U.S. Equity Markets (SPX +1.7%, DJIA +1.0%, RUT +1.6%) saw broad-based gains on Tuesday in wake of the cooler-than-expected US PPI release, with the tech-heavy Nasdaq 100 (+2.5% ) outperforming and buoyed by notable strength in Nvidia (+6.5%) and Tesla (+5.3%), which saw Technology and Consumer Discretionary be the clear sectorial outperformers. Overall, sectors were almost exclusively in the green, with only Energy in the red and weighed on by weakness in WTI and Brent as participants potentially factor in reports that suggested Iran’s response may be limited. As such, Middle East tensions remain front of vision, although the latest updates from Axios citing an official is that they do not expect an Iranian attack today. In addition, US President Biden stated he expects Iran to hold off on Israel retaliation if a hostage deal is reached, with talks scheduled for Thursday. US Treasuries were firmer across the curve, in wake of the aforementioned cool PPI data, which adds further conviction in the Fed’s fight against returning inflation to 2%, although the July CPI (released Aug. 14th) will also be key in confirming whether price pressures are continuing to ease. Thereafter, focus will continue to be around jobs numbers/data ahead of the September 18th FOMC meeting. In wake of the metrics, Fed pricing moved dovishly with 108bps of cuts priced in vs. 103bps pre-data. Further on the Fed footing, Bostic (2024 voter) gave hawkish remarks, as he stated he wants to see a little more data and is willing to wait for the first rate cut, but it is coming. In the FX space, the Dollar saw notable losses to the benefit of all G10 peers, with EUR/USD testing 1.10 to the upside and USD/JPY 146.50 to the downside. Looking ahead, participants await RBNZ overnight, any Iran response, and US CPI (Wed) amongst others. Overall, the PPI data was cooler than expected. Headline PPI rose 0.1% M/M, beneath the 0.2% forecast and easing from the prior 0.2% pace with the Y/Y rising 2.2%, beneath the 2.3% forecast and down from the prior 2.7% (revised up from 2.6%). The Core metrics were also soft, with the headline unchanged at 0.0% M/M (exp. 0.2%, prev. 0.3% (revised down from 0.4%), with Y/Y rising 2.4%, down from 3.0% in June and beneath the 2.7% consensus, it was also softer than all analyst forecasts with the lowest forecast pencilling in 2.5%. The data was well received and adds further conviction in the Fed’s fight of returning inflation to 2% – the July CPI (released August 14th) will also be key in confirming whether price pressures are continuing to ease. The Fed has acknowledged that the risks to achieving its employment and inflation goals continue to move into better balance, and recent signs of a cooling labour market has seen participants put more credence on labour market reports over inflation. As such, focus will continue to be around jobs numbers/data ahead of the September 18th FOMC meeting. For the record, July CPI is due August 14th, July PCE is due August 30th, August PPI is Sept 12th, with Aug CPI on Sept 11th ahead of the Fed rate decision and Summary of Economic Projections. Looking into the components of PPI that feed into PCE, the Fed’s preferred gauge of inflation, Oxford Economics highlights “There were no glaring areas of concern… Air travel rose only modestly, and with jet fuel prices falling in August, this should not mark an upward trend. Encouragingly, hospital services fell for the first time in nine months. Financial services will provide upward pressure, but with the pullback in equity markets in August, this will turn to a drag next month”. Meanwhile, Fed Member Bostic who spoke for the first time since the FOMC meeting, said that the balance of risks in the economy is getting back to level, and on inflation noted the recent inflation data gives him more confident they can get back to 2%, but wants to see ‘a little more’ data. The Atlanta Fed President added the Fed needs to make sure inflation trend is real. On rates, the known hawk said it would be really bad if they cut rates and then had to raise them again, and he is willing to wait for the first rate cut but it is coming. Moreover, he added if the economy evolves as he expects, there would be a rate cut by the end of the year. Looking ahead, recession is not in his outlook, and the labour market can slow but without considerable concern. Elsewhere, Oil fell 2.14% while despite a much weaker Dollar, Gold closed Tuesday lower by 0.2%.
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For anyone following my Platinum Service it made 40 points yesterday and is now down by 823 points for August after closing July with a gain of 1918 points while June closed with a gain of 2074 points, having made 1843 points in May. The Platinum Service made 4010 points in April after ending March with a gain of 2113 points. February closed with a gain of 1606 points, after closing January with a gain of 3675 points. December saw a gain of 1890 points after finishing November with a gain of 1734 points. October ended with a gain of 3184 after closing September with a small gain of 228 points, after finishing August with a gain of 1485 points, following a small gain of 285 points gain in July, after closing June with a gain of 2683 points. May closed with a gain of 3205 points. April saw a gain of 3354 points while March closed with a gain of 6168 points. The Platinum Service made a record 9619 points last October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 1.68% higher at a price of 5434.
The Dow Jones Industrial Average closed 408 points higher for a 1.04% gain at a price of 39,765.
The NASDAQ 100 closed 2.50% higher at a price of 19,006.
The Stoxx Europe 600 Index closed 0.05% higher.
This Morning, the MSCI Asia Pacific closed 0.4% higher.
This Morning, the Nikkei closed 0.58% higher at a price of 36,442.
Currencies
The Bloomberg Dollar Spot Index closed 0.5% lower.
The Euro closed 0.4% higher at $1.0988.
The British Pound closed 0.7% higher at 1.2862.
The Japanese Yen rose 0.3% closing at $146.67.
Bonds
Germany’s 10-year yield closed 5 basis points lower 2.19%.
