Things aren’t really getting better. The circular theme of markets continues, with equities weakening, weighing on broader risk, weighing on currencies, weighing on equities. And so it goes. While the Fed waits to decide to raise rates, this is not helping the Global Markets. Add the increased supply of many commodities, and the commodity complex weakens, adding to equity weakness. We saw that circularity in the yesterday’s trading session, with yesterday’s down day in Chinese equities being followed by 2.5-3% declines in European and US stocks. Oil failed to hold its gains of the day before with an 8% fall, while the US Dollar was against weaker against the majors, but stronger against EM.
For anybody following my new Platinum Service it made 430 points yesterday. Last month it made 2195 points while June and July showed a total return of 3045 and 1810 points respectively.
I have been asked to do a live trading/training day over the Non-Farm Payrolls on Friday in the Royal Irish Yacht Club Dun Laoghaire from 11.00 am to 5.00 pm. ETX Capital have kindly agreed to sponsor any existing or new client’s accounts to the tune of EUR 150 per person attending this event. If anyone is interested in coming on Friday please contact Graham on grahammulhern@yahoo.com
The AUD was the underperformer. There was surprisingly little movement in the Bond market. The reason for this is a little murky but there are conflicting forces at play. While none can be wholeheartedly proven just yet it could be the case that: growth rates are yet to be proven to be weaker but the concerns are driving down Bond Yields. This is balanced against the idea that global reserve managers are selling bonds and driving up Yields. It might be a question of time needed to make this clearer or see which force is the over-riding factor.
The outlook for the Fed inched back towards the “no” hike again yesterday, with the US ISM coming in relatively weak. It was the softest read since May 2013 and driven by New Orders and Export Orders in particular. While the Fed speakers at Jackson Hole were pretty relaxed about global volatility, they may not be able to fully ignore this indicator of health in the US economy. The series for Production, Inventories and Employment also declined. The Fed’s Rosengren (2016 voter, dove) is looking for a more modest tightening cycle and the long term Fed Funds rate will be lower than in previous cycles. He did, in Q&A, acknowledge the risks from the current period of market volatility.
Today’s data may have suited Rosengren’s view of the world, but not everyone’s. There has been a lot invested in the Fed’s move off the zero interest rate bound and it appears that the window of opportunity is getting smaller and smaller. It isn’t that the US economy might not be ready, and the labour market report at the end of the week will add to that debate, but can the rest of the world? In a world of global interconnectedness, in financial markets as much as anything else, this decision from the Fed shows how difficult it may be for even the biggest and most open economies to pursue independent Monetary Policy. The present Global Market ructions also show how much the policy path since 2008 have encouraged that interconnectedness, which makes deciphering expected market behaviour even more difficult than it usually is, thus it generates more volatility. The path ahead is definitely not going to be a straight line; for the Fed or for Risk Assets.
China’s official PMI came in lower on the month, as expected, yesterday; so showing a decline but nothing worse than expected. The equity markets remained under pressure. There was a new policy announcement to impose a 20% reserve requirement on USD/CNY forwards. This didn’t add positivity to sentiment.
As today is the last trading session for the Chinese market which is now closed until Monday morning, markets are opening stronger on the back of China now in positive territory. Overnight Australia reported its latest GDP Number which printed a very weak +0.2% versus +0.4% expected. This GDP Report really weighed on the Australian Dollar which briefly broke 70 versus the US Dollar. It is only last year that the AUD was trading at 110 versus the US Dollar.
This morning on the economic front we have UK Construction Spending at 9.30 am. At 10.00 am we have Euro-Zone PPI. Next up at 1.15 pm we have the very important US ADP Employment Change which will be closely watched by markets for any clues ahead of Friday’s all important Non-Farm Payrolls. This is followed by Non-Farm Productivity, ISM New York and Factory Orders at 1.30 pm 2.45 pm and 3.00 pm respectively. Finally at 7.00 pm the Fed will release its Beige Book and this certainly will be a market mover.
September S&P 500
The S&P plan worked really well yesterday as the market started to sell-off aggressively just as I posted which enabled me to buy the S&P near the bottom of my buy range at 1924 before the market had a nice rally which enabled me to cover this position at 1931. Subsequently about 30 minutes before the close the S&P again got hit hard with the market hitting my second buy level at 1903 with an 1899 low. This was followed by one of these great bear market rallies into the close which enabled me to T/P on this position at 1918 as outlined earlier to my Platinum Members and I am now flat. This rally has continued overnight with the S&P now leaving a large ‘Open Gap’ from last night’s close. It is worth noting that with yesterday’s 3% sell-off In the S&P we have left a ‘Gap’ from Monday’s close at 1970 to yesterday afternoon’s rebound high at 1937 which is huge and I would expect some of this gap to be filled over the coming days. There is no doubt that this Friday’s NFP is going to have a huge effect on markets especially with the FOMC Meeting in two weeks. Today I am going to be a small buyer on any dip lower to 1915/1923 with a 1908 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 1893/1903 with a 1888 stop. Given the fact that we have the Beige Book at 7.00 pm and NFP on Friday I am not inclined to go short ahead of these two key economic releases.
EUR/USD
The Euro plan also worked well yesterday as shortly after lunch the Euro traded lower to my 1.1240 buy level before I emailed all my Platinum Members to exit this position at 1.1270 and I am now flat. Today I will again be a small buyer on any dip lower to 1.1200/1.1230 with a 1.1170 stop. Despite the negative price action I do not want to short the Euro at this time.
September Dollar Index
No change as I am still a seller on any rally higher to 96.00/96.30 with the same 96.60 stop.
September DAX
The DAX plan also worked well yesterday as just like the S&P above the DAX was getting hit hard to the downside by the time I posted which enabled me to buy the DAX near the bottom of my buy range at 9940. Subsequently I emailed all my Platinum Members to exit this position at 10005 before the market traded to a 10040 high before again selling off and I am now flat. Amazingly after all the gyrations so far in 2015 the DAX is still ahead for the year. Today I will again be a small buyer on any dip lower to 9930/9980 with a 9880 stop.
September FTSE
The FTSE continues to be the weakest of the main European Stock Indices and yesterday was no exception. Thankfully by the time I posted yesterday morning the FTSE was already trading at the bottom of my buy range at 6095. However that is where the good news ended as the market was not able to get anything going on the upside and I was eventually stopped out of this trade for a small loss at 6050 and I am now flat. This morning the FTSE is opening higher and today I wil again be a small buyer on any dip lower to 6020/6060 with a 5980 stop.
Dow Rolling Contract
The Dow plan also worked very well yesterday as shortly after I posted the Dow traded lower to my 16160 buy level before having a nice rally to 16245 which enabled me to T/P at 16240 as outlined earlier to my Platinum Members and I am now flat. The Dow is rebounding strongly this morning and just like the S&P above I do not want to be short ahead of the Beige Book this evening and the NFP on Friday. Today I will again be a small buyer on any dip lower to 16050/16130 with a 15970 stop. Given the volatility I have to use a wider stop.
September BUND
No change as I am still a small buyer on any dip lower to 152.10/152.50 with the same 151.90 tight stop. My only interest in selling the BUND is still on a rally higher to 153.70/154.10 with a 154.30 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1123/1132 with the same 1114 stop. Gold actually held in well yesterday when you consider that a lot of the main Mining shares lost between 6/10%.
Silver Rolling Contract
No change as I am still a small buyer on any dip lower to 14.20/14.50 with the same 13.80 stop.
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