Whether President Trump and his advisers are fans of Neil Sedaka we probably will never know, but with the Q2 US GDP underwhelming on Friday and seemingly unable to break up into a higher range, Sedaka’s number one hit ‘’breaking up is hard to do’’ could be one of those stress songs that keeps playing in your head. The task of getting the US economy growing up towards 3% amid internal turmoil and a Republican Congress that doesn’t want to play ball appears to be getting harder and harder. On Friday disappointing US data releases provided the excuse to sell the US Dollar and buy US Treasuries while earnings results from Amazon weighted on tech stocks. Meanwhile Brent oil rose back above the $52 mark punching through its 200MDA and now is almost 10% up month to date. The Swiss Franc was the biggest G10 loser, bucking the US Dollar sell-off trend.
To mark my 1375th 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 firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 90 points on Friday and is now ahead by 1090 points for July, having made 1023 points in June, 1071 in May, 1376 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.
Weekend news of a successful ICBM test by North Korea seemingly capable of reaching the entire US territory may support the USD and a bid for safe haven assets when Asia open’s on Monday (very little reaction so far), but important data releases later on the week are going the be the real test with both DXY and BBDXY approaching key support levels (DXY 92 and BBDXY 1151).
The advance US Q2 GDP reading came at 2.6%, just under the official market estimate of 2.7%, but after last week’s new trade and inventory data, market expectations were for a number closer to 3%. Revisions to the Q1 estimate also disappointed coming in at 1.2% vs 1.4% previously, core PCE was revised up in Q1 to 1.8% from 1.7% prev., but in Q2 the estimate declined to 1.5%. So Q2 growth was marginally above the 2% trend, but Q1 was well below. The pace of growth should keep downward pressure on the Unemployment Rate, but the prospect of higher inflation remains elusive. Meanwhile amid internal turmoil and Washington paralysis the prospect of fiscal policy boosting growth above 3% is looking like an almost impossible objective.
Against a back drop of healthy but unexciting US data releases, the Dow managed to edge a little bit higher on Friday (0.15%) while the broader S&P (-0.13%) and tech heavy NASDAQ (-0.12%) closed marginally in negative territory. The DJ ended 1.16% up for the week while S&P (2,472.10) and NASDAQ (6,374.68) lost -0,2% and -0.2% over the same period. Disappointing earnings from Amazon, Exxon Mobil and Starbucks were the main company news weighing on US shares on Friday. In Europe the Stoxx 600 and FTSE 100 fell 1% on Friday to be -0.48% and -1.13% on the week respectively. Concerns over US tobacco regulation weighed on the FTSE on Friday.
Amid broad US Dollar weakness, DXY fell 0.64%, BBDXY was – 0.46%, but ADXY was essentially unchanged at -0.05%, suggesting USD weakness did not broadly extend into EM currencies. On the day, SEK and CAD were the biggest G10 winners, up 1.18% and 0.97% respectively both boosted by better than expected GDP prints. The Euro gained 0.63% and closed the week at 1.1751, AUD and NZD also joined the party gaining 0.36% and 0.25% respectively. NZD/USD ended the week just above the 75c mark (0.7514), AUD/USD closed just below 80c (0.7987); both currencies continue to benefit from the softer US Dollar environment ending the week up 0.80% and 0.85% respectively. Buoyant commodity prices and benign risk environment have also been supporting factors, however both are showing tentative signs of fatigue. Excluding oil, other commodities have struggled to perform in recent days.
Meanwhile US equities were mixed on Friday and the VIX rose, albeit marginally, for a second consecutive day. My fair value models suggest both AUD and NZD are expensive and approaching extreme levels, but with the USD still under pressure, the richness in both AUD and NZD can still persist for bit a longer. US data outcomes this week are going to be important in this regard.
Meanwhile the Swiss Franc was the exception down, 0.29% against the US Dollar and 1.02% against the Euro. A move towards 1.15 in EURCHF and possibly beyond now looks to be only a matter of time.
Ahead of the US GDP data release, 10 UST yields were trending higher following the move higher in 10y Bunds which were boosted by higher German CPI (1.7% vs 1.5% exp.). 10y UST reached a morning high of 2.335%, but with the data underwhelming a rally ensued helping them close at 2.289%, 2.1bps lower on the day. Overall there was a flattening bias on the curve with the 2y yield down 0.7 bps to 1.349%. Barring the positive moves in oil prices noted above, commodities as a complex were softer with LMEX -0.47%. Copper had another range trading day, iron ore fell 2.10% and gold climbed 0.67% to $1268.
In other news: President Trump signs legislation to impose new sanctions on Russia – US Fed Kashkari (dove) favours shrinking balance sheet in the background “over the next several years” and suggests to wait and see more data – ECB Lautenschlaeger said that she sees no trend toward inflation goal yet. Noting that the ECB Council should address the issue of how and when to return to “normal monetary policy.
