The likelihood of Clinton wining the US Presidential election (RealClearPolitics has Clinton leading Trump by 6 in its average of polls) along with a higher oil price have seen the probability of a US rate hike by December edge up to 79%. With that background, US Treasury yields ended the session 4.2 bps higher at 1.76%. A softer NFIB survey and LMCI did little to move the market (the NFIB fell to 94.1 against expectations of 95.0 while the LMCI also dipped to -2.2).
To mark my 1200th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1/4 updated emails throughout the trading day. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 95 points yesterday and is now ahead by 520 points for October having made 1142 points in September. The previous three months saw gains of 1782, 1682 and 2550 points respectively. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points.
The oil price gave up some of its gains yesterday closing down 1.3% to $US50.70 (WTI measure). Russia’s largest oil producer Roseneft stated it wouldn’t cut output, contrasting to Russian President Putin’s earlier comments about being willing to freeze or cut output. A higher oil price has started to boost market-based measures of inflation expectations, with 10-year breakeven inflation rates hovering around 1.65%, well up from the 1.47% level in early September which should be somewhat reassuring to some Fed officials.
In the FX space, it was a story of broad US Dollar strength (US Dollar index closed up 0.6-0.8% for the day) with all G10 currencies lower against the US Dollar except the Yen. The Pound had the sharpest fall, down 1.9% and while there was not an immediate catalyst, two BoE officials were out yesterday citing downside risks. Chief among those was Saunders who stating “Given the scale and persistence of the UK’s Current Account Deficit, I would not be surprised if sterling falls further…” and as for the flash crash earlier in the week BoE officials are none the wiser. Other currency moves were broadly as expected given US Dollar strength, with the Aussie down 0.9% and the Euro down 0.7%. The Kiwi fell further, down 1.1%, helped lower by dovish comments by the RBNZ’s McDermott yesterday who reinforced the case of a near-term easing: “our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.”
Equities closed lower yesterday with a disappointing earnings result from Alcoa and Illumina helping to drag the S&P 500 down 1.3%. European equities were also lower with the DAX and FTSE each down 0.4%. The fall in German equities came despite a strengthening in German investor confidence, where the ZEW Survey was better than expected at 59.5 against expectations of 55.5, and suggestive that concerns over Deutsche Bank and Brexit are abating.
This morning on the economic front we have Euro-Zone Industrial Production at 10.00 am. This is followed at 12.15 pm by the US Monthly Budget Statement and at 3.00 pm by the JOLTS Job Openings which is widely watched by Fed Chair Yellen. Finally at 7.00 pm the Fed releases Minutes from the September 20-21 FOMC Meeting.
December S&P 500
These markets are not easy to trade with the up one day down the next scenario playing out at this time. Not helping markets is the fact that we have a US Presidential Election in less than four weeks, while also upsetting the markets was comments from Goldman Sachs to stay in cash as they expect a difficult finish for equities for the rest of the year. It is hard to believe that all this up and down movements are happening with the S&P less than 2% from all-time highs. Indeed both THE NASDAQ (yesterday) and FTSE (today) have just made new all-time highs before all main Indices sold off in the late afternoon yesterday. I deliberately have kept my buy level low in comparison to the market price over the last few trading sessions fearing that we might at some stage roll-over. Yesterday the market got hit hard with the S&P hitting my 2134 buy level I do not like current price action and I emailed my Platinum Members to exit this position at 2139 and I am now flat. Subsequently the S&P traded to a 2121.50 low print before having a nice rally into the close. For anyone who used my 5 Handle Rule this move higher worked perfectly but I did not participate myself. The fact that the S&P closed below the 2135/2140 level is technically bearish and today I will be a small seller on any rally higher to 2143/2148 with a tight 2154 stop. My only interest in buying the S&P is on a dip lower to 2122/2128 with a 2116 stop.
EUR/USD
Shortly after the European markets opened yesterday I was stopped out of my long 1.1155 Euro position at my 1.1095 stop and I am now flat. The Euro is oversold on all the main measures that I follow but until we can see Sterling starting to stabilise against the US Dollar it is hard to be a buyer. It is incredible that pre-Brexit Cable was trading at 1.50 only to close at 1.21 last night in New York. This is a staggering move. My only interest in buying the Euro today is on a further dip lower to 1.0920/1.0960 with a 1.0885 stop which is just below the post-Brexit low at 1.0915. However despite the negative price action plus the fact how oversold the Euro is trading I still do not want to be short the market at this time.
December Dollar Index
The Dollar higher to my 97.50 sell level after I was stopped out of my long Euro position. I am still short with a 98.10 stop. The Dollar is overbought on all the main measures that I follow and is due a correction. I cannot see how the Fed can be happy with the current strength of the Dollar as every time we get a serious move higher in the Dollar, it causes havoc with the Emerging Market Currencies.
December DAX
The softness in the Euro is helping the DAX from following the other major Indices lower. I am still flat the DAX and today I will now lower my buy level slightly to 10400/10460 with a 10340 stop. I do not want to be short the DAX at this time.
December FTSE
My FTSE plan worked well with the market dropping to my 7020 buy level before quickly trading higher to my 7050 T/P level and I am now flat. The weakness in Sterling helped the FTSE to make new all-time highs yesterday morning before following the US Indices lower in the afternoon. Today I will again look to buy the FTSE on any dip lower 6950/6980 with a 6915 stop. As I post this commentary Sterling is rallying over 1.3% from its New York close. My only interest in selling the FTSE is above today’s new all-time high at 7093 from 7125/7155 with a 7180 stop.
Dow Rolling Contract
My Dow plan also worked well but you had to be quick given how fast the market broke just before 6.00 pm yesterday. The Dow traded lower to my 18150 buy level with an 18129 low print at the time before rallying to a 18200 high print which enabled me to cover this position at my revised 18195 T/P level as emailed to my Platinum Members and I am now flat. As mentioned before the Dow has very strong support from 17960/180300 and I will be a buyer in this area with a 17890 stop. As we are so near such strong support plus the fact we have the FOMC Minutes later at 7.00 pm I do not want to be short the market at this time.
December BUND
My long 163.40 Bund position from late yesterday worked well today with the market having a nice rally which enabled me to cover this position at my 163.70 T/P level and I am now flat. Today I will again look to buy the Bund on any dip lower to 163.10/163.45 with a 162.75 stop.
Gold Rolling Contract
I am still flat Gold and today I will lower my buy level to 1240/1247 with a 1233 stop.
Silver Rolling Contract
Unfortunately Silver just missed my 17.85 breakeven exit on my existing long position with a 17.84 high print before following Gold lower. I am still long and for the time being I will leave my stop unchanged at 16.95.
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