Solid US data and higher oil prices lift US Treasury yields across the curve with pricing of US Fed hikes expectations also increasing for 2018 as well as 2019. US equities close higher, dismissing the negative lead from Europe and the USD had a quiet session despite the move higher in UST yields. NOK outperforms with data supporting expectations for a Norges Bank rate hike next week, while JPY is weaker weighed down by an increasing rate differential with the US. NZD and AUD make new intraday lows but recover handsomely amid an improvement in risk sentiment before the NY close
To mark my 1675th 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@tradernoblecom for details
For anyone following my Platinum Service it made 73 points yesterday and is now ahead by 480 points for September, having made 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, and 879 points in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Interest Rates
The round of solid US data release continued with the NFIB Small Business Survey printing it highest levels since 1945 while the JOLTS survey revealed a further pick-up in Job Openings ( see more below). Solid US data release alongside a rise in oil prices have lifted UST treasury yields across the curve by around 4bps on average, taking the 2y rate to 2.7438% and the 10y rate to 2.98%.
The US economic backdrop at present remains very supportive of further Fed tightening, and the market has upped its probability for a December hike to above 80% and increased rate hike pricing for 2019 to 42bps. In this environment, I would expect US Treasury yields to continue to grind higher.
Currencies
Somewhat surprising given the move higher in UST yields, the USD is little changed in Index terms. DXY trades at 95.073, fairly close to its level this time yesterday. That said is difficult not to be USD bullish as domestic data continues to vindicate the Fed gradual hiking path, forcing the market to come around to the idea that not only 2 more hikes should be expected this year, but also another 3 in 2019. In the meantime US equities remain unconcerned over the impact from an imminent new round of US tariffs on Chinese imports. The S&P 500 has almost fully recovered from the wobble at the start of the month while Europe and Asia continue to leak lower (DAX is -4.19% month to date and Shanghai is -2.66%).
For now JPY is the only currency seemingly affected by the move higher in UST yields (USDJPY is -0.46% to 111.60), but if I am right and UST yields continue to push higher, I would not be surprised to see the AUD and NZD also succumbing to higher UST yields pressure.
After making new intraday lows (AUD down to 0.7085 and NZD down to 0.6501), both antipodean currencies managed a decent recovery before the NY close. The improvement in US risk sentiment appears to have been the driver here, but unless this improvement becomes broad based particularly in Asia/EM, sell on rallies remains the theme for both the AUD and NZD.
NOK recorded its third consecutive daily gain against the USD with a business survey yesterday confirming an outlook for solid investment growth. After a solid CPI print, the market is now becoming increasingly confident of a Norges Bank hike next week.
Sterling is holding above the 1.30 level against the USD amidst a more positive tone to Brexit negotiations. The Times reported that the UK believed EU chief negotiator Michel Barnier’s position on Chequers had shifted in recent weeks and the government was ‘’very confident’’ a vote would pass through parliament. Separately, the European Research Group, comprised of Eurosceptic MPs, abandoned the publication of its 140 page post-Brexit plan yesterday, based around a Canada-style free-trade agreement. Supporters of a softer Brexit claimed that Brexiteers still could not come up with a workable alternative to the Chequers agreement or a ‘’Plan B’’ they could agree on. UK economic data continues to have limited impact on the market, although the labour market report showed a larger than expected increase in wage growth to near its post-crisis highs, at 2.9%.
Equities
The S&P500 recovered from earlier losses sustained after China applied to the WTO to retaliate against the US in relation to a 2017 anti-dumping dispute (i.e. pre-dating this year’s trade escalation). The energy sector led the gains in the S&P500 on the back of decent gains in oil prices (see more below).
Meanwhile Europe and Asia had a mixed session, the STX Europe 6000 closed -0.07% and Chinese equities also closed lower. Notably too, Hong Kong’s Hang Seng Index fell into bear market territory closing 20% below its cyclical high in January.
Commodities
Oil prices are over 2% higher supported by a trifecta of Hurricane Florence, Iran supply concerns and news of lower US oil production in 2019.
There is a strong possibility hurricane Florence moves to a Category 5 storm before it hits land and it is already a major disruptor on the US east coast gasoline market as mass evacuations stretch supplies and Florence’s heavy rains endangers major fuel pipelines. Meanwhile, France and South Korea are barring Iranian crude with Japan in negotiations with the US to do the same. Finally an EIA report expects US domestic oil output to average 11.5m barrels a day next year, down from a previous estimate of 11.7m a day. The agency also lowered its outlook for production this year.
Coal prices managed to record modest gains, but downward pressure in other commodities remain the theme with metal prices posting the largest decline overnight. LMEX fell 1.54%, aluminium declined 2.43% while copper and iron ore were down 0.57% and 0.33% respectively.
