Treasuries rallied and stocks eked out a gain a day before the Federal Reserve is expected to cut interest rates. Oil plunged as Saudi Arabia restarted the plant damaged in a weekend attack. Crude gave back some of Monday’s 15% surge as Saudi officials said they had restored just under half the output lost at the Abqaiq plant, one of the world’s biggest oil facilities. The S&P 500 Index posted a small advance, with dividend paying Real-estate shares faring best. Ten-year Treasury yields fell toward 1.8% and the US Dollar weakened after the New York Fed took action to calm Money Markets, injecting billions in cash to quell a surge in Short-Term Rates that was threatening to drive up borrowing costs for companies and consumers. As U.S. policy makers get ready to decide interest rates, investors are also trying to gauge the risk of a potential oil shortage weighing on a global economy that already seemed to be slowing down. Meanwhile, concerns linger about trade tensions, with U.S. and Chinese working-level negotiators set to resume talks in the next week, before a meeting of top officials in October. Meanwhile, the opening day of an unprecedented legal challenge to the powers of the British Prime Minister ended with Boris Johnson on the back foot and his room for maneuver on Brexit shrinking. On the first of three days of hearings on the legality of Johnson’s decision to suspend Parliament, a Supreme Court judge asked Johnson’s attorney for a written statement outlining the Prime Minister’s plan if the justices rule against him.
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Equities
The Saudi attack has reminded investors about the risks of geopolitical tensions escalating. I have pointed to U.S. trade escalation, I pointed to Brexit, but we’ve seen that over the course of the last two years, unexpected triggers of risk can pop up. As we have seen from the weekend, we don’t always know where that’s going to come from.
The S&P 500 Index rose 0.2% to close at 3006, back to last Friday’s closing level.
The Dow closed unchanged after a late rally at 27,110.
The Stoxx Europe 600 Index edged lower closing down by less than 0.1%.
The Shanghai Composite Index declined 1.7%.
Currencies
Here is a summary of the main changes in F.X Markets:
The Bloomberg Dollar Spot Index fell 0.2%.
The British Pound rose 0.6% to $1.25.
The Japanese Yen was little changed at 108.16 per dollar.
The Euro rose 0.7% to $1.1072.
Equities in Shanghai and Hong Kong slid after China’s Central Bank disappointed investors when it refrained from lowering a key interest rate
Bonds
The yield on 10-year Treasuries declined four basis points to 1.8%.
Germany’s 10-year yield rose one basis point to -0.48%.
Britain’s 10-year yield was little changed at 0.69%.
Italian Bonds fell after former Prime Minster Matteo Renzi left the Democratic Party, raising the prospect of further government instability.
Commodities
Gold climbed 0.3% to $1,503.13 an ounce.
WTI crude dropped 6.1% to $59.06 a barrel.
This morning on the Economic Front we have U.K. CPI, PPI and the Retail Price Index at 9.30 am. This is followed by Euro-Zone CPI and Construction Output at 10.00 am. Next we have U.S. MBA Mortgage Applications at 12.00 pm and Housing Starts/ Building Permits at 1.30 pm. Finally, we have the FOMC Rate Decision at 7.00 pm, followed by Fed Chair Powell’s Press Conference at 7.30 pm. The Federal Reserve is widely expected to lower U.S. Interest Rates in response to slowing global economic growth and muted inflation.
September S&P 500
Markets traded sideways for most of yesterday before having a small rally into the close. The ‘’buy the dip’’ continues to win every battle with the S&P closing at the same level as Friday despite the increased geopolitical tension. Remember as I have consistently said in my Daily Commentaries, ‘’ A Market that does go down on bad news has to be respected’’. I would expect very little volatility ahead of the FOMC Announcement. If we do sell-off post the FOMC I would expect any sell-off to be contained ahead of the Quadruple Expiration on Friday. I will now raise my S&P buy level to 2981/2991 with a 2973 stop. I still do not want to be short the S&P at this time.
EUR/USD
I am a firm believer that the US Dollar will weaken over time. Yesterday the Euro rallied to my 1.1035 T/P level on my latest 1.1020 average long position and I am now flat. I will look to buy the Euro again on any dip lower to 1.0980/1.1020 with a 1.0945 tight stop.
December Dollar Index
No Change as my only interest in shorting the Dollar is from 98.50/98.90 with the same 99.30 stop.
September DAX
Frustratingly the DAX just missed my 12280 buy level with a 12299 low print before rallying 80 points and I am still flat. Ahead of the FOMC I am not going to chase the market higher and I will leave my 12200/12280 buy level unchanged with the same 12145 stop.
September FTSE
Given the fact the Pound is five big figures higher over the past week I would have expected the FTSE to be lower. I am still flat the FTSE and today I will leave my 7210/7250 buy level unchanged with the same 7170 stop.
Dow Rolling Contract
The low for the Dow yesterday was 26976 just above my 26950 initial buy level and I am still flat. Just like the DAX above I am reluctant to chase this market higher ahead of the Fed this evening and I will leave my 26800/26950 buy level unchanged with the same 26705 stop.
September NASDAQ
I am still flat the NASDAQ and I will now raise my buy level to 7770/7830 with a 7725 stop.
December BUND
No Change as I am still a small buyer from 172.10/172.50 with the same 171.70 stop.
Gold Rolling Contract
Gold has traded in a $30 range for most of the past three weeks. Sentiment remains at elevated levels which concerns me. Given the nasty 9% sell-off in Silver last week I am worried that we may something similar in Gold. Against this theory the weaker Dollar should help Gold to hold in. I am still flat Gold and today I will again leave my 1470/1480 buy range unchanged with a 1461 stop.
Silver Rolling Contract
No Change as I am still a buyer on any dip lower to 17.10/17.50 with a 16.80 tight stop.
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