Markets were quiet yesterday given the Columbus Day Holiday in the US. Equities were flat (S&P500 -0.2%), the US Dollar was marginally lower (DXY -0.2%), while the US Bond market was closed (note futures were open but with little movement). Markets it seems are playing a waiting game ahead of risk events later in the week. Focus instead shifted to Europe where a diplomatic spat between Turkey and the US has seen a sharp fall in the Turkish Lira (-3.0%). To date there has been little in the way of contagion to other emerging markets.
To mark my 1450th 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 bith 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 2 points yesterday and is now ahead by 174 points for October, having made 447 points in September, 1560 in August, 1096 in July, 1023 in June, 1076 in May, 1375 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 1600 points.
The biggest move overnight was in the Turkish Lira. The Lira at one point dropped more than 6% against the US dollar in Asia, but managed to pare back losses to be down 3%. The sharp fall occurred after the US suspended visa services to Turkey following the arrest of a Turkish citizen who was employed at the US Consulate; note subsequent reports cited a Turkish official in expecting a reversal on the visa ban. While the initial catalyst is clear, the sharp fall really reflects a re-rating of Turkey’s risk — the relationship between Turkey and the US has been deteriorating over the past year with Erdogan consolidating power following an unsuccessful coup in 2016 and ongoing US support for Kurdish forces in the fight against ISIS.
The other major move in FX was the UK Pound. GBP/USD rose 0.6%, mostly in reaction to an upward revision to unit labour costs for Q2. The statistics office reported unit labour costs were actually 2.4% in Q2, up from the 1.6% initially reported. This is significantly higher than 1¼% the Bank of England had forecast in August and suggests non-tradable inflation could pick up more than expected. That plays into the view of the Bank of England needing to hike soon and Bloomberg WIRP has a November rate hike priced at a 77% chance with another hike fully priced by September 2018. Also related to the UK, Brexit chatter continues with no real update to note – the fifth round of negotiations is underway in Brussels.
As for the US Dollar, DXY fell slightly (-0.2%) with the Euro higher (+0.2% to 1.1748 and higher again this morning at 1.1780). The Aussie was marginally lower (-0.1% to 0.7756). There was little reaction in the Euro to better than expected German Industrial Production – this rose 2.6% m/m in August and was well above the 0.9% consensus expectation. While market reaction was muted, it is another sign that “hard data” is reflecting the very positive “soft data” that we have seen recently coming out of Europe and reinforces my view of the ECB announcing a tapering of their asset purchase programme in October.
Bond Yields were contained with no trading in the US Bond Market. European yields were mostly lower with tensions easing slightly around prospects for Catalonian independence following a pro-unity rally and warnings by companies that they would move offices out of Catalonia in the event of independence. Spanish yields fell 3.2bps to 1.68% and are down some 13bps from their peak. Bund yields were also lower – perhaps driven by some reaction to North Korean fears over a possible ICBM test – down 1.5bps to 0.44% alongside UK Gilts (-0.6 bps to 1.36%).
In commodities, oil prices steadied with WTI up 0.5% to $49.54 following comments by OPEC that the oil market is balancing out but further steps may be needed to sustain the recovery.
This morning on the Economic Front we already had the release of the German Trade Balance for August which came in at EUR 20bn versus 19.5bn expected. At 9.30 am we have UK Industrial Production, Construction Output and Trade Balance. Next we have the US NFIB Small Business Optimism at 11.00 am. Finally at 1.00 pm we have the latest UK NIESR GDP Estimate.
International focus is likely to be on the IMF’s latest forecasts for the economy, released as part of the World Economic Outlook – a forecast upgrade is likely. As part of the meetings there will be a number of central bankers talking on panels in the coming days with the Bank of Canada’s Wilkins first up this evening at 7.00 pm.
Fed talk also continues with Kashkari (voter, dove) and Kaplan (voter) speaking this afternoon.
December S&P 500
Unfortunately the S&P just missed my 2552 sell level with a 2550.75 high print before trading to a 2539.25 low print and I am still flat. With yesterday’s trading so quiet due to the semi-holiday in the US, it gave me some time to do plenty of research. One interesting piece that I came across in relation to technology companies; large tech companies are adding as much debt as cash to their balance sheets. Over the last three years, AAPL added $95 billion of cash and $77 billion of debt; MSFT added $44 billion of cash and $63 billion of debt; ORCL added $15 billion of cash and $22 billion of debt; finally CSCO added $18 billion of cash and $12 billion of debt. Doing the math, these four companies which everyone believes to be inordinately ‘’cash rich’’ have added $168 billion in cash in aggregate but have added $163 billion in debt for a gain in cash over debt of a mere $5 billion. Clearly that is different from what the world in general has perceived the high-tech companies to have done to their balance sheets. Yesterday’s small sell-off in the US Indices saw the CNN Fear & Greed Index fall to a still extreme 84 Greed from last week’s decade high at 95. Meanwhile the McClellan Oscillator closed in negative territory with a -22 print. This is not a healthy market as we wait for a decent sell extreme to get short. Today I will now lower my sell range to 2550/2558 with a 2563 stop. Meanwhile I will leave my buy range unchanged from 2525/2532 with a 2519 stop. Again if I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2505/2513 with a 2499 stop.
Overnight the Euro traded higher to my 1.1770 sell level. I will now only add into this position on any further move higher to 1.1810 with a 1.1840 stop. I will also raise my T/P level on this position to 1.1750. If I manage to T/P at this level I will again be a seller of the Euro on any further move higher to 1.1800/1.1840 with a 1.1875 stop.
December Dollar Index
The Dollar eventually traded lower to my 93.30 buy level. As I was also long the Euro at the same time, I did not want to have two open long positions and I emailed my Platinum Members to exit any long Dollar position at 93.32 and I am now flat. Today I will again look to buy the Dollar on any dip lower to 92.60/93.00 with a 92.30 stop.
The DAX continues to trade in a narrow range and for the four consecutive trading session I will leave my buy level unchanged from 12820/12875 with a 12780 stop. I will also leave my sell range unchanged from 13060/13110 with a 13160 stop.
Yesterday was certainly a non-event from a trading point with little or no movement. Today I will lower my FTSE buy level slightly to 7380/7410 with a 7350 stop which is just below its 100 Moving Average.
Dow Rolling Contract
The Daily 10 Year Market Vane Bullish Consensus Survey of Advisors pushed to 72% last week which is the most extreme reading since June 2007 when the Dow Jones topped. I do not know when this market is going to roll-over and maybe we do have a further melt-up in stocks similar to what happened in Japan from December 1988 when the Nikkei was trading at 28,000 before rallying to a 39,000 high one year later before the market subsequently fell 50% eight months later. This is a dangerous market and well overdue a decent correction. Today I will continue to be a seller from 22840/22910 with a 22960 in small size. Meanwhile I will leave my buy level unchanged from 22570/22630 with a 22520 stop.
No change as I am still a buyer on any dip lower to 160.70/161.00 with a 160.40 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
I am still flat Gold which has a target level from 1309/1315 following Friday’s late buy extreme. Today I will now raise my buy level to 1269/1277 with a 1262 stop.
Silver Rolling Contract
Silver just missed my 16.80 buy level yesterday following the 4% rally off last Friday’s 16.32 low print. I would have preferred to have seen the Daily Sentiment Index print in single digits but given the extent of Friday’s reversal I have to respect the price action. For this reason I will now raise my buy level in Silver to 16.65/16.95 with a 16.40 stop.