News wise, it has actually been quite an eventual past 24 hours – tragically so in Thailand where a bomb blast in the centre of Bangkok during Monday’s evening rush hour is reported to have killed at least 19 people and injured more than 120. The Thai Baht is the second worse performing currency overnight (after the Turkish Lire). I would expect to see further pressure on Thailand’s currency, equities and bonds when local markets re-open today, bearing in mind that 20% of Thailand’s debt is foreign owned. We’d note too that in this now quite prolonged sell-off in global Emerging Markets – to which the AUD has been historically highly correlated with respect to Asia FX – it is has been the currencies of countries that are not just big commodity exporters but which also have domestic political problems that have been hardest hit (unstable government or unfolding corruption scandals – read Brazil, Malaysia, Turkey – and now in the Thailand what looks like geopolitical strife).
For anybody following my new Platinum Service it made 55 points yesterday and is now ahead by 837 points for August. The previous two months saw gains of 1810 and 3045 points respectively.
Partly due to ongoing pressure on Emerging Market currencies – but also a slightly softer EUR/USD exchange rate – the US Dollar is modestly stronger in Index terms so far this week. This is despite a shocking miss in the NY Fed’s Manufacturing Index. The Empire manufacturing survey plunged to its worst level since April 2009. Details were not particularly promising, and will raise fresh concerns about a US manufacturing sector suffering from a high US Dollar and falling Oil-industry capex. That said, such extreme weakness is inconsistent with the messages from other regional surveys.
This week’s Philly Fed and National Markit manufacturing surveys (Thursday and Friday respectively) will be now bear particularly closer watching. Market fallout from the Empire survey was restrained in part by the fact that the latest US Housing market reading, courtesy of the NAHB (Homebuilders) survey, rose to 61 from 60 in line with expectations and the highest reading since 2005 (i.e. before the US house price correction got fully underway in 2006 and which was the precursor to the GFC). The data has left US Treasury yields slightly lower and Fed Funds now pricing a 46% chance of September tightening.
For those that may have missed it, yesterday NAB revised down its forecast for the AUD. We now expect AUD/USD to spend time below 70 cents, with a cyclical low of 0.68 forecast for the first half of 2015 before a modest recovery later in the year. Anticipation of (modest) additional US Dollar strength assuming the start of Fed policy normalisation is not delayed beyond 2015, ongoing negative terms of trade pressures and the aforementioned drag from rising USD/Asia FX in general – plus some allowance for overshoot – drives the current forecasts.
This morning on the economic front we have UK CPI, PPI and the ONS House Price Index which will all be released at 9.30 am. On what is a very light day for economic data the only US data is Housing Starts/Permits and these will be released at 1.30 pm.
September S&P 500
The S&P plan worked very well as both my buy and sell levels have been hit since I posted yesterday morning. Tragically after the bomb blast in Bangkok all equity markets got hit hard as this bomb co-incided with the release of the US Empire Manufacturing data which was horrible. Following this release the S&P traded lower to a 2074.75 low which put me long at an average of 2081.50 before the market turned around as expected ahead of this week’s August Options Expiry which enabled me to cover this position at 2090 as outlined earlier to my Platinum Members. Subsequently overnight the S&P rallied higher to my 2103 sell level before opening lower this morning which again enabled me to cover this position too early at 2099 and I am now flat. As I mentioned yesterday I find it very hard to be short this week ahead of the options expiration and today I will use and further sell-off to 2086/2092 to go long again with a 2081 stop. My only interest in selling the S&P is on a rally higher to 2107/2112 with a 2116 stop.
EUR/USD
I am still flat the Euro and today I will lower my buy level slightly to 1.1000/1.1030 with a 1.0970 stop.
September Dollar Index
The Dollar plan worked well yesterday as just as I posted the Dollar was trading at my 96.80 sell level with a 96.92 high before having a nice sell-off which enabled me to cover this position at 96.50 as outlined earlier to my Platinum Members and I am now flat. Today I will again be a small seller on any further rally to 97.25/97.55 with a 97.80 stop.
September DAX
The DAX plan did not work out yesterday as the DAX which had been strong for most of the morning again turned around on a dime and traded lower with the market eventually hitting my 10950 buy level. The bomb blast in Bangkok saw the market get slammed which stopped me out of this position at 10880 and I am now flat. As I have mentioned over the past few weeks I am only trading the DAX in a third of my normal stake size as most of the moves in this market presently make no sense. The DAX is not been helped by the lack of liquidity on the EUREX Exchange and this is understandable when you consider that each point is 25 Euro per contract on this Exchange. Today I will again try to be a buyer on any further dip to 10790/10840 with a 10750 stop.
September FTSE
The FTSE plan worked well yesterday as the market was selling off as I posted which enabled me to buy this market at 6525 before having a nice rally overnight to 6575 which enabled me to cover this position at 6565 and I am now flat. Today I will again look to buy the market on any dip lower to 6490/6520 with a 6475 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer in front of 6450 with a 6420 stop.
Dow Rolling Contract
The Dow had a nice upside Key Day Reversal yesterday with the market making a lower low than Friday then turning around and closing on its highs which were above last Friday’s high print. Unfortunately I was stopped out near the lows of the day at 17360 on the bomb blast in Bangkok after the market had traded lower to my 17420 buy level. It was very frustrating as having called this market to rally after a dip yesterday to be stopped out before we got this 200 point rally. Today I will again try to buy the market on any dip lower to 17440/490 with a 17390 stop. Despite the confirmed Hindenburg Omen and the ‘Death Cross’ that occurred last week I do not want to be short the Dow at this time.
September BUND
Shortly after I posted the BUND traded higher to my 155.05 sell level. I am still short and today I will lower my stop on this position to 155.40. If I am stopped out of this trade I will be a more aggressive seller in front of 156.00 with a 156.50 stop.
Gold Rolling Contract
No change as I am still a buyer on any dip to 1100/1110 with a 1093 stop
Silver Rolling Contract
No change as I am still long from last week at 15.30 with the same 14.95 stop.
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