Geopolitical tensions surrounding North Korea dominated yesterday’s trading session. However, market moves were contained following a winding back in rhetoric by US Administration officials. In this high stakes geopolitical poker round it appears both players were ‘playing the board’ and a ratcheting down of tensions appears to have occurred. Although risk aversion was felt in Europe, the toning down of language saw a recovery in the US. This is probably best seen in equities with the Euro-Stoxx down 1.3%, but the S&P500 closing to be broadly unchanged. Risk haven currencies were bid, with the Swiss Franc +1.1% and Yen +0.2%, though the US dollar (DXY) was broadly unchanged. Gold was up 1.7%, while the VIX hit a still low 11.11.
To mark my 1400th 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 email me on firstname.lastname@example.org for details.
For anyone following my Platinum Service it made 44 points yesterday and is now ahead by 328 points for August, having made 1096 points in July, 1023 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.
As for the rhetoric, North Korea responded to Trump’s “fire and fury like the world has never seen” statement by stating North Korea could “send a serious warning signal to the US” by considering bombing Guam. US Administration officials have since toned down the language and described Trump’s language as “impromptu” while Secretary Tillerson played down any prospect of military action. This was seemingly confirmed by President Trump, who tweeted “hopefully we will never have to use this power, but there will never be a time that we are not the most powerful nation in the world”.
US Treasury yields fell 1.4bps to 2.25%. They were initially down to 2.2085%, but the toning down in geopolitical rhetoric along with a weak 10-year note auction saw some retracement. There was no clear factor for the weak 10-year auction (bid-to-cover ratio 2.23% vs 2.45% previously), but it could be US Bonds are looking expensive given the likely start of the Fed’s balance sheet unwind in September and a labour market that continues to tighten which lends support to further Fed rate hikes.
The Fed’s Evans (voter, dovish) was speaking late yesterday, lending his support for the Fed to begin trimming its balance sheet in September, describing the timing “as quite reasonable…even with the potentially temporarily lower inflation data”. As for the next Fed rate hike, Evans said he believes waiting until December would give the Fed time to assess whether inflation will resume moving toward the Fed’s 2% target.
US data was very scant with only Productivity and Unit Labor Costs. Productivity was better than expected, up 09% (0.7% expected), but Unit Labour Costs were worse than expected a 0.6% (1.1% expected). There was little development on resolving the debt ceiling, though some reports suggest the US Government could run out of funding on the 3rd of October. The base case remains that a temporary funding measure for 2-3 months will be implemented before then.
Shortly after the New York close it was announced that the RBNZ kept rates on hold. The interest rate track was unchanged with the first rate hike still expected in late 2019. In Governor Wheeler’s last innings as Governor, the most significant changes in the post meeting statement were on the currency: a lower NZD is “needed” as opposed to “would help” more balance growth and on inflation with the “outlook for tradable inflation remains weak”. The RBNZ consequently lowered its short-term inflation outlook and reinforces the likelihood of the RBNZ being on hold for some time. The Kiwi jumped on the news but is now only 0.2% higher following.
In commodities, WTI Oil rose 1.1% to $49.70. Geopolitical tensions have traditionally supported the oil given most of these incidences have occurred in the Middle East. Oil itself is caught between Statements by OPEC cutting production and rising supplies. It’s worth noting that Saudi Arabia and Iran hold a press conference on oil today.
This morning on the Economic Front we have UK Industrial Production, Construction Output, Trade Balance and the NIESR GDP Estimate which will all be released at 9.30 am. Yet again we have no data due from the Euro-Zone while at 1.30 pm we have US Weekly Jobless Claims and PPI. Finally at 7.00 pm we have the US Monthly Budget Statement.
At 3.00 pm the focus will be on remarks by the Fed’s Dudley who is speaking on “regional wage inequality” with Q&A following. Dudley is a key figure on the FOMC and is likely to be pressed on the likelihood of wages and inflation picking up.
September S&P 500
The last week has been extremely frustrating as a number of my buy and Take Profit levels have missed by small margins. None more so than yesterday when the S&P missed my 2458 buy level with a 2459 low print before rallying back to close the ‘’Open Gap’’ from Tuesday’s close at 2471.25 and I am still flat. Yesterday was the second straight trading session that the 10-Day NYSE advance/decline ratio closed below 1.00, which is the first time this has occurred since the March 1, previous high for the S&P at 2401. If you remember after the S&P topped on this date the market subsequently fell over 90 Handles. Today I will continue to look to sell the S&P on any rally higher to 2478/2484 with a 2489 stop. Given the size of Tuesday’s Downside Key Day Reversal the S&P should have difficulty in making new highs above 2488.50. Despite the late recovery yesterday I will only raise my buy level slightly to 2454/2460 with a 2448 stop. Remember a break and close below 2450 is a confirmed sell signal.
The Euro also missed my 1.1680 buy level with a 1.1689 low print before having a strong rally into the close and I am still flat. Today I will leave my sell level unchanged from 1.1795/1.1835 with a 1.1870 stop. Given the extent of the rally off yesterday’s low I will now raise my buy level slightly to 1.1660/1.1695 with a 1.1630 stop.
September Dollar Index
My latest long 93.50 Dollar position worked well with the market trading higher to my revised 93.73 T/P level. Subsequently I emailed my Platinum Members to re-buy the Dollar at 93.40 and this price was filled just before the New York close. I am still long and will only add to this position on any move lower to 93.10 with a 92.85 stop. With sentiment still at extreme levels I still do not want to be short the Dollar at this time.
My DAX plan worked well with the market trading lower to my 12120 buy level before subsequently missing my initial T/P level at 12155 with a 12154 rebound high. As I wanted to continue with my theme of banking points when available I emailed my Platinum Members to exit this position at 12136 and I am still flat. I still believe that the market will bottom on the 12010/12070 support zone and today I will be a buyer in this area with an 11060 tight stop. Despite the negative price action I still do not want to be short the market at this time.
No change as despite the weakness in Sterling I am not going to chase the market higher and will leave my buy level unchanged from 7365/7395 with a 7335 tight stop.
Dow Rolling Contract
The weak internals as mentioned in my S&P commentary is certainly being reflected in the McClellan Oscillator which closed with a negative 147 print last night. We have to watch the MO carefully because if the MO declines below -250 then mad and all as it seems we will then be looking for a buying opportunity. I am still short the Dow in tiny size from last week at 21885 and I am not adding into this position at this time preferring to keep my position and observe. For the Dow to look bullish again it needs to break and close above Tuesday’s high at 22,179.
There is no stopping the rally in the Bund with the market making new recovery highs each day. Yesterday after the Bund traded the whole of my sell range which put me short at an average rate of 163.85 I emailed my Platinum Members to exit this position at 163.80 as I did not want to be short the Bund overnight. The Bund’s next resistance level is at 164.30 and today I will again look to go short from 164.15/164.45 with a 164.65 tight stop.
Gold Rolling Contract
Gold rallied strongly yesterday to 1278.50, which is a new recovery high in the rise form the July 10 low at 1204. Crucially Gold has now closed again over the strong resistance level at 1265 and the 100 Day Moving Average at 1253. I have to respect the price action and today I will now raise my buy level to 1258/1265 with a 1252 stop.
Silver Rolling Contract
Unfortunately I exited any long position in Silver over the past few days. This is frustrating as shown by the huge move in Silver over the past 36 hours. Silver has strong resistance at 16.99 and a break and close over this level opens up the possibility of a quick move higher to the next resistance level at 18.00. As a result of the strong upward price action I will now raise my buy level to 16.55/16.85 with a 16.23 stop which is just below Tuesday’s afternoon low print at 16.26.