No new news on the US-Sino trade front along with no first tier data releases had resulted in a relatively quiet session for markets but that has all changed overnight after US President Trump threatened China with new tariffs of up to $200bn. European equities had a bad day while US equities closed flat to modestly lower. However this morning the Dow is trading 300 points lower from where it closed last night. News that OPEC is considering a smaller increase in output has lifted oil prices, but commodity linked currencies are amongst the underperformers amid an overall mixed session for commodities and lingering concerns over the next move in the ongoing US-China trade spat. Over the past 24hrs, the AUD is down another 70pips at 0.7365 for a new year to date low.
To mark my 1600th 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@tradernoble.com for details
For anyone following my Platinum Service it made 30 points yesterday and is now ahead by 182 points for June, having made 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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A negative lead from Asia and residual pricing of China’s trade retaliation weighed heavily on European equities at the open. German political turmoil over immigration did not help the cause either and consequently all major European equities closed down between 0.4% and 1.36%. Chancellor Merkel CDU party has come under pressure from its Bavarian coalition partner, the CSU, to come up with a plan to deal with the migration/refugee issue. The Bavarian state election is being held on October 14 and the CSU which currently holds the state is under pressure from the right-wing AfD (polling has CSU at 41% and AfD at 13.5%).
Germany’s Interior Minister, Horst Seehofer, wants police stationed at borders to turn back refugees and migrants arriving from other EU countries but the CSU has now given Merkel two weeks grace to reach migration agreements with EU partners. Importantly, Seehofer has been reported as saying that ‘’No one in the CSU is interested in bringing the chancellor down, or dissolving the CDU/CSU parliamentary partnership or destroying the coalition,’’.
The German political tension emphasises how important it is for Europe to find a solution to its migration/refugee problem, the issue is creating a wave of political uncertainty across the whole of the Union and it is certainly an additional weight on the Euro. Not helping the cause either, President Trump decided to get involve in the action tweeting ‘’Big mistake made all over Europe in allowing millions of people in who have so strongly and violently changed their culture!’’ adding that ‘’crime in Germany is way up’’. In May, Germany’s Interior Ministry recorded the lowest crime levels since 1992, but never mind, clearly there is no love lost between Trump and Merkel. Notably too, Trump’s tweet comes at a time when his administration is under severe political pressure given his policy of separating children from parents detained at the Mexican border.
Meanwhile oil prices got a boost yesterday (Brent +2.60%, WTI 1.18%) following reports that OPEC is aiming for a deal to increase production by 300-600k barrels a day, below the initially flagged 1-1.2m barrels a day by Saudi Arabia/Russia. Although Iran apparently remains opposed to any increase to current quotas, officials from other countries are optimistic that an agreement can be won for a relatively modest hike at this Friday’s meeting in Vienna.
The increase in oil prices provided an initial uplift to US Treasury yields, but a soft US equities close has been accompanied by a small decline in UST yields. The 10y tenor is now at 2.915%, about 0.5bps lower on the day and with the 2y tenor about 0.5bps higher at 2.55% the steady flattening of the UST curve continues with the 2y10y curve 1bps lower at 36bps, its flattest levels since October 2007.
Notwithstanding the increase in oil prices, commodities have had a mixed session. Coal and Aluminium are slightly higher (~0.7%), but copper and other metals are down ~0.60%. So a mixed picture in commodities coupled with the ongoing US-Sino trade uncertainty has seen commodity linked currencies mildly underperform the USD. AUD has led the decline, down nearly 1% over the past 24 hours, trading at 0.7365 as I go to post. Despite a seemingly buoyant risk appetite as depicted by the VIX index at a low 12.3 reading, trade tensions and emerging markets performance remain key factors for the AUD’s fortunes near term. The AUD is often seen as a G10 FX proxy for China/EM and I would expect it to continue to underperform if trade tensions between the US and China escalate (note the JP Morgan EMFX index is 0.3% lower on the day).
