The recent ramp up in Fed rhetoric aimed at putting the market on the scent of an imminent Fed Funds rate hike took another blow yesterday afternoon following a sharp drop in the August ISM Non-Manufacturing Index. The Index fell over 4 points to 51.4, way below the small pullback to 54.9 from 55.5 expected by consensus. Details of the report were also disappointing with Business Activity falling 7.5 points to a 6 ½ year low while New Orders tumbled 9 points to 51.4, its lowest reading since February 2010.
Due to the number of Members taking up my 2 year Euro 2500 for my Platinum Service in recent months this will be the last month I am offering this special price which will rise to Euro 2750 on October 1 2016. If anyone is still interested in this original deal which has been in situ since January 1 can you please email me on bryan@tradernoble.com for details.
For anyone following my Platinum Service it made 8 points yesterday and is now down 20 points for September having made 1722 points in August and 1682 points in July. The previous three months saw gains of 2550, 1532 and 2175 points respectively. Since I started this Platinum Service it has averaged a monthly gain of over 2000 points.
This was the third consecutive key US data release to disappoint in less than five days, following the softer than expected Employment Report and ISM Manufacturing Survey last week. Ten days ago, the OIS Market was pricing a probability of a September hike at 45% while December was at 81%. Today September is priced in at 24% while December is at 61%. Recent data releases reinforce my view that the Fed will stand still in September and hike in December assuming data and financial conditions remain supportive. There is no doubt that in my opinion the next recession in the US will see the Fed take rates into negative territory.
Ahead of the ISM data release, markets were relatively quiet and reaction to the data was consistent with what you would normally expect. The US Dollar was sold across the board, core Global Bond Yields rallied while equities initially traded softer. However the prospect of Fed hikes been kicked further down the road eventually helped all three major US equity Indices to close the day in positive territory. Meanwhile European equities ended in red, unable to benefit from the rebound in US markets.
Looking at currencies in more detail, the NOK (1.66%) and NZD (1.52%) are at the top of the leader board. Notably the Kiwi has made new highs for the year and while a softer US Dollar was one factor, the NZD was also boosted by another solid GDT auction with the average price Index rising 7.7% from the previous event. Overnight the Yen has strengthened considerably with USD/JPY falling from a New York close at 102.10 to 101.30 this morning on growing expectations that the BoJ will not ease Interest Rates further as the Central Bank finally 10 years has come to its senses that this Monetary Policy is not working. The BoJ Governor Kuroda wants to avoid a repeat of what happened in late January when he introduced a negative interest rate policy only to see the Yen strengthen as part of a flight to safety in which a disintermediation of tremor was really felt in currency markets globally.
Looking at other data releases, the Fed Labour Market Index showed a drop of 0.7% in August, partly reversing the rise in July and remains consistent with the unchanged US Unemployment Rate.
This morning on the back of the Yen strength, the Nikkei has closed 0.41% lower at 17.000.
This morning on the economic front we already had the release of German Industrial Production which came in weak at -1.5% versus 0.1% expected. At 9.30 am we have UK Industrial Production and this is followed at 3.00 pm by a host of data. We have the Bank of Canada Rate decision, the UK NIESR GDP Estimate, and the US JOLTS Job Openings which of course is a key indicator that Fed Chair Janet Yellen watches closely. Finally at 7.00 pm the US Federal Reserve will release its latest Beige Book.
September S&P 500
My S&P plan worked really well with the market trading into my buy level with a 2172.75 low print before having a nice 14 handle rally to 2187 which gave everyone who bought the market a nice gain for yesterday. Unfortunately as I had so many close buy levels across my markets yesterday I lowered my S&P buy level to 2171 (following the ISM release) and I did not get filled and as a result I am still flat. We are now back to the scenario where bad news is good news for the stock market as the rate hike is subsequently kicked further down the road. In my view the US is close to entering another recession and the fact that we are in the September which is traditionally the weakest month of the year makes buying any US stock market a difficult task. Given the weakness in the US Dollar, I prefer to buy the Dow instead. However with the Central Banks having so much money invested in all the Global Indices as mentioned in yesterday’s commentary with the Swiss Central Bank having $120bn in the US market it makes shorting a very difficult task. There is no doubt that since the GFC crises ended the only real winners in trading have been the Central Banks who currently control the vast majority of all markets. This cannot go on forever as we have seen overnight with the rumblings out of the BoJ that negative interest rates are not working and there next meeting on September 21 could be very interesting. Today the price action is telling me to continue to buy the dip and I will now move my buy level higher to 2175/2181 with a 2169 stop which is just below yesterday’s low print. I do not want to be short the S&P at this time as to me it is only a matter of time before we make a new all-time high.
EUR/USD
The Euro traded higher to my 1.1250 average sell level. I am not comfortable in being short the market and I will now use any sell-off to 1.1230 to cover this short position. The S&P has strong resistance at 1.1280/1.1300 and I will leave my stop unchanged at 1.1305. A break and close over 1.1300 will be positive and will be the first signal for a move higher to 1.1400/1.1440 and potentially higher. I will also look to buy the Euro on any dip lower to 1.1160/1.1200 with a 1.1125 stop.
September Dollar Index
I am still flat the Dollar and today after yesterday’s sell extreme I will now lower my sell level to 95.30/95.80 with a 96.20 stop.
September DAX
I am still flat the DAX which unfortunately just missed my buy level before rallying. It is difficult to be long the DAX given the strength of the Euro as remember no Central Bank wants a strong currency at this time. Just look at what happened to the FTSE after Brexit saw a 10% fall in Sterling. Today my only interest in buying the DAX is on a sip lower to 10550/10610 with a 10500 stop. Given the continued weakness in the German economy which saw Industrial fall a hefty 1.5% this morning I will now look to sell the DAX on any rally higher to 10770/10820 with a 10875 stop.
September FTSE
The price action in the FTSE was telling you not to be long the market yesterday especially given the huge reversal in sterling over the past few trading sessions. After the market hit my 6850 buy level I emailed my Platinum Members to exit this position at 6858 and I am still flat. Today my only interest in buying the FTSE is on a further dip lower to 6740/6770 with a 6715 tight stop.
Dow Rolling Contract
One of the main reasons that I lowered my S&P buy level was in anticipation of getting filled in the Dow at 18440 but unfortunately the Dow missed my buy level with a 18446 low print before having a nice 100 point rally into the close. Today I will raise my buy level slightly to 18395/18455 with the same 18395 stop. Given the weakness in the US Dollar I still do not want to be short the Dow at this time.
December BUND
The BUND rallied strongly yesterday and I am still flat. Today I will now raise my buy level to 164.45/164.85 with a 164.15 tight stop. Despite the insane yield on the Bund, the price action is telling me not to be short the market especially ahead of the ECB tomorrow.
Gold Rolling Contract
Gold indeed has rallied strongly off its 1300/1310 now major support level. The rally in both Gold and Silver points to an equity sell-off around the corner. Today I will now raise my buy level to 1328/1336 with a 1319 stop.
Silver Rolling Contract
Unfortunately Silver just missed my 19.40 buy level by a few points after I posted yesterday and I am still flat. The fact that Silver has now closed strongly over the key 19.00/19.30 support level means the buy the dip continues for this market. Today I will now raise my buy level to 19.40/19.80 with a 18.95 stop.
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