It has been another bad day at the office for equity markets, beginning in the Asian session and spreading across Europe and the US. There has not actually been much news out there so the newswires are again making up a whole lot of stories to try to explain the move. But this feels like a risk-off move centred within equity markets because of high valuation concerns amidst a backdrop of a weaker global growth outlook. China’s open-mouth operation at the end of last week, its plan to cut personal income taxes from 2019 and offer of incremental policy changes to help support the market worked for a couple of days, but yesterday saw a 2.7% reversal in the CSI300 index. The Euro Stoxx 600 index fell by 1.6%. The S&P500 was down by 2.3% at one stage but clawed its way back up to a 0.6% fall while the Dow managed to close above its 200 Day Moving Average after a dramatic 500 point rally off its mid-afternoon lows.
To mark my 1700th 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 120 points yesterday and is now ahead by 1518 points for October, having made 1276 points in September, 599 points in August, 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March and 2256 points in February. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Equities
The newswires are blaming some weaker earnings results as an added negative force on the market. Renault and tech companies in Europe, and bellwether stocks Caterpillar and 3M in the US. While 3M cut its earnings forecast, Caterpillar’s result was not bad at all, beating analyst estimates and reaffirming guidance. The company did say that increased tariffs cost it $40m, but the full year impact will be at the lower end of previous guidance. The stock fell as much as 10% before paring its loss to 7%. I would suggest its underperformance is more indicative of a rotation out of cyclicals into defensive stocks than its earnings result per se.
US Treasury rates have followed equity markets, tracing the move lower in S&P 500 futures during the Asian trading session and the further equity market move during US trading hours. The 10-year rate traded as low as 3.11%, and has since risen to 3.17%, still down 3bps for the day. The fall in the S&P500 from its peak late-September, now some 7%, is not likely large enough to impact the Fed’s monetary policy outlook, but there has been some paring of rate hikes built into the curve over the past couple of weeks. About 70bps of rate hikes are priced into the Fed Funds curve through to the end of next year, down from 78bps as of two weeks ago. The Fed’s Bostic and Kaplan spoke this morning but did not add much to previously held views.
Economic News
The European Commission officially rejected Italy’s budget proposal, as expected, and asked the country to revise and resubmit its plans within three weeks. This is the first time such demands have been made of a member state. Ahead of that decision, Italian Prime Minister Conte said that ‘’There is not any B plan’’ and while he suggested some tweaks were possible he could not accept any substantial change, ‘’it will be difficult for me because I cannot accept that.’’ The Italian-German 10-year bond spread blew out 14bps on that, with German Bunds down 4bps to 0.41% and Italian BTPs up 10bps to 3.59%.
Currencies
In currency markets, movements have been well contained despite the more significant moves in equities and bonds. JPY has outperformed as one would expect, with USD/JPY falling below 112 at its nadir before recovering to 112.40, down only 0.4% for the day. All other major currency moves have been within +/-0.2% from levels of this time yesterday. The AUD has largely traded sideways in an approximate 0.7055-0.7090 range, regaining some of the small losses seen during the Asian trading session to currently sit at the top of that range.
Sterling saw a spike up to 1.3040 after Irish broadcaster RTE reported, without stating its sources, that the EU is to offer UK PM May a UK-wide customs union as a way around the Irish backstop issue, to be negotiated beyond the withdrawal agreement as a separate treaty. Sterling has since nudged back below 1.30. Italy’s budget woes have not had much impact on EUR, with the currency flat around 1.1470.
Commodities
Oil prices are down over 4%, with Brent crude slipping below $76 a one point, now $76.30. Saudi Arabia’s Energy Minister said that OPEC and its allies are in ‘’produce as much as you can mode’’. Saudi Arabia has been pumping 9-10 million barrels per day for years and does not rule out boosting that by as much as two million.
