At his semi-annual testimony before the Senate, Fed Chair Powell reiterated the Fed’s upbeat assessment of the US economy, noting risks to the outlook remain roughly balanced and that for now the best way forward is to keep lifting rates gradually. On trade, a pragmatic Powell said that it was too soon to say how trade policy would influence the Fed’s thinking. So the key take away is that trade policy has not yet affected the Fed’s intentions for further gradual hikes. The Fed remains data dependent and the inclusion of the phrase ‘’for now’’ provides the Bank with some flexibility if it needs to alter the interest rate path ahead.
To mark my 1625th 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@tradernoble.com for details
For anyone following my Platinum Service it made 41 points yesterday and is now ahead by 587 points for July, having made 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, 879 points in January and 946 points in December. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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US equities liked Powell’s upbeat US economic assessment and lack of imminent concerns over trade policy. Reaction in US rates triggered a flattening of the US Treasury curve led by a rise in front end yields and although the USD was already rising ahead of Powell’s testimony, the move higher in shorter dated UST yields was an additional boost for the greenback. NZD retains its gains from yesterday’s higher than expected core inflation, despite a mixed dairy auction overnight and Sterling underperformed amid ongoing Brexit political uncertainty.
Equities
The Nasdaq index has led the gains in equities yesterday, climbing above its previous closing record high, closing the day 0.63% higher. So a rebound in technology shares and upbeat Fed Chair Powell testimony has helped risk sentiment over the past 24 hours. Netflix shares retraced about two third’s of their opening drop ( -4.3%) as investors looked past disappointing quarterly earnings re-focusing on long-term growth. Meanwhile the Stoxx Europe 600 index added 0.2% and late yesterday the Japan’s Nikkei closed up 0.4%.
Rates
Although market expectations of Fed tightening did not change much after Powell’s comments with the market currently pricing just over a 90% chance of a September rate rise and about 3 hikes to the end of 2019 (versus 5 hikes denoted by the Fed dots), shorter dated US treasury yields continued their slow ascendency with the 2y tenor climbing another 1.5bps to 2.613%. Meanwhile 10y UTS yields were little changed at 2.86%, flattening the 2y10y curve to 24.8bps its flattest level since 2007.
Currencies
The move higher in front end yields boosted the USD, although the greenback was already on the ascendency early in the London session. The DXY index more than reverses the minor losses from the previous two days and now it is toying again with a move back above 95.
Sterling has been the weakest currency over the past 24 hours as politics continues to overshadow economic data (see below). The UK Government managed to narrowly avoid defeat on an amendment to the Trade bill that would have sought to keep the UK in the Customs Union if the Government could not agree on frictionless trade with the EU by January 2019. If the amendment were accepted (and the Government defeated), there was speculation there would be a leadership challenge on Theresa May and possibly a vote of no confidence from Labour. Sterling fell to as low as 1.3070 ahead of the vote, but has since recovered slightly to 1.315 after the amendment was defeated. So in spite of a positive outcome for the government, political uncertainty remains a massive headwind for the pound. This morning the FT reported that some EU diplomats are beginning to debate whether it is worth negotiating with PM May if she cannot hold her party together.
AUD is back below the 74c mark (-0.42%) and is currently trading at 0.7389. It has been a soft past 24 hours for commodities (more below) and the divergence between emerging markets equities vs Developed market equities continues to be a thorn on the side for the AUD.
Commodities
Oil prices had a calm and steady session after a big decline on Monday (Brent -0.2%), but looking at the whole commodity complex the picture remains cloudy. Zinc had a good day up 1.54%, but the rest of the complex had a down day, copper lost another 0.72%, aluminium gave up 1.12% and iron ore closed -0.40%. Global growth concerns amid rising trade tensions are seemingly the biggest drag on commodities at the moment. Meanwhile both Gold and Silver closed at new year to date lows for the second consecutive day.
