Well, after all this waiting it seems that we are almost there with President Trump confirming a China trade announcement of $200bn new tariffs on Chinese goods (after the close of the U.S. Markets) as it escalates its trade war with Beijing. The taxes will take effect from 24 September, starting at 10% and increasing to 25% from the start of next year unless the two countries agree a deal. This led to a sharp sell-off in the US Futures Markets overnight before the market recovered in the last two hours as most of this news is already priced in the market. US equities have started the week with a negative tone, partly reflecting concerns over the likely impact and consequences from a new round of tariffs on Chinese imports.US tech shares decline also reflect problems with specific companies including Amazon. The risk off tone in equities has not been reflected in UST yields with the 10y tenor briefly trading above 3% while in currencies the USD has given back all of Friday’s gains.
To mark my 1675th 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 To demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoblecom for details
For anyone following my Platinum Service it made 205 points yesterday and is now ahead by 872 points for September, having made 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, and 879 points in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
I have a YouTube Channel which contains recent interviews I have given. This can be viewed by clicking HERE Please subscribe to this for new interview notification
Given the starting point a few weeks ago was for tariffs to be as high as 25%, an announcement of 10% is likely to be regarded as good news and if the amount is less than $200bn that is also likely to play with the positive vibe. This outcome would also suggest a degree of sensitivity by President Trump to a consumer backlash ahead of the November mid-term elections. Unlike the initial tariffs, this new round will expand into the consumer goods territory and therefore their inflationary impact is likely to be more visible.
After the tariff announcement focus will inevitably turn towards China’s response and here is where all that initial feel good could come undone. China may be limited in its ability to impose similar tariffs in volume terms, but it can still aim to disrupt the US supply chain with those tech exports an obvious target and the cancelation of trade talks is also likely to dampen the mood. I think US trade spat with China is not just about bringing manufacturing and jobs back to the U.S., strategically the U.S. is not happy with the approach China has taken in order modernise itself with market access restriction and intellectual property rights one of the key sticking points. Thus if US-China trade tensions are considered from this perspective, then it is difficult to conclude a resolution is likely to be achieved any time soon. I would look to fade a rally on a 10% tariffs announcement and instead focus on China’s next move as a guide for whether things are likely to get worse before they get better.
Currencies
The USD has given back all of its Friday gains with modest gains in EM as well as AUD and NZD suggesting the FX market has watered-down the downside risk scenario given expectations for 10% rather than 25% of US tariffs on Chinese goods. A closer look at G10,however, also shows other factors have played into USD weakness overnight.
SEK is the top performer, up 1.54% after the Riksbank Minutes played to the grain of a rate hike at the December or February meeting. NOK has also benefited from this move (+1.01%) with the market becoming increasingly confident the Norges Bank will lift Norway’s Deposit Rate this week.
Brexit news have also boosted Sterling (+0.70% to 1.3160) and all the above news have also lifted the Euro (+0.62% to 1.1710). News flow around Brexit continues to be incrementally positive with the Times reporting yesterday that the EU was prepared to accept a frictionless Irish border post Brexit which increases the probability of a withdrawal agreement deal by the end of the year. Theresa May attends an EU leader summit in Salzburg on Thursday, with Brexit on the agenda.
AUD is up 0.35% relative to levels this time yesterday and the pair now trades at 0.7178. So far in September moves above 72c have been short lived and prospects of 10% tariffs instead of 25% have effectively ease concerns over the potential of an imminent dip below 70c.
Equities
After five daily consecutive gains the S&P 500 started the new week with a negative tone (-0.56%) amid trade concerns and weakness in tech shares. The NASDAQ Index led the decline down 1.43% while the Dow was the best performer down just 0.35%. Impact from tariffs on tech companies supply chain has been one factor weighing on the sector, but the 3% fall in Amazon due to reports of an internal investigation on suspected data leaks and bribes of employees did not support the sector either while an analyst downgrade on Twitter also did not help.
Early in the session European stocks closed with modest mixed returns and late yesterday Asia had a mixed day with the China’s CSI down 1.15% while the HK Hang Seng was -1.30%.
Bonds
10 year US Treasury yields briefly broke above 3% yesterday afternoon for the first time since the start of August, although it has since reversed back to sit just under the figure (unchanged on the day). For now UST yields appear to be immune to US led trade tensions with the move up in yields attributed to high grade corporate issuance, over $10bn taking September tally to near $100 bn already.
