With the US markets closed for the Labour Day Holiday and not a lot of economic data elsewhere, it was a relatively quiet past 24 hours. Market moves were somewhat restrained, awaiting guidance from the upcoming FOMC meeting (next week) and how China’s economy deals with the current uncertainty. We are no closer to finding out, which left markets in limbo yesterday. It might be a little more of the same today, with only limited news flow expected. For completeness, the Shanghai equity market, which remains under the spotlight internationally at present, ended the day -2.52%, after a mixed session.
For anybody following my new Platinum Service it made 50 points yesterday and is now ahead by 845 points for September. The previous three months saw gains of 2195, 1810 and 3045 points respectively.
But, the European markets were fairly comfortable with the guide from the East, managing small gains. GBP was the best currency performer on the back of M&A news. The AUD was mostly flat, remaining under 0.70. China released its FX reserves data, which showed a $94bn decline in August. This was around expectations, and one of the biggest declines on record; continuing the declining trend.
The decline is due to capital outflows and subsequent currency intervention to smooth the CNY’s depreciation. China is not alone in this, it is occurring across the EM universe as funds flow out. It is just that China is by far the largest of all the official reported FX reserve managers. We have brought up the issue of declining global FX reserves but it bears repeating. Similar to the periods of large reserve accumulation, these moves can and do have strong influences on currency, and potentially bond, markets. As the pool of reserves declines, like any asset manager, the existing pools will need to be rebalanced- either now or at a later date. With FX reserves no longer fully USD based, that means buying USD and selling the other currencies in the basket: EUR, GBP, and JPY but also AUD, CAD and smaller currencies. That might be a trend to watch out for if global FX reserves continue to decline. And is why these numbers are getting so much attention at present.
This morning on the economic front we have the final revision for Euro-Zone GDP at 10.00 am. At 11.00 am we have the US NFIB Small Business Optimism which rose in importance for a small while, as Fed Chair Yellen pointed it out as a favoured series. However, with the shift from employment to inflation, this series is likely to have slipped back to being a more minor economic release. This is followed at 3.00 pm by the US Labor Market Conditions Index Change. Finally at 8.00 pm we have US Consumer Credit.
Shortly after the markets close this evening the Fed’s Kocherlakota will speak on Monetary Policy. This will be the last speech by a Fed Member before the blackout ahead of next week’s FOMC Meeting. Kocherlakota is a known dove and not voting soon, so unless the market is particularly skittish it is hard to say that there should be much to the speech. But, there is presently some confusion in the market as to what to think about the Fed’s next move. And what economist doesn’t like the two-handed approach at a time like this. On one hand, the US data is almost meeting the criteria for a hike, the Fed have said they want to and the window to achieve ‘lift-off’ is potentially narrowing. On the other hand, the global outlook is a little shaky and while it isn’t completely clear there is something substantial to worry about, the prospect of concern hovers. This means markets are likely to pay even more attention to all speakers, and pricing for a hike to swing around.
September S&P 500
With the US markets closed yesterday the S&P traded in a very narrow range for the few hours that the market was open. However the S&P is opening well higher this morning despite the Nikkei closing down 2.4% as China recovers from yesterday’s losses. The move higher has left a massive ‘Open Gap’ from last Friday’s close at 1918 to today’s current price at 1945 and as I have mentioned countless times all ‘Open Gap’s get filled. We still have an ‘Open Gap’ from last Thursday/Friday at 1949 which is close to been filled as I write this commentary. I must say that is it is nearly four years since I have seen such a series of large ‘open Gaps’ on a consistent basis and this trend will continue until at least we get the FOMC Meeting out of the way next Wednesday. I am still flat the S&P and today I will raise my sell level slightly to 1954/1959 with a 1963 stop. My only interest in buying the market today is on a close of this large gap to 1920/1925 with a 1914 stop.
EUR/USD
The price action in the Euro is still bullish despite ECB President Dragi best attempts to talk the Euro lower at last week’s press conference following the ECB Meeting. I am still flat the Euro and today I will raise my buy level to 1.1120/1.1150 with a 1.1085 stop.
September Dollar Index
No change as I Am still flat the Dollar and I will use any rally higher to 96.70/97.00 to go short with a 97.40 stop.
September DAX
The DAX plan worked well yesterday as shortly after I posted the DAX traded lower to my 10060 buy level before having a nice rally before the close which enabled me to cover this position at my 10110 T/P level as outlined earlier to my Platinum Members and I am now flat. Today I will again look to buy the market on any dip lower to 10030/10080 with a 9990 stop. I will also look to go short on any further rally higher to 10340/10390 with a 10420 stop.
September FTSE
No change as I am still a small seller on any rally higher to 6160/6190 with the same 6215 stop.
Dow Rolling Contract
No change as I am still a seller on any further rally to 16410/16470 with a 16520 stop especially given the massive gap left from last Friday’s close. My only interest in buying the Dow is on a dip lower to 16070/16130 with a 16020 stop which is just below last Friday’s low print.
September BUND
No change as I am still a buyer on any dip lower to 153.80/154.20 with the same 153.45 stop. I will also still look to go short on any further rally to 155.70/156.10 with a 156.40 stop.
Gold Rolling Contract
Gold continues to trade heavy after finding resistance at the 1160 level last week. I am still flat and today I will leave my buy level unchanged at 1102/1112 with the same 1095 stop.
Silver Rolling Contract
No change as I am still long from last Friday at 14.45 with the same 13.90 stop.
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