Tuesday’s comments from Fed Member Brainard in Chicago appeased fears of an imminent rate hike in September, but concerns of a rising belief within the Fed that the benefit of keeping monetary policy accommodative is waning appears to have left markets uneasy. Other themes also seem to be evolving, core longer dated yields have not retraced their moves higher seen post the ECB’s decision to leave its asset buying programme unchanged last week, reflecting a growing concern that policy makers no longer think the benefits from flatter yield curves are outweighing the costs. In addition, now that summer holidays are over and most investors are back from their holidays, there is also a sense that equity valuations are looking lofty, particularly if further stimulatory policies are not forthcoming. Lastly, concerns of oversupply in the oil market continue to emerge on a regular basis.
Due to the number of members taking up my 2 year Euro 2500 rate for my Platinum Service in recent months, this will be the last month that I am offering this special price which will now rise to Euro 2750 on October 1. If anyone is still interested in this original deal which has been in situ since last January, can you please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 78 points yesterday but is still down 64 points for September having made 1792 points in August and 1682 points in July. Since I started this Platinum Service in June 2015 it has averaged a monthly gain of over 2000 points.
So the overarching theme is one of uneasiness with both equity and core bond yields under pressure. US and European Equities closed down between 0.4% and 1.5% with energy stocks leading the way following a sharp drop in oil prices. WTI an Brent closed down over 2% on the wake of a report from the IEA predicting global oil oversupply will extend into 2017. Meanwhile the VIX index closed 2.5 points higher at 17.85 as it has effectively reversed the 2 point decline post Brainard’s speech on Tuesday.
The risk off move has helped the US Dollar outperform across the board with the Bloomberg Dollar Index closing up 0.7%. The EUR is at the top of the G10 Leader Board, down just 0.2% while the AUD and NZD are at the bottom of the pile down 1.47% and 1.37% respectively. Unsurprising the spike in risk off sentiment has weighed more on antipodean currencies.
Sterling closed down 1.10% and somewhat unusually, the Japanese Yen failed to make gains under the risk off environment yesterday. The Yen was under pressure following a Nikkei Report that noted the Bank of Japan is likely to conclude that the benefits of a negative deposit rate outweighs the costs and the Board will also discuss a policy of trimming long bond purchases in favour of short-term bonds. The report is consistent with my expectation that the BoJ will cut the Deposit Rate to -0.2% from -0.1% and take a flexible approach to its bond buying programme at its policy meeting next week.
Looking at core bond yields, concerns of another taper tantrum look to be emerging with 10y US Treasuries climbing 6.4bps t0 1.73% which is their highest level since June 23 the day of the Brexit Referendum. Meanwhile in Europe, 10y German Bunds climbed 4bps to 0.07% and 10y Gilts closed 4.6bps higher at 0.92%.
Looking at data releases, UK inflation data showed little sign from the recent Sterling depreciation. Consensus was looking for August CPI to climb from 0.6% yoy to 0.7%. I still expect that UK inflation will head higher in the wake of the Brexit vote as higher import costs are passed on to the consumer.
The German ZEW Survey was weaker than expected, falling to 55.1 versus 56 expected and 57.6 last month. That said the Index is still a couple of points higher than the average monthly reading thus far in 2016.
This morning on the economic front we have UK Unemployment and Average Earnings at 9.30 am. This is followed by the only other economic data of note at 10.00 am when the Euro-Zone Industrial Production will be released. For the second day this week we have no US data.
September S&P 500
The S&P which had been my best performing market for the last few years has suddenly turned sour for me over the past 10 days. The increase in volatility has nearly made this market untradeable with a large number of ‘Open Gap’s still to be filled. As I mentioned in my fifth update to my Platinum Members earlier this morning the Quarterly Expiration Week’s for the Futures and Options Contracts can be very difficult to get an edge and this is certainly proving to be the case this week as the September Futures Contract expires on Friday and this will be my last trading day for the Sept Contract as I will roll to the December Contract tomorrow. The S&P left another ‘Open Gap’ yesterday from 2146/2156 on top of last Friday’s Gap from 2176/2163.50. I expect the first gap will be filled sooner rather than later and there is still a good chance that the higher gap will be filled ahead of the FOMC Meeting next Wednesday. Interestingly the McClellan Oscillator closed with a very negative reading of -192 last night and it will probably just take one more large down day fore this signal to give a strong buy signal as the S&P is still trading outside the bottom of its Daily Bollinger Band. The S&P has very strong support at the 2095/2105 level and I will be an aggressive buyer on any dip to this area with a 2088 stop. I will also be a small buyer on any dip lower to 2117/2123 with a 2112 stop. I do not want to be short ahead of the Quarterly Expiration on Friday and the FOMC next Wednesday.
EUR/USD
No change as I am still a buyer on any dip lower to 1.1150/1.1190 with the same 1.1120 stop. As I have mentioned over the past two months anyone that I talk to or read and economic reports all analysts are bearish the Euro and for this reason the contrarian in me will not be short the market.
September Dollar Index
My Dollar plan worked well yesterday with the market trading higher to my 95.70 sell level before having a small sell-off this morning which has enabled me to cover this position at my 95.45 revised T/P level and I am now flat. Today I will again look to sell the Dollar on any rally higher to 95.80/96.20 with a 96.50 stop.
September DAX
My DAX plan also worked well with the DAX trading lower to my 10375 buy level with a 10350 low print before having a nice 100 point rally. As I had so many open positions at the time I cut my long position at 10400 and I am now flat. The DAX has good support at 10320 and today I will again look to buy the market on any dip lower to 10270/10330 with a 10215 stop. I still do not want to be short the market at this time especially as so far the DAX has held in well relative to the sell-off in the US markets.
September FTSE
The FTSE traded lower to my 6665 buy level yesterday evening. As Sterling was getting hit I was happy to hold this position overnight with thankfully the market hitting my 6695 T/P level and I am now flat. Given the weakness of Sterling I would expect the FTSE to have difficulty trading much lower from here and today I will again look to buy the FTSE on any dip to 6620/6650 with a 6580 stop.
Dow Rolling Contract
Shortly after lunch the Dow traded lower to my 18160 buy level before having a rally to 18210 and this rally enabled me to cover this position at my revised 18190 T/P level as emailed earlier to my Platinum Members and I am now flat. As mentioned in my S&P commentary above, with the MO trading well into negative territory I will be looking to put on an aggressive buy position if the market gets hit from here. The Dow has strong support from 18850/18920 and I will be a strong buyer here with a 17880 wider stop.
December BUND
The Bund traded lower to my average buy level at 163.00 yesterday before closing in New York near its lows at 162.70. Thankfully the Bund has rallied to a 163.24 high print in the last half hour and this rally has enabled me to cover this position at 163.20 as emailed in my sixth email to my Platinum Members which is now a new record for emails sent based on one Daily Commentary. Today my only interest in buying the Bund is on a further dip lower to 162.10/162.50 with a 161.55 wider stop.
Gold Rolling Contract
Late last evening Gold traded lower to my 1316 buy level before having a small rally which enabled me to cover this position at 1319.75 and I am now flat. Gold has strong support from 1302/1310 and today I will a small buyer in this area with a 1295 tight stop. A break and close below 1300 will be at least short-term bearish.
Silver Rolling Contract
Silver traded lower to my 18.85 buy level before rallying to 19.07 high print this morning. This rally has seen me cover my long position at 18.98 and I am now flat. Today I will again look to buy Silver on any dip lower to 18.40/18.80 with a 17.95 stop which is just below the key 18.00/18.30 major support level.
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