Equity Markets rallied after optimistic remarks from French and U.S. leaders about developments in the Sino-American trade war. The US Dollar strengthened while 10-year Treasury yields were little changed. All three main U.S. equity indexes recovered some ground following Friday’s swoon after President Donald Trump said prospects for a trade deal were better now than at any time since talks began last year. France’s Emmanuel Macron said things were moving forward between the U.S. and China. The S&P 500 Index closed near session highs in broad-based rally led by tech companies, but volume was thin — almost 20% below average. Addressing reporters at the end of the Group of 7 meetings in France, Trump said the Chinese “want to make a deal very badly.” The American president also said he is not looking into auto tariffs for Japan right now.
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The trade war’s latest twists and turns punctuated an already tumultuous August, with markets buffeted by signs of slowing global economic growth and violent protests in Hong Kong. Regardless of Monday’s developments, the risk of recession may have crept higher as protectionism escalated Friday, when Trump announced fresh levies on Chinese imports and called for American companies to pull out of Asia’s largest economy after China said it would impose retaliatory tariffs on U.S. goods. In the short term, it’s definitely difficult to navigate the trading environment as it is a case of near-term fear, elevated volatility, very fragile investor sentiment. Investors are watching the headlines and trading on the headlines and that’s obviously created even more volatility in the marketplace.
The S&P 500 Index increased 1.1% to close at 2878, while the Dow rose 270 points, closing at 25900.
In Europe both the Stoxx 50 Index and the German DAX closed 0.4% higher, reversing earlier 1% declines.
Here is a summary of the main changes in F.X Markets:
The Bloomberg Dollar Spot Index rose 0.3%, the biggest gain in a week.
The Euro slipped as German business confidence fell to the lowest in almost seven years closing 0.4% lower at $1.1095.
The Japanese yen weakened 0.7% to 106.16 per dollar, the biggest drop in almost two weeks as it gave back most of it’s 1% rise on Friday.
The onshore Yuan weakened for an eighth straight session
The yield on 10-year Treasuries climbed less than one basis point to 1.54%.
The yield on two-year Treasuries rose one basis point to 1.54%.
Germany’s 10-year yield climbed one basis point to -0.67%.
Gold climbed 0.1% to $1,528.96 an ounce.
West Texas Intermediate crude fell 0.6% to $53.82 a barrel, a two-week low as the market gave up earlier gains after traders digested the latest news on tariffs
This morning on the Economic Front we already had the release of German Q2 final GDP which fell 0.1% as expected. At 9.30 am we have UK BBA Mortgage Approvals and this is followed at 1.00 pm by a speech from ECB Member De Guindos. At 2.00 pm we have the U.S House Price Index. Finally, at 3.00 pm we have the Richmond Fed Manufacturing Index and Consumer Confidence.
September S&P 500
In all my years of trading I never thought that we would mainly be trading on the tweets of the US President. It has got to the stage that everytime we have a tweet from President Trump the S&P moves 10/15 Handles and sometimes a lot more as we saw yesterday with the S&P regaining 80 Handles of its losses since 3.30 pm on Friday. My S&P plan worked well with the market trading higher to my 2880 sell level with a 2888.50 high print before selling off to my 2867 T/P level and I am now flat. Seasonally this is one of the slowest weeks of the year with most U.S traders taking this week off ahead of the Labour Day Holiday next Monday. For the bulls to regain control the S&P needs to break and close over 2900. Today I will be a small seller from 2897/2912 with a 2921 stop. The S&P has strong support at last Friday’s 2835 low and today I will move my buy level higher to 2830/2845 with a 2821 stop.
As soon as the US Indices rallied on Trump’s latest tweet yesterday morning the Euro sold off to my 1.1110 buy level. As I wanted to be flat overnight I covered this position at my revised 1.1120 T/P level and I am now flat. The Euro has strong support from 1.1010/1.1050 and I will be a buyer on any dip to this area with a 1.0970 stop. Remember if the Euro does test my buy range the DSI should be back with a reading in single digits.
September Dollar Index
I am still flat the Dollar and today I will raise my sell level slightly to 98.30/98.70 with a 99.05 stop.
The DAX never came close to my buy range yesterday before following the US Indices higher. Even though I do not trust any rally in this market given the the fact that Germany is in or close to a recession, I am reluctant to be short. Today I will raise my buy level slightly to 11370/11450 with a 11305 stop.
The FTSE is back open today after being closed for yesterday’s Bank Holiday. Today I will be a buyer on any dip lower to 7000/7040 with a 6965 stop.
Dow Rolling Contract
The Dow traded in a 750 point range yesterday as the market recovered 2/3 of its losses since last Friday afternoon. My Dow plan worked well with the market rallying to my 25895 sell level before trading 200 points lower which enabled me to cover this short position at my revised 25800 T/P level and I am now flat. Volume was light and this helped the Dow to rally into the close and sit unchanged this morning as I go to press. The Dow needs to break and close over 26250 for the bulls to regain momentum. Today I will be a small seller from 26120/26270 with a tight 26350 stop. The Dow has support from 25530/25680 and I will be a buyer on any dip to this area with a 25450 tight stop.
I am still flat the market and today I will raise my buy level to 7450/7510 with a 7385 stop.
Finally the Bund traded lower to my 178.50 T/P level on my latest 178.80 average short position and I am now flat. Today I will again look to sell the Bund from 178.95/179.35 with a 179.70 stop.
Gold Rolling Contract
Sentiment towards Gold remains at extreme levels as shown by the 10-Day Average of the Daily Sentiment Index which closed last night at 91.1% bulls. This is the highest extreme since Gold peaked in September 2011. Whether Gold can reach my 1591 target is debatable as we are in the very late stages of this rally. I am still flat Gold and today I will lower my sell level slightly to 1580/1590 with a 1599 stop.
Silver Rolling Contract
Yesterday morning I bought Silver at a price of 17.65. I am still long and I will now raise my stop on this position to 17.40 with a T/P level of 17.95.