This morning on the Economic Front we have UK CPI, PPI and Retail Sales at 9.30 am. This is followed at 10.00 am by Euro-Zone Construction Output and CPI. At 12.00 pm we have US MBA Mortgage Applications. Next we have US Housing Starts and Building Permits at 1.30 pm. Finally the Fed’s beige book is also out at 7.00 pm and the report will undoubtedly be scoured for any hints of business concerns from the US-China trade dispute.
Fed Chair Powell gives his second testimony, this time before the House Panel and the market will be on alert for any pearls of wisdom during the Q&A session.
September S&P 500
Despite the NASDAQ making another new all-time closing high, while the Dow and S&P made new recovery highs following their nasty sell-off in June, the McClellan Oscillator still closed in negative territory which is a worry. However even with the weak internals it is very difficult to be short as the buy the dip continues to win practically every battle over the past nine years. Unfortunately the S&P just missed my 2786 buy level before rallying almost 30 Handles as yet again anyone short the market got slammed. I am still flat the S&P and today I will now raise my buy level to 2795/2803 with a 2788 stop. Despite the weak internals I am still looking for a new all-time high (above 2878) over the coming weeks and for this reason I do not want to be short the market at this time.
EUR/USD
The Euro traded lower to my 1.1670 buy level. I am still long and I will still look to add to this position on any move lower to 1.1630 with a 1.1590 stop. I will now lower my T/P level on this position 1.1680 and if my second buy level is filled I will then go ahead lower my T/P level to 1.1660. If any of my T/P levels or stop is filled I will be back with a new update for my Platinum Members.
September Dollar Index
Frustratingly the Dollar just missed my buy level yesterday before rallying as expected and I am still flat. Today I will now raise my buy level to 94.10/94.50 with a 93.75 stop.
September DAX
Thankfully we had no sell levels in the DAX yesterday as the market rallied strongly and I am still flat. Today I will now raise my buy level to 12550/12610 with a 12480 wider stop.
September FTSE
It took a while but finally the FTSE rallied to my second T/P level at 7570 on my 7560 buy level from Tuesday and I am now flat. The UK Political situation is a mess as you can see from the aggressive selling in Sterling over the past few months. However a weak currency tends to lead to a strong equity market which we have witnessed over the past two years since we had the Brexit vote. Today I will again look to buy the market on any dip lower to 7530/7570 with a 7495 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
I am still flat the Dow which is finally playing catchup with both the S&P and NASDAQ. The Dow has now risen nearly 1300 points off its early July low. As I mentioned yesterday the Dow needs to break and close over 25400 and if this happens it will signal significantly higher prices. Today I will now raise my buy level to 24880/25030 with a 24810 tight stop. Given the significance of the 25400 resistance area I will be a small seller on any further rally to 25350/25500 with a 25570 stop.
September NASDAQ
There was just no way that the US traders were going to leave an 80 point ‘’Open Gap’’ in the NASDAQ following the aggressive sell-off on Tuesday post the Netflix earnings. Indeed the market recovered so much that we closed at a new all-time high. This move higher enabled me to cover my 7310 long position too early at my 7340 T/P level and I am now flat. Today I will again look to buy the market on any dip lower to 7280/7340 with a 7235 wider stop. The price action tells you not to be short the NASDAQ at this time.
September BUND
No change as I am still a seller on any rally higher to 163.25/163.65 with a 163.95 stop. Given the insanely low yield I still do not want to be long the market at this time.
Gold Rolling Contract
The sell-off in Gold continues. The price action is awful despite the near record low Daily Sentiment Index reading. Yesterday’s sell-off saw me buy Gold at 1227. I will now only add to this position on any further move lower to 1215 with a now lower 1209 stop. Meanwhile I will now lower my T/P level on this position to 1230.
Silver Rolling Contract
Silver also closed at new 2018 lows last night in New York. I am still long at 15.90 and I will now lower my stop on this position to 15.25 as the 15.30/15.60 area is good support. If any of these levels are hit I will be back with a new update for my Platinum Members. Meanwhile I will leave my T/P level unchanged at 16.00.
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