A fresh salvo in the U.S.-China trade war from President Donald Trump roiled financial markets a day after the Federal Reserve delivered the first Interest-Rate Cut in a decade in part to combat the spat’s effects on global growth. The S&P 500 saw the biggest two-day drop since May, with stocks swinging 2% from gains to losses, after Trump said America will levy a 10% tariff on $300 billion in Chinese goods starting Sept. 1. After markets closed, the president said the new levies could be raised beyond 25%.
The 10-year Treasury yield dropped to the lowest level since 2016, while two-year rates plunged as much as 18 basis points as traders increased bets on Fed cuts to another half point this year. The Japanese Yen rose the most in two months versus the US Dollar, while crude slumped 8%, its worst day in four years. Lenders led losses on benchmarks with Bank of America falling the most in more than two months. The declines spread across sectors as slumping global industrial company Caterpillar Inc., consumer brand Nike Inc. and tech giant Apple Inc. slammed the Dow Jones Industrial Average. A draft list of $300 billion worth of targets published by the Trump administration in May included a raft of consumer and technology goods, including most of Apple’s major products such the IPhone, along with toys, footwear and clothing.
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Any way you slice it, escalations of the whole megillah, meaning the additional $300 billion starting with 10%, means it’s only going to get worse and that is going to be a defining moment in this trade war where it starts showing up with the consumer. In my opinion this is not good news for the market. We are just seeing the beginning of what the market reaction’s going to look like. Stocks had been rebounding from Wednesday’s Fed-induced sell-off before Trump put trade back at the centre of investor minds. The tariffs come after U.S.-Sino talks earlier in the week ended with no major progress, prompting the American president to push forward with tariffs in addition to the 25% on $250 billion that has been in place for months. The S&P 500 Index fell 0.9% to close at 2953. The Dow fell 283 points to close at 26583 on what turned out to be one of the most volatile trading session for the year to date. Meanwhile in Europe the Stoxx Europe 600 Index rose 0.5%.
Here is a summary of the main changes in F.X Markets:
The Bloomberg Dollar Spot Index fell 0.2%.
The Euro rose 0.1% at $1.1086 having made a two year low at $1.1027 earlier in the day.
The Japanese Yen gained 1.28% to 107.39 per dollar, the biggest rise since May 31.
The yield on 10-year Treasuries fell 12 basis points to 1.89%, which is it’s lowest level in three years. The two-year rate lost 12 basis points to 1.73%. In Europe the German Bund Yield fell 4 basis points to close at yet another all-time low of -42 basis points, while Britain’s 10-year yield fell two basis points to 0.59%.
Gold rose 1.2% to $1,454.50 an ounce.
West Texas Intermediate crude decreased 7.9% to $53.95 a barrel, the biggest decline since February 2015
This morning on the Economic Front we have UK Markit Construction PMI at 9.30 am. This is followed at 10.00 am by Euro-Zone Retail Sales and PPI. At 1.30 pm we have US Non-Farm Payrolls, Average Earnings and the Unemployment Rate, followed by ISM New York Business Conditions at 2.45 pm. Finally, at 3.00 pm we have Factory Orders and the University of Michigan Consumer Sentiment Index.
September S&P 500
What a day? Initially the S&P traded higher to my 2987 sell level before selling off to my revised 2982 T/P level. My idea of selling rallies was correct but you needed wide stops for this scenario to work. Unfortunately I went short the S&P again at 3000 before getting stopped out of this position near the high of the day at 3012. Subsequently the S&P fell 70 Handles into the close. This move lower saw the market hit my 2959 buy level before rallying to my 2968 T/P level and I am now flat. The S&P has strong support from 2920/2935 and I will be a buyer on any dip to this area with a 2908 stop. Ahead of the weekend I do not want to be short the S&P at this time. If I am taken long I will have a T/P level at 2944.
The Euro made a new low for the year at 1.1027 just missing my 1.1025 stop before thankfully rallying to my revised 1.1090 T/P level and I am now flat. With the Daily Sentiment Index in single digits I will continue to be a buyer of dips in this market. Today my buy level will be from 1.1010/1.1050 with a 1.0965 stop. The Euro has strong resistance from 1.1170/1.1210 and I will a seller in this area with a 1.1255 stop. If I am taken long I will have a T/P level at 1.1085. If I am taken short I will have a T/P level at 1.1135.
September Dollar Index
No Change as I am still a seller on any rally higher to 98.75/99.15 with a 99.45 stop. I still do not want to be long the Dollar at this time. If I am taken short I will have a T/P level at 98.50.
I am still flat the DAX and as I am taking next week off I will stay flat the DAX until I return.
The FTSE just missed my sell level before following the US Indices lower and I am still flat. My only interest in selling this market is still on a rally higher to 7550/7590 with a 7625 stop. I still do not want to be long the market at this time. If I am taken short I will have a T/P level at 7520.
Dow Rolling Contract
My Dow plan worked well with the market trading higher to my 26950 sell level before selling off to my 26890 T/P level and I am still flat. Subsequently the Dow made a rebound high at 27180 before selling off to trade to an overnight low so far at 26485. Thankfully we had no buy level in this market yesterday with the Dow now trading 900 points below it’s July 16 all-time high of 27398. The Dow has strong support from 26180/26350 and I will be a buyer on any dip to this area with a 26095 stop. If I am taken long I will have a T/P level at 26480.
As I was already short the S&P for a second time at 3000 I waited to sell the NASDAQ which I did at the top of my sell range at 7960. Frustratingly I had too tight a stop on this position at 8005 which was six points from the high before the market fell over 200 points into the close. At least we had no buy level. The NASDAQ has strong support from 7700/7750 which must hold or else we are going to a more significant sell-off. Today I will be a buyer in this area with a 7650 stop. If I am taken long I will have a T/P level at 7795.
Thankfully I raised my T/P level in the Bund to 174.82. The made a low of 174.72 before rallying 100 points as the madness of negative bond yields continues. The Bund is now trading at the top of its Daily Bollinger Band. I am still flat and I will now look to sell the market on any further rally to 176.15/176.55 with a 176.85 stop. If I am taken short I will have a T/P level at 175.80.
Gold Rolling Contract
Gold made a low yesterday at 1401 after I posted before rallying $40. Unfortunately I lowered my buy level before the market dropped and I am still flat. I still do not trust this market for all the reasons outlined over the past two weeks and as I am taking next week off I am going to stay flat as I feel Just like the DAX above I have no edge in this market.
Silver Rolling Contract
Frustratingly Silver just missed my 15.90 buy level with a 15.92 low print before following Gold higher. I am not going to chase this market higher and I will leave my 15.50/15.90 buy level unchanged with a 15.15 stop. If I am taken long I will have a T/P level at 16.10.
No Change as I am still long at 1.2150 with a now lower 1.2190 T/P level. Meanwhile I will leave my stop unchanged at 1.2055.