Just after the US Markets closed in New York last night, red headlines hit the screens saying ‘’U.S is said poised to release $200bn China tariff list’’. This was exactly what President Trump said he would do if China retaliated against the imposition of tariffs on the $50bn worth of Chinese imports, $34bn of which came into effect last Friday and to which China immediately countered. While not unexpected, I continue to view latest US actions, assuming they are confirmed, as a negotiating tactic designed to get China back to the negotiating table on trade, in particular since going ahead with such a plan will inevitably impose significant burdens on US consumers (higher prices, as well as probable job losses). Note in this regard, as the FT’s John Authers did yesterday, that the price of washing machines have risen by 17.7% since Trump imposed import tariffs at the end of last year.
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For now, the news brings trade concerns firmly back to the centre of the market radar, just as Trump heads to Europe and where he has tweeted beforehand ‘’Getting ready to leave for Europe. First meeting – NATO. The U.S. is spending many times more than any other country in order to protect them. Not fair to the U.S. taxpayer. On top of that we lose $151 Billion on Trade with the European Union. Charge us big Tariffs (& Barriers)!”
The immediate response to the headline has been to knock 30 pips off AUD/USD (to 0.7440) reinforcing the sanctity of what we regard as a 0.75 range top, and USD/JPY off 40 pips to just below 111 after posting its highest level since 21st May earlier yesterday.
Ahead of the US quarterly earnings season which kicks off today – PepsiCo the first major household name out of the traps with JP Morgan, Citigroup and Wells Fargo all due on Friday, the S&P500 closed up 0.3% and to a fresh four month high. While not to the same extent, Emerging Market equities are also back on the up, while the JPM Emerging Market Currency Index is up 0.7% thanks largely to some outsized gains for of 1-2% for the Brazilian Real, Mexican Peso and South African Rand.
Despite this, the Aussie dollar was virtually flat on where it was this time yesterday at 0.7470, failing in an attempt to recapture the psychological 75 cents handle. Here, I would note that the US dollar has found a bit of stability after a soggy start to the week, albeit back from its intra-day highs to be just 0.1% up on the day. Earlier strength owed much to the Euro and Sterling coming under a bit of pressure during the European session, in both cases more on data than, in the case of the UK, political developments of which there is nothing earth shattering to speak of.
The Euro took a knock from the latest (July) German ZEW survey, coming in at 72.4 from the Current Situation reading from 80.6 in June and 78.1 expected and with the Expectations series dropping to -24.7 from -18.1 and which might therefore be picking up concerns about an escalation of President Trump’s trade tariffs, to include the mighty German auto sector. Incidentally, the US said it was from today imposing anti-dumping duties of 27% on Spanish olives. The price of a dirty martini in Manhattan should be next to go up after. This after, as I note above, a 17.7% rise in the price of machine machines since the imposition of import tariffs late last year.
UK data included the first of the new monthly GDP estimate, for the three months to May, which 0.3% and expected, but Industrial Production data that printed much worse than expected at -0.4% (consensus +0.5%). The headline was suppressed by a 7.8% slump in oil and gas due to unplanned maintenance rising by 0.4%, albeit still below the 0.7% consensus estimate.
On Brexit, Michel Barnier, – negotiator for the European Union, said in new York last night that 80% of a deal with the UK has been agreed, which the UK Guardian reports as ‘’somewhat of a change of narrative that suggests a full agreement can be sealed before October’s deadline’’. He added that he was determined to negotiate a deal on the remaining 20%. The declaration that four-fifths of the deal is done is a significant change of tone from the EU after months of protests that it could not negotiate because the UK had not put its own proposals on the table. More ominously though, he says that ‘’It will be clear, crystal clear at the end of this negotiation that the best situation, the best relationship with the EU, will be to remain a member’’.