Economics/Other News
The German ZEW survey for Sep found the current situation sentiment picked up marginally to 76 from 72.6, remaining subdued. The expectations survey improved to -10.6 from -13.7, also remaining below +20 levels recorded early in 2018.
UK labour market data was strong with wages +2.9% ex-bonus (3M y/y) above the 2.8% consensus and from 2.7%. Headline wages +2.6%. Both measures are above 2.5% CPI. The ILS Jobless rates remained at its multi-decade low of 4%, while Employment rose to a new high of 32.397mn.
US NFIB Small Business Optimism rose to a new high of 108.8 in Aug from 107.9 in July better than the 108 consensus and a 45-year high. Six of its ten major components rose, though the biggest gain came in inventories. That said NFIB said job creation plans and unfilled job vacancies both set new records and owners saying it is a good time to expand tied with the May 2018 all-time high.
Bank of England Governor Mark Carney has confirmed he will extend his tenure at the bank from Jul 2019 to end 2020.
The IMF Managing Director told the Financial Times that her staff does not yet see ‘’contagion’’ spreading to multiple countries beyond those currently fighting investor flight. But she warned that ‘’these things could change rapidly’’ and cited the ‘’uncertainty [and] lack of confidence already produced by the threats against trade, even before it materialises’’, as one of the main dangers facing the developing world.
This morning on the Economic Front we have Euro-Zone Industrial Production at 10.00 am. Next we have US MBA Mortgage Application at 12.00 pm. This is followed at 1.30 pm by PPI. Finally at 7.00 pm we have the Beige Book.
September S&P 500
We are almost half-way through September and so far any sell-off in the US Indices has been contained as yet again the buy the dip has won the day. Yesterday my S&P plan worked well with the market trading lower to my 2872 buy level with a 2867.25 low print before rallying 20 Handles. As so many of my calls again hit at the same time I covered my long S&P position at my revised 2876 T/P level and I am now flat. You got to remember that trying to calls tops in an equity Index is extremely difficult as they can take many months to form. In contrast bottoms nearly always form with a spike lower followed by an aggressive rally. Today I will again look to buy the S&P on any dip lower to 2874/2882 with a 2868 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2853/2861 with a 2847 stop. I no longer want to be a seller of the S&P at this time.
EUR/USD
No change as I am still a small buyer on any dip lower to 1.1490/1.1530 with the same 1.1465 stop. I will now lower my sell level slightly to 1.1660/1.1700 with a 1.1735 stop as we wait for the key ECB Meeting tomorrow.
September Dollar Index
No change as I am still a seller on any rally higher to 95.60/96.00 with the same 96.35 tight stop.
September DAX
Frustratingly the DAX just missed my 11830 buy level by 22 points before rallying 150 points and I am still flat. Please see yesterday’s commentary for my bigger picture view on the DAX. Today I will now raise my buy level to 11800/11870 with a 11735 wider stop. Despite the negative price action I still do not want to be short the market at this time.
September FTSE
The FTSE also missed my buy level before eventually turning around and following the US Indices higher. I am still flat and today I will raise my buy level to 7205/7245 with a 7170 stop.
Dow Rolling Contract
The Dow just missed my 25750 buy level before reversing higher to post an Upside Key Day Reversal which must be totally frustrating to the bears in the market. So far the Dow is still trading below its 26616 January 26 high print while both the S&P and NASDAQ are still trading above their highs from that day. In my opinion it is only a matter of time before the Dow follows to new highs. Today I will now raise my buy level to 25730/25880 with a 25650 stop. I no longer want to be a seller of the Dow at this time.
September NASDAQ
My NASDAQ plan also worked well yesterday as the market continues to build support above the key 7400 support area. Unfortunately after the NASDAQ traded lower to my 7430 initial buy level with a 7405 low print I covered this position at my revised 7438 T/P level, especially with the market trading at 7520 this morning. This is the buy extreme that I have been looking for to develop from my key 7400 support level. Today I will now look to buy the market on any dip lower to 7445/7485 with a 7395 stop. Remember a break and close below 7380 means I am wrong and is a sell signal.
December BUND
For the second consecutive trading session the Bund missed my buy level before rallying and I am still flat. Given the weakness in the US Bond market I am not going to chase the Bund higher and I will leave my buy level unchanged from 158.80/159.20 with the same 158.45 stop.
Gold Rolling Contract
Gold traded to a low of 1188 just missing my 1185 initial buy level and I am still flat. As I am long Silver I will not chase the Gold market higher and today my buy level will remain unchanged from 1177/1185 with the same 1169 stop.
Silver Rolling Contract
No change as I am still long the market at 14.15 with the same 14.30 T/P level and 13.75 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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