This morning on the Economic Front we have German, Euro-Zone and US Manufacturing PMI at 8.30 am, 9.00 am and 2.45 pm respectively. Also at 9.00 am we have Euro-Zone M3 Money Supply. Next at 12.00 pm we have the MBA Mortgage Applications and this is followed by the FHFA House Price Index. The Bank of Canada (3.00 pm) is widely expected (88% priced) to hike rates for the fifth time this cycle by 25 bps, taking its overnight rate to 1.75%. The economy is running close to potential, the 5.9% jobless rate is almost back to multi-decade lows and core CPI inflation is running around target at 2%. Finally we have New Home Sales at 3.00 pm and the Fed’s Beige Book at 7.00 pm
Meanwhile the Fed’s Bostic and Mester are speaking this evening at 6.00 pm and 6.10 pm respectively.
December S&P 500
Initially my S&P plan was wrong as after the market traded the whole of my buy range for an average long position of 2722 I was stopped out of this trade at 2709. Subsequently (I urge all members to become a Platinum Member as the updated emails are key) I emailed my Platinum Members to re-buy the S&P at a price of 2695 from where the S&P rallied to a rebound high of 2755 as all of Monday’s Open Gap’’ was filled. I used this rally to cover my position too early at 2706 and I am now flat. The S&P fell over 90 Handles from Mid-afternoon on Monday to yesterday afternoon before rallying 60 Handles into the close as we got the Tuesday turnaround as mentioned to my Platinum Members earlier. While the Dow managed to close back above its 200 Day Moving Average the S&P is still shy at 2777 and it will need the market to break back above this key area to have a more sustainable rally. Today I will now lower my sell level to 2775/2785 with a 2793 stop. My only interest in buying the market is on a dip lower to 2713/2723 with a 2703 tight stop.
EUR/USD
Despite the equity volatility the EUR/USD traded in a narrow range and I am still flat. I am not going to chase this market higher and I will leave my buy level unchanged from 1.1360/1.1400 with a 1.1325 stop.
December Dollar Index
No change as I am still a seller on any rally higher to 96.20/96.60 with a 96.95 stop.
December DAX
After the DAX traded the whole of my buy range for an average long position at 11285 I used the rally before lunch to email my Platinum Members to exit any long position at 11335 and I am now flat. The DAX rebound well off the next support at 11200 with the market in New York managing to close above the key 11350/11400 support level. Today I will again look to buy the market on any dip lower to 11170/11240 with a 11115 stop. I still do not want to be short the DAX at this time.
December FTSE
My FTSE plan also worked well with the market trading lower to my 6930 buy level before rallying to my 6955 T/P level and I am now flat. The weakness in Sterling is helping the FTSE from falling further with the oversold market also a factor in this regard. Today I will again look to buy the market on any dip lower to 6880/6920 with a 6845 stop.
Dow Rolling Contract
What a day. Yesterday was one of the most volatile trading sessions of the year with the Dow down over 600 points at one stage before recouping over 500 of these points into the close. Somehow the Dow closed over its 200 Day Moving Average which comes in just below here at 25160. Yesterday after the Dow traded lower to my 24980 buy level I emailed my Platinum Members to only add to this position at 24820 with a lower 24750 stop which just missed being hit by 16 points. As I was now long at an average rate of 24900 I was happy to exit this position at my revised 24920 T/P level and I am now flat. Obviously the 24700/24850 area is now key support for the Dow and today I will be a buyer on any dip to this area with a 24580 stop. I still do not want to be short the market at this time.
December NASDAQ
My NASDAQ plan worked well with the market trading lower to my 7010 buy level before rallying to my 7045 T/P level and I am now flat. The NASDAQ left a nice buy extreme off yesterday’s 6945 low print and today I will now look to buy the market again on any dip lower to 7000/7050 with a 6955 tight stop which is just below yesterday’s low print.
December BUND
No change as I am still a seller on any rally higher to 160.20/160.60 with the same 160.95 stop.
Gold Rolling Contract
Gold finally rallied as indicated by the near record number of short positions in the Futures Market. I am still flat and today I will now raise my buy level to 1212/1222 with a 1203 stop.
Silver Rolling Contract
Silver continues to struggle even though the market finally rallied to my 14.75 T/P level on my latest long 14.65 position and I am now flat. Today I will again look to buy the market on any dip lower to 14.20/14.60 with the same 13.80 stop.
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