Britain’s 10-year yield closed 3 basis points lower at 3.89%.
U.S.10 Year Treasury closed 8 basis points lower at 3.85%.
Commodities
West Texas Intermediate crude closed 2.14% lower at $78.35 a barrel.
Gold closed 0.2% lower at $2465 an ounce.
This morning on the Economic Front we already had the release of U.K July CPI which came in at +2.2% versus +2.3% Y/Y expected. Next, we have both Euro-Zone GDP, Industrial Production and the Employment Change at 10.00 am. This is followed by U.S. MBA Mortgage Applications at 12.00 pm. Finally, we have the key CPI release at 1.30 pm.
Cash S&P 500
Investors are so certain that the Federal Reserve is all set to make aggressive cuts in interest rates, that if July’s CPI release this afternoon comes in higher than expected then markets could be in for a nasty shock. Following July’s soft Employment Report and August’s market volatility, the Futures Market is pricing in a 100% certainty of a rate cut on September 18, with roughly a 50% probability of a 50-basis point cut. By the end of 2024, it is pricing in a full 100bp of cuts. Although a September rate cut is the base case, the danger is that an uptick in inflation on Wednesday could trigger a violent position adjustment. There are still powerful structural reasons why inflation is set to exceed the Fed’s 2% target over the medium term. Fed Chair Powell has signalled the likelihood of a rate cut in September, if inflation cooperates but if inflation does not cooperate, he is likely to stress the Fed’s data independence. I still maintain he should have cut in July as any ‘’Surprise’’ in CPI today will weigh heavily on his shoulders. The Fed would only cut rates on the grounds of labour data if it were so bad to signal a recession. Yes, Employment has risen enough to signal the ‘’Sahm Rule’’ but Payrolls continue to grow, and U.S. data in the round does not clearly signal a recession. With 10 Year Treasury Yields at 3.84% this morning, the Bond Market has likely over-reacted to the July jobs report. The bottom line is that rate-cut decisions hinge on inflation data. If inflation comes in soft, it will reinforce expectations of rate cuts, likely leading to further weakness in the U.S. Dollar. The problem this time is that the market is already pricing in a lot of rate cuts. The risk is that an upside surprise in inflation could lead investors to reprice how aggressively the Fed is likely to cut rates which could cause a rebound in the Dollar and take some wind out of Gold and Cryptocurrencies while pushing bond yields higher. Yesterday’s aggressive move higher saw the S&P trade the whole of my sell range for a now 5411 average short position. I will leave my 5435 ‘’Closing Stop’’ unchanged while raising my T/P level to 5401. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
EUR/USD
The weaker than expected PPI report saw the Euro test 1.1000. I am still flat. Ahead of this afternoon’s CPI release I will now raise my Euro sell level to 1.1060/1.1130 with a higher 1.1205 ‘’Closing Stop’’. The Euro has support below from 1.0800/1.0870 where I will still be a buyer with the same 1.0745 ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 1.1010. If I am taken long, I will have a T/P level at 1.0920.
Dollar Index
The Dollar fell 0.5% yesterday and is trading at a price of 102.65 this morning. I am still long at an average rate of 103.30 with the same 102.35 ‘’Closing Stop’’. Meanwhile, I will leave my 103.70 T/P level unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Cash DAX
This morning the DAX is trading higher at 17870 as I go to press. I have not pulled the trigger in shorting the market as I am already short both the NDX and S&P which is enough exposure for now. The DAX has further resistance from 17970/18070. I will move my sell level to this higher range with a tight 18155 ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 17900. I still do not want to be long the DAX at this time. If this view changes, I will be back with a new update for my Platinum Members.
Cash FTSE
The FTSE continues to consolidate the gains from the end of last week and I am still flat. This morning the FTSE is trading higher at 8265. I will now raise my buy level to 8110/8190 with a higher 8045 tight ‘Closing Stop’’. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
The Dow finally closed its ‘’Open Gap’’ at 39770 yesterday afternoon. After the market hit my 39780-sell level, I emailed my Platinum Members to exit any short position at 39740 and I am still flat. The Dow has further resistance from 40000/40250 where I will be a small seller with a higher 40405 tight ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 39810. Given how extended the Dow is trading I no longer want to be long the market at this time.
Cash NASDAQ 100
Yesterday’s higher close for the NDX was its sixth consecutive rise. Tuesday’s aggressive 2.5% rally saw the whole of my sell range triggered for a now 18895 average short position. The NDX is trading at 19000 this morning which is 1700 points higher than the crash low of August 5. The NDX is short-term overbought. I will leave my wider 19105’’Closing Stop’’ unchanged while raising my T/P level to 18110. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
September BUND
No Change: I am still flat the Bund. The Bund has support below from 133.00/133.70 where I will continue to be a buyer with the same 132.35 ‘’Closing Stop’’. The Bund has resistance from 135.50/136.20 where I will still be a seller with the same 136.85 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 134.30. If I am taken short, I will have a T/P level at 134.95.
Gold Rolling Contract
I am still flat GOLD as the market traded in a narrow range yesterday below its all-time high despite the Dollar weakening 0.5%. As I have a large, long silver position I am reluctant to chase the price of Gold higher especially ahead of CPI this afternoon. Gold has short-term support from 2398/2416 where I will continue to be a buyer with the same 2383 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 2428.
Silver Rolling Contract
I am still long Silver at an average rate of 28.10 with the same no stop policy for. With Silver trading slightly lower at 27.90 this morning, I will continue to leave my Silver T/P level on this large position to 28.80. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
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