This morning on the Economic Front we have UK Mortgage Approvals at 9.30 am and this is followed at 10.00 am by Euro-Zone CPI and Unemployment. At 2.45 pm we have the Chicago Purchasing Mangers Survey. Finally we have US Pending Home Sales and the Dallas Manufacturing Index at 3.00 pm and 3.30 pm respectively.
September S&P 500
The S&P just missed my 2458 buy level with a 2461 low price before spending the rest of Friday’s trading session trading sideways to higher as it closed at 2470. This close was still below Thursday’s 2480.50 extreme high as the intra-market divergence between both the S&P and NASDAQ compared to the Dow which yet again closed at another new all-time high. While the Dow closed up 1.16% for the week the S&P closed lower. This could be significant as long the S&P does not close above Thursday’s 2480.50 high print. I am still convinced that we are in the very latter stages before we get at least a significant correction. As we saw from Friday both GDP and Money Supply continue to contract in an economy which already has more debt than we had ahead of the Global Financial Crisis in 2007 which is not sustainable in my opinion. Today I will now lower my sell level to 2478/2484 with a 2489 stop. If I am taken short and subsequently stopped out of this position I will be a more aggressive seller in front of 2498 with a 2508 stop. Given the significance of the support level at 2450 I will still be a buyer on any dip lower to 2449/2455 with a 2444 stop.
As volatility picks up, my Platinum Service will really start to pay dividends as my updated emails are key especially as markets change after I post each morning. As I was already long the Dollar I emailed my Platinum Members to raise their sell level in the Euro to 1.1750 ahead of the US GDP release at 1.30 pm with a 1.1720 T/P level. Subsequently when the GDP was released the market traded to an initial 1.1753 high print thus hitting my short level before trading lower to my T/P level and I am now flat. As I mentioned on Friday the weakness in the US Dollar is finally seeing two-way price action in European Equities and this will eventually filter through to the US market thus the importance of my Platinum Service. The next resistance level for the Euro is the June 7, 2010 high at 1.1872 and the Euro may spike higher to this level before eventually rolling over. Given the extremely high Daily Sentiment Index reading my own view is the Euro will to between Friday’s high and the above mentioned 1.1872. Today I will again look to sell the Euro on any rally higher to 1.1790/1.1840 with a wider 1.1880 stop. I still do not want to be long the Euro at this time.
September Dollar Index
The Dollar traded lower to my initial buy level at 93.55 before very late in the day hitting my revised second buy level at 93.15 which now has me long at an average rate of 93.35 with the same 92.90 stop. The DSI closed with a reading of just 7% which is one of the lowest on record. As a comparison when Silver had a single digit reading which lasted for a similar time as the Dollar is currently, we quickly saw a 10% rally in Silver. I am not saying we are going to get a 10% rally in the Dollar but given the history of the DSI it is why I am so stubborn in having a large long position at this time with tight stops. If I am stopped out of this position I will again look to buy the Dollar on any further dip lower to 92.50/92.85 with a 92.15 stop.
My DAX plan again worked well on Friday with the market hitting my 12095 buy level before rallying to my 12130 revised T/P level ahead of the US GDP data and I am now flat. It is hard to see the DAX rallying given the strength of the Euro but having said that the market is severely oversold. The idea of buying dips in the DAX has worked nearly every day for the last two weeks and today I will again look to buy the DAX on any dip lower to 12020/12080 with an 11075 stop.
Shortly after the US markets opened the FTSE got crushed with one large red candle to a 7275 low print which put me long at an average rate of 7290. With the FTSE currently trading at 7305 I have just cut my position here and am now flat. I now look to buy the market on any subsequent dip lower to 7235/7270 with a 7205 tight stop. Despite Friday’s red candle I still do not want to be short the market at this time.
Dow Rolling Contract
Friday’s new all-time record high for the Dow was accompanied by a very muted NYSE Advance/Decline ratio of 1.14. In addition there was more down volume on the NYSE than up volume (55.5% down versus 44.5% up). Combined both measure suggest a weak rally day. I am still flat the Dow as I look to go short from 21865/21930 with the same 21980 stop. If the S&P does not quickly break the 2480.50 resistance level mentioned above then it will only be a matter of time before the Dow starts to roll over to the downside.
The BUND missed my 162.55 sell level with a 162.37 high print before selling off aggressively. Thankfully I had no buy level and I am still flat. Today I will now lower my sell level to 161.95/162.30 with a 162.60 stop. I still do not want to be long the Bund at this time.
Gold Rolling Contract
Gold finally broke and closed over its 1255/1265 resistance level which is short-term positive. I am still flat Gold and today even though I still do not trust the price action in Gold will raise my buy level to 1244/1252 with a 1236 stop.
Silver Rolling Contract
Silver hit my 16.70 T/P level on my latest long 16.60 position. I am happy to stay on the side-lines given the fact that Silver has now rallied over 10% since its July 10 low of 15.17. Given how overbought Silver is trading my only interest in buying Silver is on a dip lower to 15.90/16.30 with a 15.60 tight stop.