It’s been a combination of factors that have coalesced to weaken the AUD overnight, but it has not been a cathartic move down, just another orderly look under 0.70. There have been weak Equity markets in both the Europe and US, hard/energy Commodities have been soft and there are and more hints overall the Fed is inching toward lift-off, all headwinds for the AUD as it trades below 0.6950 in early European trade. The NZD also underperformed in the session, while on the other side of the ledger, the CHF, the JPY and even the EUR strengthened, the ECB’s Sabine Lautenschlager doing her bit to hose down any expectations of more ECB QE in the near term, saying that the basic scenario is still intact with regard to a modest recovery.
For anybody following my new Platinum Service it lost 235 points yesterday. However it is still ahead by 2513 points for September. The previous three months saw gains of 2195, 1810 and 3045 points respectively.
The US Personal Income and Spending Report for August revealed a 0.4% rise in both nominal and real consumer spending in August, a tenth better than expected, aided by a tenth upward revision to July’s spending. As a result, the Atlanta Fed’s GDPNow estimate for Q3 GDP was upgraded from 1.4% to 1.8%, consumer spending now on track to grow at a 3.5% Q3 pace, upgraded from 3.2%.
While that reflected a continuing material contribution to growth from the US consumer, there was no killer punch on the inflation front from this report that the Fed could hang their hat on. The headline PCE deflator was flat as expected, up 0.3% y/y and even the core PCE deflator rose 0.1%, for an annual rate of 1.3%, held down by soft energy prices and the strong US Dollar.
There was more Fed speakers, moderate NY Fed President Bill Dudley interviewed by the Wall Street Journal, saying that every meeting is live, including October, that Oil/Dollar influences are transitory and that a Dollar forecast isn’t going to drive Fed policy. Charles Evans, another moderate and voter this year was also talking of lift-off but not until 2016. According to his projections, he sees three 25 bp Rate increases in 2016, noting that while a Fed hike is closer, the path is more important. “I cannot imagine a path that is not gradual”, he said, “with a path that is somewhere in the median or even the lowest quartile unless the data changes”.
Commodities and biotechnology stock led equity indices lower on both sides of the Atlantic. Commodities giant Glencore lost an eye-watering 29% in London, as analysts warned about its debt load in an environment of low Commodity prices.
After the US markets closed last evening , San Francisco Fed’s John Williams spoke on Economic Outlook, by adding more fuel to the lift-off in 2015 theme, saying (as Yellen has) that the September call was a close one and speaking of a gradual tightening path.
Overnight in India the RBI cut their official Bank Rate from 7.25% to 6.75% but this has done nothing to ease tensions in the Equity markets this morning with European Bourses opening another 1% lower on average following the 4% loss in the Nikkei which closed below the important support at 17,000 at 16,930. As I write this commentary the DAX is trading below its 9350 August 24th spike low print.
This morning on the economic front we have the Euro-Zone Business Climate Indicator at 10.00 am. This is followed by the very important German CPI at 1.00 pm. Finally at 3.00 pm we have the US Consumer Confidence Index.
December S&P 500
Yesterday’s S&P plan did not work out as I had probably my worst trading day of the year as I certainly did not see the S&P falling over 60 Handles from where I wrote this commentary 24 hours ago. The move lower all started with the FTSE which has been the leader of the major Indices to the downside all year. Yesterday’s incredible 29% fall in Glencore hit all mining stocks which make up a large portion of the FTSE. The sell-off in VW last week and yesterday’s Glencore massacre are the main reason that I do not trade individual stocks as you have to be close as to what is going on in any individual share that you trade. This move lower started soon after I posted as the S&P traded lower to my 1908 buy level before very quickly stopping me out of this position at 1898. Subsequently the S&P traded lower to my second buy level at 1886 before stopping me out of this trade for another loss at 1879 and I am now flat. Yesterday was another great example of how important it is to have stops in the market. This morning the S&P is trying to rally having hit its next major support at the 1860/1865 area. The S&P is trading outside the bottom of its Bollinger Band while the Williams Index is trying to turn higher. However the McClellan Oscillator is not yet oversold as it closed last night with a negative reading of -147. I would like to see this MO print a negative -275 before I would be looking for a similar bottom to the one that occurred on August 25th. Yesterday’s huge move lower has left another ‘Open Gap’ from last Friday’s close at 1922 to yesterday afternoon’s Chicago high at 1913. We now have two ‘Open Gap’s which is very unusual and I would expect yesterday’s ‘Gap’ to be filled on the next rebound high which can occur at any stage. Today I will be a small buyer from 1858/1865 with an 1853 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer on any further dip lower to 1832/1845 with an 1822 stop. Given the volatility I have to use wider stops. Despite the negative price action I do not want to be short the market at this time.
EUR/USD
Unfortunately the Euro just missed my 1.1120 buy level after I posted yesterday morning before having a nice 130 point rally and I am still flat. Today I will raise my buy level to 1.1170/1.1210 with a 1.1140 stop. Remember a break and close over 1.1280 will be short-term positive.
December Dollar Index
I was very unlucky with my Dollar call yesterday as the market just missed my 96.85 sell level by 13 points before having a 90 point fall and I am still flat. Today I will lower my sell level to 96.25/96.55 with a 96.80 stop which is just above yesterday’s high print.
December DAX
I was lucky yesterday with my DAX plan as soon after the market traded lower to my 9540 buy level the market rebounded which enabled me to cover this position at my 9590 T/P level as outlined earlier to my Platinum Members and I am now flat. So far this morning the DAX has had a nice rebound off its August 24 spike low at 9350. The DAX is extremely oversold on a Daily and Weekly basis with the market now over 30% lower from its April high print. Today I will again look to buy the market on any dip lower to 9290/9345 with a 9230 stop. Given how oversold the DAX is trading I do not want to be short the market at this time.
December FTSE
The FTSE plan also did not work out yesterday as shortly after I posted I bought the FTSE at an average of 6000 before very quickly been stopped out of this position for a small loss at 5955. My stop in the FTSE yesterday was another great example of how important it is to have stops in the market especially with the FTSE trading 100 points lower this morning. The FTSE is extremely over sold and due a bounce and today I will again be a small buyer on any further dip lower to 5800/5830 with a 5750 stop.
Dow Rolling Contract
Shortly after I posted I bought the Dow at an average of 16200 before just like the other markets above I was stopped out of this position at 16130 and I am now flat. The Dow is not as oversold as the S&P at this time as the market is still trading 750 points above its August 24th low print at 15250 which to me is positive divergence and reason for hope that the market is not going to crash from here without having a meaningful rally first. For this reason I will again look to buy the market on any dip lower to 15850/15920 with a 15790 stop.
December BUND
With the Equity markets selling off aggressively I waited to go short the BUND which I have done this morning at 156.30. I am still short and today I will raise my stop on this position to 156.70.
Gold Rolling Contract
No change as I am still a small buyer from 1118/1127 with the same 1111 stop.
Silver Rolling Contract
Silver traded lower to my 14.75 buy level yesterday afternoon. I am still long and today I will lower my stop on this position to 14.30 to give this trade some room.
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