Last Friday was one of the most volatile trading sessions of the previous two weeks with most of Friday’s market price action emanated from the US Q2 Employment Cost Index, which at just +0.2% Q/Q (not annualised) was the lowest Quarterly change since records began in 1996. The market was looking for +0.6% after +0.7% in Q1. The number pushed the annual ECI rise down to 2.0% from 2.6% in Q1, and back to where it was a year ago. US economic commentators noted that the unexpected weakness resulted mostly from a slump in sales commissions or incentives.
Thankfully the volatility on Friday had a positive effect on my New Platinum Service which generated a 265 point return, following Thursday’s 60 point gain and closed the month of July up 1810 points. June’s return was 3045 points.
Wages ex-sales incentives were +2.0% Y/Y after 2.1% in Q1 and 1.8% a year ago, so broadly consistent with the average hourly earnings reading in the last Employment Report. So the latter, for July, in this coming Friday’s Employment Report will obviously be a keen market focus. In FX, much of the sharp slide in the dollar in the immediate aftermath of the ECI data was subsequently reversed thanks in part to an upside surprise in the Chicago PMI but also comments from St. Louis Fed president James Bullard.
On Friday he became the first Fed official to have given an interview or speech since Wednesday’s FOMC meeting conclusion. He told the WSJ that ‘we’re in good shape’ to lift rates at the Sep 16-17 FOMC gathering and suggested that at last week’s meeting, the Fed wanted to see how the subsequently released Q2 GDP data shaped up before clearing the way to act. Bullard shrugged off Friday’s Report showing surprisingly tepid wage gains, saying he isn’t worried about that situation right now. The same could not be said for Treasuries, where yields actually extended their declines in late trade to close on the lows for most tenors. Equities quite liked the ECI message but drifted lower during the NY afternoon with indices mostly lower. So once again, FX looks to be well ahead of the US rates market in anticipating the first (and perhaps subsequent) Fed moves. DXY ended -0.23% at 97.34, having been as low as 96.35 (- 1.3%) post ECI. EUR/USD finished NY +0.48% to 1.0984 having been as high as 1.1114.
Oil took centre stage yesterday with West Texas Intermediate down 3.8% to $45.33/bbl and Brent crude down a cool 5.0% to $49.60, WTI the lowest since March 19 and Brent below $50/bbl for the first time since January when Oil selling was at its most intense. Continued over-supply and fears of slowing demand seemed to weigh on sentiment. Iran announced they would/could immediately lift exports by 0.5mbpd if sanctions while renewed softness in Chinese Manufacturing stoked demand side concerns. Commodity currencies came in for some treatment as a result with the Rouble (-1.6%) hit hard, along with the NOK (-0.41%), AUD (-0.38%), and NZD (-0.33%) all lower. The CAD for once held up. Other traded hard commodities also eased, LME metals prices declining, Copper down 0.19% and Nickel by 2.67%. Gold also eased, by 0.86% to $1085.90/oz.
Iron ore prices bucked the trend, up $2.22/t yesterday in China. US energy stocks closed down by 2.01%; other industry groups in the S&P 500 were mixed, the index Equity markets were mixed; they were higher in Europe by 0.77% for the Eurostoxx 600 index (Athens re-opened, closing down 16.2%), but were heavy in the US, despite US Treasury yields declining further on a softer than expected US ISM Manufacturing Report and still quiescent core consumer inflation. The ISM Manufacturing index missed expectations somewhat, coming in at 52.7, down from 53.5 that was also expected. Core PCE deflator rose 0.1% as expected, though the annual rate was a rounded one point higher than expected at 1.3%. US Treasuries rallied and Fed funds futures trimmed expectations by 2.5 basis points along the curve.
This morning on the economic front we have no data of note due from either the Euro-Zone or the UK as people head on holidays for most of the month. This afternoon at 2.45 pm we have the ISM from New York. Finally at 3.00 pm we have US Factory Orders.
September S&P 500
Very late in last Friday’s trading session the S&P hit my 2097 buy level with a 2095 low and as we had a very good trading day on Friday and the fact that I wanted to be flat over the weekend I covered this position near the New York close at 2100 and I am now flat. Yesterday the market had another comeback very late in the US trading session after surviving another wobble on the very weak Oil market. I really believe that this market is heading for some serious trouble especially with September/October now on the horizon but until we break the major support at 2035/2040 then it is difficult to be short for more than a few hours. This year has been one of the smallest trading ranges for the S&P in many a year with the market going nowhere as we await the Fed’s first rate hike. There is no doubt the US economy is slowing and the extremely weak Commodity prices is telling us this in no uncertain terms. Today I have to respect the fact that we have now close below 2100 for the past few days and I will be a small seller from 2095/2100 with a 2106 stop. I really do not want to be long the S&P at this time especially with all the confirmed Hindenburg Omen’s on the clock.
EUR/USD
The volatility in the Euro on Friday was scary with the market testing 1.0920 after I posted only to make a new high at 1.1114 on yet more weak US economic data, before turning around on comments from Fed Member Bullard who is saying the Fed will raise rates next month. Yesterday was a much quieter trading session for the Euro and I still believe that this Euro is a buy on dips as I am still looking for higher prices especially with the US Bond Yields weakening over the past two weeks. Today I will raise my buy level slightly to 1.0880/1.09200 with a 1.0850 stop.
September Dollar Index
My short 97.70 Dollar position worked out very well on Friday as the Dollar had a nice sell-off shortly after the US markets opened which enabled me to cover this position at 97.35 as outlined earlier to my Platinum Members and I am now flat. Today I will again be a small seller on any rally higher to 97.80/98.20 with a 98.50 stop. Remember the Dollar has major resistance at the 98.00 level which is also a key pivot point.
September DAX
On a day when all the other major Indices closed lower the DAX decided to have a nice rally with the market eventually hitting my 11420 sell level. I am still short and I will leave my stop the same at a tight 11480. If I am stopped out of this position I will be a more aggressive seller in front of 11580 with an 11630 stop. I will use any sell-off to 11370 to cover this short position.
September FTSE
I am still flat the FTSE and today I will use any rally to be a small seller from 6660/6700 with a 6730 stop. Given the price action in the FTSE over the past two months I do not want to be long the market at this time.
Dow Rolling Contract
My Dow plan worked very well on Friday as shortly after the US markets opened the Dow had a nice sell-off to my 11690 buy level before having a quick rally which enabled me to cover this position at 17760 as outlined earlier to my Platinum Members and I am now flat. At one stage yesterday the Dow was down 200 points and if the market closes below last week’s 17390 low then this market is in serious trouble. Today I will use any rally higher to 17700/17750 to go short with a 17810 stop. I certainly do not want to be long the Dow at this time.
September BUND
My short 154.10 BUND position worked well on Friday as the market opened at my 154.10 take profit level before having a further 70 point fall. However with the price action positive over the past 10 days and the worsening economic data coming out of both sides of the Atlantic the BUND has had a nice rally and is back trading at the 155 level. Today my only interest in selling the BUND is on a further rally to 155.50/155.80 with a 156.15 stop.
Gold Rolling Contract
My Gold plan worked well on Friday as shortly before lunch Gold traded lower to my 1081 buy level before having a nice rally on the weakening Dollar which enabled me to cover this position at 1091 as again outlined earlier to my Platinum Members and I am now flat. Today I will again be a small buyer on any dip lower to 1065/1075 with a 1058 stop.
Silver Rolling Contract
No change as I am still a small buyer on any dip lower to 14.10/14.50 with the same 13.80 stop.
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