Sterling is down 0.2% and currently trades at 1.3245 amid ongoing Brexit negotiations and UK political infighting. Yesterday the Lords voted 354 to 235 to pass the rebels amendment to the ‘’meaningful vote’’ Bill, the Bill now returns to the House of Commons for a vote on Wednesday. Also, the FT reported that some British and European officials now expect Brexit negotiations won’t be concluded until November or December, with the upcoming EU meeting (June 28-29) unlikely to see much progress. While I still think common sense will prevail and the two sides will finalise a transition agreement for after March 2019, it looks like the negotiations will go down to the wire and Brexit-related uncertainty will persist for the coming months (which in turn may weigh on the GBP). The BoE also meets this week on Thursday, with no change on rates expected but the market will be tuned into the Bank’s outlook; the August meeting is currently around 50% priced for a hike.
Meanwhile the Nikkei has just closed down 1.77% at 22,278.
This morning on the Economic Front we have Euro-Zone Current Account at 9.00 am. At the same time ECB President Dragi speaks at the ECB Conference in Portugal. This is followed at 10.00 am by Euro-Zone Construction Output followed by speeches from the Fed’s Bullard and ECB’s Praet. Finally at 1.30 pm we have US Housing Starts and Building Permits.
September S&P 500
My S&P plan worked well yesterday with the market trading lower to my 2762 buy level before rallying strongly and this rally enabled me to cover my long position at my 2768 T/P level. This morning the S&P is trading sharply lower following threats from US President Trump that he threatening tariffs of up to $200 bn on China as the market faces another huge ‘’Opening Gap’’ lower from last night’s Chicago close. Given the size of the ‘’Gap’’ I would expect the US traders to close a good portion of this gap and for this reason I have now bought the S&P here at 2738 as emailed to my Platinum Members 50 minutes ago. My stop on this trade is 2725 and I will have a T/P level at 2747. If either of these levels are filled I will be back with a new update for my Platinum Members.
EUR/USD
I am still flat the Euro and today I will leave my buy level unchanged from 1.1495/1.1535 with the same 1.1465 stop. As mentioned yesterday I will be an aggressive buyer on any further dip lower to 1.1410/1.1450 which is where the 500 Day, 200 and 100 Week Moving Averages come in. If I am taken long in this area I will have a wider 1.1360 stop. I still do not want to be short the Euro at this time.
September Dollar Index
No change as I am still a seller on any rally higher to 94.85/95.15 with a 95.45 stop. I still do not want to be long the Dollar at this time.
September DAX
Thankfully after the DAX traded lower to my average buy level at 12820 that we covered this position for a small gain at 12825 yesterday afternoon and are still flat. This morning the DAX is trading 200 points lower which is some 600 points below last Thursday’s post ECB Meeting high. The next support level for the DAX is from 12460/12530 and today I will be a buyer on any dip to this area with a 12395 stop.
September FTSE
Overnight the FTSE traded the whole of yesterday’s buy range for a now average long position at 7505. I am still long and I will now raise my stop on this position to 7465 which is just below the 7476 overnight low print.
Dow Rolling Contract
My Dow plan worked well yesterday with the market trading lower to my 24860 buy level with a 24800 low print before rallying back above 25000. As I wanted to bank some points for yesterday’s session after what is a difficult month for trading I covered this position at my revised 24885 T/P level. Overnight the Dow has got hit for over 400 points and I bought the market again in small size at 24650. I will only add to this position on any further move lower to 24480 with a 24390 stop. Given the volatility I am only trading in smaller size with wider stops. My T/P level for this position remains at 24730 as I just cannot see the US traders leaving such a massive down Gap when the markets open this afternoon. If any of the above levels are filled I will be back with a new update for my Platinum Members.
September NASDAQ
Unfortunately the NASDAQ just missed my 7290 sell level before selling off aggressively and I am still flat. Today I will now lower my sell level to 7250/7300 with a 7350 stop. I still do not want to be long the NASDAQ at this time.
September BUND
The sell-off in equity markets sees funds flow into the Bund for safe haven status despite the insanely low yield. The Bund is telling you that the slowdown in the Euro-Zone economy is real. I am still flat the Bund and today I will now raise my buy level to 160.60/161.00 with a 160.20 stop. The Bund has strong resistance from 162.60/163.10 and today I will be a seller in this area with a 163.50 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1265/1273 with a 1259 stop.
Silver Rolling Contract
My good run in Silver has come to an end over the past two trading session as I was stopped out of my 16.95 long position last night at 16.45 and I am still flat. Today I will continue to be a buyer on any further dip lower to 15.90/16.30 with the same 15.55 stop.
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