Fed chair Janet Yellen spoke last evening and opined that it would be ‘Imprudent to keep monetary policy on hold until inflation hits 2%’. We also heard from new Atlanta Fed President Raphael Bostic, who said he is hearing anecdotes of more pressure on wages and prices, more so when he started in June. Bostic is not an FOMC voter this year – he will be next – but his comments have worked with the grain of Yellen’s remarks to see market pricing for a December Fed rate rise move up to closer to 70% from around 65% this time yesterday. The big question is whether some central banks are now elevating the importance of financial stability concerns over achievement of inflation targets in setting monetary policy.
To mark my 1425th 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. This offer is open to both new and existing members and if anyone is interested can you please contact me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 40 points yesterday and is now ahead by 329 points for September, having made 1560 points in August, 1096 in July, 1023 in June, 1076 in May, 1375 in April, 1335 in March, 1481 in February and 1734 in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1700 points.
Certainty financial stability was afforded somewhat elevated status in the restated Treasury/RBA agreement after Phil Lowe took the reins from Glenn Stevens last year, but frankly it’s hard to detect any ‘sea change’ of attitude amongst central bankers. Perhaps the more important point to emphasise is that central bankers – of which Janet Yellen remains the most important in the world – are happy to be gradually normalising policy as long as they have confidence inflation will be moving up towards target in future. Waiting until the target is met before setting rates close to neutral would be too late – a point made forcefully by Bank of Canada Governor Stephen Poloz earlier in the year when the BoC first moved rates up from 0.5%. This has implications for RBA policy next year.
US Bond Yields are +/- 1.5bps higher across the curve and the DXY Dollar Index up another 0.4% to 93.02, so now over 2% up on its early September lows. US equity market have not been fazed by the rising prospects of the Fed delivering on its median 2017 ‘dot’, closing little changed. This is also because we have not seen any further ratcheting up of N. Korea tensions in the past 24 hours. This shows up in USD/JPY moving back up to around ¥112.50 from ¥11.50 yesterday, albeit partly a by- product of generalised US Dollar strength.
The latter has overwhelmed the impact of less market risk aversion to see AUD/USD fall below 79 cents for the first time this month and to its lowest intra-day level – 0.7859 – since mid-August. Whether we can trade down to as low as 0,.75 by year end is probably now more in the hands of US tax reform progress, or otherwise, and commodity prices, than whether the Fed does now actually deliver a December rates rise.
US Dollar strength since I posted 24 hours ago also owes something to further pressure on the Euro, linked to Sunday’s German election results and with an eye to an ‘illegal’ referendum on Catalonia independence this weekend and then looking ahead, Italian elections next year, with the Euro dropping to its lowest level in over a month yesterday afternoon.
US data has been largely a sideshow, but the very small fall in US Consumer Confidence (119.8 from 120.4) tells us that the recent hurricanes have not had nearly as depressing an effect on consumer psyche as hurricane Katrina in 2005, a catastrophe accompanied by awful scene of thousands of Illinois residents holed up for days in inhumane conditions.
This morning on the Economic Front we have UK CBI Retailing/Total Reported Sales at 11.00 am. This is followed at 1.30 pm by US Durable Goods Orders and at 3.00 pm by Pending Hoe Sales at 3.00 pm. Finally the Fed Members Bullard and Brainard speak at different events at 6.30 pm and 7.00 pm respectively.
Officially not due to be released until later this evening but prone to be comprehensively leaked during the afternoon, the US administration and Republican leadership are slated to jointly reveal their framework for tax reform. Reports this week suggest that the so called ‘Big Six’ are not yet all on the same page (that’s Treasury secretary Mnuchin, Trump’s chief economic adviser Gary Cohn, House Speaker Paul Ryan, Senate majority leader Mitch McConnell, House Ways and Means committee Chairman Kevin Brady and Senator Orrin Hatch). The particular point of contention is reported to be taxes on the wealthiest, in particular whether there should be any net tax cut on the wealthiest Americans, even if the top rate of income tax is reduced to 35% from 39.5% as reportedly proposed. What emerges on this today will be of keen interest, as will any reference to measures that would prompt large scale repatriation of US multinationals’ profits currently housed abroad.