In Europe, Italian fiscal developments continue their positive tone with Coeure reporting the 2019 deficit will be held at 1.6% of GDP (note this is below the 3% deficit cap of the EU). There are also proposals to put tax breaks on for holders of domestic government debt. Italian BTPs continue to rally with 10yr yields down 13.4bps to 2.84%
Commodities
Barring lead which is up another 1.6%, most commodities have begun the new week on the back foot. Iron ore and gold are unchanged, but metal prices are down around 0.5% and met coal is down 1.48%.
Economics
The Empire Manufacturing Survey, the first of the regional Fed surveys to report on the month, was weaker than expected in September (19 vs. 23 exp.). The detail though shows new orders and employment little changed – ie not as negative as the headline.
This morning on the Economic Front we have ECB President Dragi speaking at 8.30 am. This is followed at 3.00 pm by U.S. NAHB Housing Market Index. Finally at 9.00 pm we have the Net Long-Term TIC Flows.
September S&P 500
The S&P fell yesterday, with the stock market generating its 12th Hindenburg Omen since the official signal last month. Yesterday’s H.O. was the 10th consecutive one in a row. This is unprecedented and warns that the stock market sits at a dangerous place. Any black swan event could trigger a crash. Against that despite the S&P trading to an overnight low of 2879 buyers quickly returned with the market currently trading at 2892. I am still bullish unless the key 2850/2860 area is broken. Volatility for the S&P has collapsed with the market not closing each trading day more than 0.8% in either direction from the prior day’s close, a 28-day streak of extraordinary low volatility, since July 25. Yesterday after the S&P traded lower to my 2893 buy level the market had a small 5 handle rally and I used this rally higher to exit my long position at my revised 2896.50 T/P level and I am still flat. Today I will again look to buy the S&P on any dip lower to 2874/2882 with a 2868 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2852/2860 with a 2845 stop. My only interest in selling the S&P is on a rally higher to 2907/2915 with a 2922 stop.
EUR/USD
I am still flat the Euro and today I will now raise my buy level to 1.1600/1.1640 with a 1.1570 stop. The 1.1570/1.1600 is key support and a break and close below here will see me look to set up a short position.
December Dollar Index
No change as I am still a buyer on any dip lower to 93.30/93.70 with the same 92.95 stop. As we are so close to strong support I still do not want to be short the Dollar at this time.
September DAX
My DAX plan worked well with the market trading lower to my 12010 buy level overnight before rallying to my 12045 T/P level and I am now flat. Today I will again look to buy the DAX on any dip lower to 11920/11990 with a 11855 stop.
September FTSE
My FTSE plan also worked well with the market trading lower to my 7240 buy level on the Chines Tariff news before rebounding to my 7275 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7200/7240 with a 7165 tight stop. Given how oversold the FTSE is trading I still do not want to be short the market at this time.
Dow Rolling Contract
Overnight the Dow traded lower to my 25980 buy level with a 25954 low print before the market had a nice 150 point rally and this move higher enabled me to cover this long position at my 26050 T/P level and I am now flat. As long as the Dow can hold the key 25800 support level I will continue to be a buyer on dips. Today my buy level is from 25760/25930 with a 25680 tight stop.
September NASDAQ
The NASDAQ was the first market to hit my buy level at 7470 shortly after the U.S. Markets opened. With Amazon on the defensive I emailed my Platinum Members to exit any long position at 7485 and I am now flat. The key support level to watch for the NASDAQ is at 7365 as a break and close below here opens up the possibility of a move lower to at least 7200. Given the significance of this support level I will be a small buyer from 7335/7375 with a tight 7305 stop.
December BUND
My Bund plan worked well with the market trading lower to my 158.85 buy level before having a nice bounce this morning. Unfortunately I covered this long position too early at 158.93 and I am now flat. Today I will again look to buy the market on any dip lower to 158.50/158.90 with a 158.15 stop.
Gold Rolling Contract
No change as my only interest in buying Gold is on a dip lower to 1176/1185 with the same 1169 stop.
Silver Rolling Contract
The price action in Silver continues to be extremely weak as the market tries to hold its 13.91 low form September 11 ahead of the December 2015 low at 13.62. Thankfully after I posted yesterday Silver had a small rally to my 14.25 T/P level on my latest 14.18 long position and I am now flat. Today my only interest in buying the market is on a dip lower to 13.55/13.95 with a 13.20 stop and a 14.20 T/P level if executed. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Recent Comments