Sitting, waiting for the Fed, in summer markets. That pretty much characterises the last day, which was surprising after the angst of the prior period. The concerns over China were eased (somewhat, for now) and elsewhere markets were content to reverse some of earlier changes. There was limited news-flow, most of which didn’t seem to get much attention from markets. The UK second quarter GDP was as expected (0.7%qoq) and better than Q1.
For anybody following my New Platinum Service it made 130 points yesterday and is now ahead by 1380 points for July. Last month it generated a 3045 point return.
That should help the BoE’s recent push to warn markets that they would like to hike earlier than the market thinks. This should be GBP positive, but didn’t have much of a push. In the US, even a very soft Consumer Confidence result couldn’t get anyone enthusiastic about changing expectations. No one can say exactly why, but Consumer Confidence was at a low not seen since September 2014 (90.9A, 99.8P, 100E). House prices were also soft. Not to worry, apparently. This is because the Fed is coming up and particularly at turning points in cycles, there is some uncertainty about the future policy track. So participants might as well sit and wait for the next day or so and see what Chair Yellen has to say.
The Fed are not expected to change policy today, but provide some guidance as to the first ‘lift-off’ of rates since 2006. It is possible that they change the risks to balanced, acknowledging the better employment market, but some inflation disappointment. It’s been a long time between cycles. That prolonged period of policy easing has made markets nervous about the coming cycle and how various asset classes, including or especially those outside of the US, will cope. Generally, in a recent investor trip, many clients did not want to focus on the September or December start in the Fed cycle, but rather the end point. How much and how fast is the Fed likely to raise interest rates; and how will the more integrated global financial market cope with that? Therein lies the uncertainty- and with the proposed new Fed Governor being of more of an international, FX bent – one that the Fed may also be keenly aware of. So a September versus December kick-off will generate short-term moves in the US Dollar and Bond Yields, but it is the path ahead that should be the most important factor. In that, the Fed is likely to reassure on a steady, and very slow, hiking cycle in the Fed Statement.
The eventual terminal rate (peak if you will) will be determined by the likely, lower, potential growth rate in the US but we shall see how that develops over time. And, how those assets used to a low risk premium come to manage a higher price for the risk premium. This may be one factor that is placing Emerging Markets under pressure at the moment, as soft global demand and higher supply weighs on Commodity prices. Additionally, the increase in leverage, globally and in different sectors, means there may be a higher sensitivity to interest rate hikes. This generates weakness, particularly in those countries with current account deficits. A promise of low and slow, from the Fed would be the most positive for risk assets; rather than a debate over September versus December initial move. This broad uncertainty, and the volatility in the Chinese equity markets will likely be reflected in the China sentiment survey today. But it will be the overall direction of the Chinese equity market that should have an intra-day influence on local markets. On this front, the PBoC and regulators are likely to continue to reassure that they will support equities. How comfortable international asset managers are about those measures is a different and longer term story, but it should assist in short term stability. If it does not, over time, there will be a much broader reassessment of the risks.
This morning on the economic front we have German Consumer Confidence at 7.00 am. At 9.30 am we have UK Mortgage Approvals. This is followed at 12.00 pm by US MBA Mortgage Applications. At 3.00 pm we have US Pending Home Sales. Finally at 7.00 pm we have the FOMC Rate announcement and Statement. As I go to print Fed Chair Janet Yellen is not due to give a press conference.
September S&P 500
The expected rally in the US Stock market certainly occurred yesterday with the S&P having a nice 28 Handle rally off its afternoon lows. Unfortunately the S&P made a low of 2061.50 which just missed my 2061 buy level before having this expected rally and I am still flat. There is no doubt that the US Economy is slowing down and today I am going to stay flat until the FOMC Statement is released. If the market rallies flowing this release I will be a small seller on any further rally to 2095/2100 with a 2106 stop. My only interest in buying this market is on a drop lower to 2070/2076 with a 2065 stop.
EUR/USD
Shortly after I posted early yesterday morning the Euro started to sell-off again with the market eventually dropping to my 1.1035 buy level. I am still long but as I want to be flat ahead of the FOMC this evening I will use any rally in the Euro today to close my position. Meanwhile I will also raise my stop on this position to 1.0995. Following the release of the FOMC Statement I will use any sell-off in the Euro to 1.0950/1.0990 to go long again with a 1.0910 stop. I still do not want to be short the Euro at this time.
September Dollar Index
My Dollar plan worked well yesterday as shortly before lunch the Dollar rallied higher to my 97.10 sell level before having a nice sell-off into the New York close which enabled me to cover this position at my 96.70 take profit level as outlined earlier to my Platinum Members and I am now flat. Today I will stay flat until the Fed this evening and if the Dollar rallies following the release of its Statement I will again look to go short on any rally higher to 97.30/97.70 with a 98.10 stop.
September DAX
The DAX also had a nice rally higher yesterday but to me the price action is still a struggle on any rally higher. I am still flat the DAX and today I will use any subsequent rally higher to 11370/11440 to go short with a wider 11510 stop. Given the price action over the past 10 days I do not want to be long the market at this time.
September FTSE
My long 6440 FTSE position from late Monday worked well yesterday as the market had a nice rally which enabled me to cover this position as outlined earlier to my Platinum Members at 6485 and I am now flat. As I mentioned yesterday if you look at the Daily chart of the FTSE the market has put in a triple top and to me as the FTSE has led this recent sell-off in the major Indices the FTSE is a sell on rallies. Today I will look to go short on any rally higher to 6580/6620 with a tight 6650 stop.
Dow Rolling Contract
Very frustrating as the Dow just missed my 17410 buy level by 25 points yesterday before going on to have a 200 point rally which was expected ahead of the FOMC this evening and I am still flat. Today I will be a small seller on any further rally higher to 17750/17810 with a 17860 stop. Given the price action over the past week in the Dow and the fact that we now have the confirmed Hindenburg Omen’s registered on the clock I do not want to be long the Dow at this time.
September BUND
My short 154.15 BUND position from late Monday worked well yesterday as the BUND opened lower yesterday morning which enabled me to cover this position at 153.70 as again outlined to my Platinum Members and I am now flat. Today I will again look to go short on any further rally to 154.30/154.70 with a tight 154.95 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1080/1088 with a 1069 stop.
Silver Rolling Contract
No change as I am still long from last Monday at 14.60 with the same 13.80 stop.
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