December S&P 500
The S&P did build value over the key 2492 pivot points as mentioned in yesterday’s commentary. I am still flat and I will now raise my buy level to 2492/2498 with a 2487 stop as I look for the market to finally trade higher to my 2520/2526 objective where I will be a seller with a 2532 stop. Remember if the S&P cannot break the key 2390/2440 major support level as mentioned at length in last Monday’s commentary over the coming month, then there is a strong possibility of a melt-up in the S&P to its third Standard Deviation at 2792 over the coming months.
EUR/USD
After the Euro traded lower to my 1.1795 buy level the market made a new one month low at 1.1758 before rallying back to a rebound high at 1.1810. Again as I did not want to have an overnight position I emailed my Platinum Members to exit any long position at 1.1802 and I am now flat. The Euro is now at a critical juncture with strong support from 1.1700/1.1750 having fallen nearly 350 points off its recent high. As mentioned yesterday a break and close below 1.1660 is short-term bearish opening up the possibility of a bigger correction to 1.1200/1.1400 before a more meaningful bottom is put in. As we wait for the announcement of the US tax reform late today I will again look to buy the Euro on any dip lower to 1.1690/1.1745 with a 1.1645 stop. As I go to press I have just been filled at 1.1745 and I will only add in to this position on any move lower to 1.1690.
December Dollar Index
The Dollar has again rallied and closed higher yesterday for the fifth consecutive trading session. The 92.60 level is key and as long as we can hold above this level the Dollar is bullish. I am still flat and today I will now raise my buy level to 92.30/92.70 with a 91.90 stop. I still do not want to be short the Dollar at this time.
December DAX
Yet again the DAX traded in a narrow to firm range with the market helped by the renewed softness in the Euro. The DAX is still firm despite the rise of the AfD party in Germany’s Election last Sunday. I am still flat and today I will now raise my buy level to 12490/12550 with a 12440 stop.
December FTSE
The FTSE has been stuck in a narrow 250 point range for over four months with most of the moves within this range determined by the movement in Sterling. If Sterling weakens as it is this morning then the FTSE is bid and if Sterling rises then the FTSE goes on hold to a small sell-off. In all my years if trading the main Indices I have never seen the FTSE trade in such a narrow range making it extremely difficult to make any points. I am still flat the market and given the fact that Sterling has broken some key levels this morning I will now raise my buy level in the FTSE to 7200/7235 with a 7170 stop.
Dow Rolling Contract
My Dow plan worked well yesterday with the market trading higher to my 22350 initial sell level before trading back below 22300 thus generating a nice profit. Unfortunately as I had three open position ahead of Yellen’s speech I emailed my Platinum Members to raise my sell level in the Dow which was not filled as I had enough potential risk on board at that stage. I am still short in tiny size and today I will again look to sell the Dow on any rally higher to 22400/22460 with a 22510 tight stop. If the Dow does sell off over the coming days I will still be an aggressive buyer on any dip to 21830/21910 with a 21770 stop.
December BUND
The BUND has strong resistance at 161.80 and after the market traded lower to my 161.65 buy level, I emailed my Platinum Members to cut any long position ahead of Yellen’s speech at 161.73 and I am now flat. Despite the insane low yield for the Bund, I would not be chasing this market lower and today I will again look to buy the Bund on any dip lower to 160.90/161.30 with a 160.60 stop.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1295 buy level before rallying back above 1300. After Gold rallied and the fact that I was already still long Silver, I emailed my Platinum Members to exit any long position at 1297.50 and I am now flat. This morning Gold is trying to break 1290 ahead of key support from 1275/1283 where I will be a buyer with a 1268 stop.
Silver Rolling Contract
My suspicions about Monday’s rally in Silver proved to be correct with the market trading lower to my 17.00 buy level. I am still long and today I will only add to this position on any further move lower to 16.60 with a lower 16.35 stop.
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