. Meanwhile other ECB officials mainly emphasised it was time to withdraw some monetary stimulus in a gradual and well telegraphed manner.
The other big FX move occurred in USD/CNY which rose 0.5% to 6.53. Supporting was a report that the PBoC was removing its reserve requirement for financial institutions trading in FX forwards by cutting it to 0% from 20% currently. The change makes it cheaper to buy dollars and sell Yuan. The PBoC also announced the removal of reserve requirement on foreign banks’ yuan deposits.
Late last night the UK Parliament passed the Brexit Bill ( by 318/301)which will allow the government to copy EU law into domestic law and then allow the UK to edit that law once it has left the EU In 2019. Finally for Krone watchers, Norway looks to have re-elected Erna Solberg as PM with 82% of the vote counted.
This morning on the Economic Front we have UK CPI, PPI and House Price Index which will all be released at 9.30 am. We have no Euro-Zone releases. At 11.00 am we have US NFIB Small Business Optimism. Finally at 3.00 pm we have the JOLTS Job Openings.
September S&P 500
Unfortunately my S&P plan did not work well yesterday as after the S&P traded higher to my second sell level at 2480 which had me short at an average rate of 2476 I was quickly stopped out of this trade at my tight 2483 level and I am now flat. Just because most analysts are looking for a top in the US stock market given its extraordinary move higher since the 666 GFC low it does not mean we have to go lower and indeed the S&P made a new all-time high at 2489. September is traditionally the weakest month of the year and with the S&P trading at new highs it is going to take something dramatic for the S&P to break the key 2385/2430 major support level. Therefore the S&P continues to be a buy on dips. Yesterday’s huge move higher has left a large ‘’Open Gap’’ from Friday’s 2463 close to yesterday’s 2474 Chicago low. As you know all ‘’open Gaps’’ get filled at some stage. Today I will now raise my buy level to 2476/2482 with a 2471 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 2464 with a 2458 stop. As I have a small short position in the Dow I do not want to be short the S&P at this time.
EUR/USD
Unfortunately the Euro just missed my 1.1940 buy level by a few points before rallying and I am still flat. Until the Euro can break and close below 1.1800, the Euro will continue to be a buy on dips. The Euro has strong support at 1.1900 and today I will now lower my buy level slightly to 1.1880/1.1920 with a 1.1850 stop. I still do not want to be short the Euro at this time.
September DAX
Incredibly the DAX has now rallied over 500 points since last Tuesday’s 12030 low print with this morning the DAX now trading outside the top of its Daily Bollinger Band and at the top of its Williams Index. Thankfully we have had no short positions for any of this aggressive move higher. The break of the 100 Day Moving Average at 12445 is bullish and this area will now act as strong support on any pull-back. Today I will now raise my buy level to 12395/12445 with a 12355 stop. Despite the DAX trading overbought, short positions are too risky with the next target level at 12570 ahead of 12600.
September FTSE
Yesterday was not my day with the FTSE missing my 7445 sell level by 5 points before the market reversed to currently trade at 7415. The FTSE continues to trade sideways and underperform the other major Indices with the renewed strength in Sterling a major obstacle to higher prices. However if the FTSE can break and close above the three month trendline at 7445/7465 it will be a major buy signal. Today I will look to buy the market on any dip lower to 7355/7390 with a 7320 stop.
Dow Rolling Contract
Yesterday’s new all-time high in the S&P was not confirmed by the Dow which so far is holding well below its 21179 all-time high from August 8. Given the high level of the Dow this market is not one for trading in big size. Yesterday after the Dow traded higher to my 22030 sell level I emailed my Platinum Members to only add to this position on any move higher to 22100. As I have only a token position and with the launch of the latest Apple iPhone due later I will now raise my second sell level to 22130 with a tight 22185 stop which is just above the August high. My only interest in buying the Dow is on a dip lower to 21920/21980 with a 21870 stop.
December BUND
I am still flat the Bund which is continuing yesterday’s sell-off on the back of the stronger equity markets and I am still flat. Today I will now lower my buy level slightly to 161.95/162.30 with a 161.60 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip lower to 1308/1316 with a 1299 stop.
Silver Rolling Contract
In contrast to Gold above, Silver is now trying to outperform Gold at this time. I am still long at 18.05 and will continue to look to add to this position on any move lower to 17.70 and if filled I will then lower my T/P level to 17.90. Otherwise I will leave my exit level unchanged at a breakeven 18.05. My stop remains unchanged at 17.45.
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