In the US, we got the NFIB (small business optimism) survey which fell to a still very high 107.2 from 107.8 (106.9 expected) and May JOLTS (job openings which slipped to a 6.638mn annual rate from 6.840mn in April but still above the 6.62mn rate expected.
This morning on the Economic Front we have no data of note due from either the UK or the Euro-Zone. At 12.00 pm we have US MBA Mortgage Applications and this is followed at 1.30 pm by PPI. Finally we have Wholesale Inventories at 3.00 pm
Later today the Bank of England Governor Carney speaks in Boston at 4.45 pm while later at 9.30 pm the Fed’s Williams is speaking in Brooklyn.
September S&P 500
The S&P closed last night at a four month high before subsequently getting slammed on the re-open of the Futures Market following a tweet from President Trump that he was threatening China with new tariffs of $200bn. As a result the S&P traded lower to my 2773 buy level before rallying to my 2779 T/P level and I am now flat. I still believe that despite the Trump tariff threats with China that the S&P and Dow will make new all-time highs before we finally see an end of this massive bull market which has only has to last one more month for it to be the longest bull market on record. The S&P needs to hold the now key support at 2750/2760 for the bulls to remain in control. Today I will again look to buy the S&P on any dip lower to 2754/2764 with a 2747 stop. I will still be a small seller on any rally higher to 2810/2818 with the same 2825 stop.
Unfortunately the Euro just missed my 1.1680 buy level with a 1.1690 low print before rallying and I am still flat. Today I will leave my buy level unchanged from 1.1640/1.1680 with the same 1.1610 stop. The Euro has strong resistance from 1.1780/1.1820 and I will still be a seller in this range with a 1.1855 stop.
September Dollar Index
No change as I am still a small buyer on any dip lower to 93.20/93.60 with the same 93.90 stop.
My DAX plan finally worked with the market trading lower to my 12470 buy level before rallying to my conservative 12505 T/P level and I am now flat. Today I will again look to buy the DAX on any dip lower to 12320/12390 with a 12265 stop. I still do not want to be short the DAX at this time.
Overnight the FTSE traded the whole of my 7550/7590 buy range for an average long position at 7570. As I wanted to hang on to yesterday’s gains I emailed my Platinum Members at 7.00 am to exit any long FTSE position at my revised 7585 T/P level and I am now flat. There is no doubt the FTSE is difficult to trade at this time given the worsening political situation. The FTSE has good support from 7460/7500 and today I will be a buyer on any dip to this area with a 7425 stop.
Dow Rolling Contract
At yesterday’s 24945 high the Dow was 1000 points higher than the low recorded last week. The Dow closed near these highs at 24919 before getting hit for 300 points on the latest Trump tariff tweet. Despite the large gain in the Dow and S&P yesterday the internals were again weak with the McClellan Oscillator falling 15 points to close at +101. The 50 Day MA for the Dow is at 24646 and this should act as support especially given the large ‘’Open Gap’’ from last night’s close. Today I will be a small buyer from 24450/24600 with a 24380 stop. My only interest in selling the Dow is still above the market at 25080/25200 with the same 25270 stop.
I am still flat the NASDAQ and today I will now lower my sell level to 7310/7360 with a 7405 stop. I still do not want to be long the NASDAQ at this time.
I am still flat the Bund which is opening higher this morning on the back of the weaker equity markets. Today I will now raise my sell level to 163.15/163.45 with a 163.80 stop. Despite the positive price action I still do not want to be long the Bund at this time.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1248 buy level before rallying to a rebound high at 1258. This move higher enabled me to cover this position at my revised 1251 T/P level and I am now flat. Today I will again look to buy Gold on any dip lower to 1236/1244 with a 1229 stop.
Silver Rolling Contract
No change as I am still long the market at 16.10 with the same 16.25 T/P level. I will continue to look to add to this position on any dip lower to 15.70. I will leave my stopped unchanged at 15.45 and if any of the above levels are hit I will be back with a new update for my Platinum Members.