Weekly Trading Notes – Concerns about China now crucial


  • Markets have taken a dim view on the Fed’s decision to hold off from enacting the first rate hike due to “international developments”. The crucial problem is that if the Fed is concerned about China then why shouldn’t everyone? This is regardless of how dovish the Fed is. Using domestic indicators, the Fed should probably have already started to increase interest rates and begin the normalisation process. However not only does it have the dual mandate to consider (inflation and unemployment) but also now seemingly a “third mandate” of concern for the international economy. However, how does the Fed now gauge whether conditions are OK to raise rates? Also, the China slowdown has seemingly been used as an excuse by the Fed, but like a huge oil tanker, this is not going to turn around any time soon. We could easily be looking at 2016 now.


  • However, any hawkish Fed speakers have been lining up to speak this week in the wake of the meeting. Centrist, Dennis Lockhart clearly signalled his intentions on Monday with a suggestion that “later this year” was still an option, whilst hawkish James Bullard has been saying that he had argued for a rate hike at last week’s FOMC meeting and would have dissented by voting for a 25 basis points increase. However, Bullard also said that there should be a news conference after every meeting so that no one meeting was any more important than another. This was an interesting comment to make and is a hint that October is basically off the table due to logistics (something that I and many others have argued previously). Another hawk, Esther George is also pencilled in to speak this week.
  •  The problem is that due to the Fed’s stance, equities have been massively sold off as risk appetite has suffered. Treasury yields have fallen sharply but it is the longer end of the curve that is really telling. Longer term growth expectations are reflected in the movement of the 10 year yield and the sharp decline is a big indication of the concerns the market now have. These are reflected also in equity markets sliding and the outperformance of the safe haven Japanese yen.
  • Chinese data will now take on a massive focus for driving market sentiment now. The China flash manufacturing PMI will be key this week and if the data continue to deteriorate then there could be a significant acceleration of the risk sell-off and the flight to safety.  Already we have seen key commodities such as copper falling sharply, whilst oil has been holding up (NYMEX West Texas Intermediate) above $43.20 key support.
  • The oil inventories were supportive last week with a surprise drop in the EIA weekly oil stocks and this has helped to prop up the price, however if the China PMI data disappoints and there is also an inventory build, then the selling pressure could mount once more.
  • There is a lack of tier one economic data this week so the focus will be squarely on the flash PMIs which are forward looking growth indicators. China will be the big release in the wake of the FOMC meeting which effectively pinned the blame of not hiking rate on the Chinese slowdown. However, the batch of US data will also be watched. The Durable Goods Orders are quite erratic and often subject to sizeable revisions, but in light of the Fed’s comments this will be of interest, as will the New Home Sales and final reading of US GDP.  The ailing DAX may find support if the German Ifo can continue to pick up.
  • Watch for: China Flash Manufacturing PMI, US Flash Manufacturing PMI



EUR/USD – Expect the euro to hold above $1.1100 pivot level      

  • The unwinding of the carry trade was swift for the Euro and with the Dollar strengthening once more the downside pressure has resumed. However the decision of the Fed should underpin the euro strength for now, that is unless the ECB starts to jawbone the euro lower again.
  • I see the euro settling in the upper half of the range above the $1.1050/$1.1100 pivot but once more failing to break above the old range high at $1.1465. Much within that it will be choppy and rangebound, driven by economic data.
  • Watch for: China Flash Manufacturing PMI, US Flash Manufacturing PMI, German Ifo

GBP/USD – The support at $1.5330 is key for sterling

  • Andy Haldane’s dovish comments (albeit to a certain extent tongue in cheek) about negative deposit rates may have contributed to the selling pressure currently hitting sterling, whilst the hawkish comments from FOMC members are propping up the dollar. The cat and mouse moves on Cable are likely to continue. The BoE’s Shafik (centrist) is talking today. However the China and US flash PMIs will drive sentiment again.
  • The Cable rally has rolled over and the breakdown of $1.5475 opens the $1.5330 support again which is a key near term level. This will be seen as a key test of the sterling bulls as a failure would re-open the medium term range lows around $1.5170.
  • Watch for: China Flash Manufacturing PMI, US Flash Manufacturing PMI

USD/JPY – Expect the choppy range 118.30/121.70 to continue for the time being  

  • Risk on, risk off. Choppy sentiment on an almost daily basis is resulting in big swings on Dollar/Yen which is still seen as a gauge of the classic safe haven view. The PMI data on Wednesday will drive the main move this week with any negative surprise likely to test the lower bounds of the range. Friday’s Japan CPI is expected to come in around flat and this is unlikely to do a great deal to change the outlook.
  • Technically the medium term outlook remains neutral in the range 118.30/121.70,  and with a series of neutral/indecisive candles this shows little sign of changing any time soon.
  • Watch for: China Flash Manufacturing PMI, US Flash Manufacturing PMI, Japan CPI

Gold – Using the near term technical rebound as a selling opportunity

  • Gold rebounded on the failure for the Fed to hike, however, with the US dollar showing signs of recovery the gold price is beginning to falter again. The failure of gold to act as a reliable safe haven (today is a classic case in point) is a concern for the gold bugs.
  • The long term trend remains negative with the resistance of the downtrend coming in at $1149. I still see rallies as a chance to sell and already gold is threatening to top out. Below $1127 support would be a confirmation of a sell signal.
  • Watch for: China Flash Manufacturing PMI, US Flash Manufacturing PMI

Indices – Negative moves on equities following sentiment from bond markets and also oil  

  • S&P 500 – The S&P has been holding up well, but the downside pressure on US 10 year yields is pressuring the S&P 500, whilst traders will also be concerned that a bearish read on the China and/or US flash PMI would heap pressure on the downside. Upside momentum seems to have been lost  for now and the support at 1937 is key near term to prevent a test of 1903 key September low.
  • DAX Xetra – The DAX has been underperforming due to China and now the exposure to car giants (BMW, Daimlar and Volkswagen) is just adding to pressure. A close below 9928 has re-opened the lows at 9338.
  • FTSE 100 – With oil consolidating, the FTSE 100 has been able to hold up relatively well, but base metals have turned lower again and a closing breakdown of the near term support at 6020 could be seen today and this would re-open the key August low at 5768.



Tuesday 22nd September

  • Eurozone – Consumer Confidence

Wednesday 23rd September

  • China – Flash Manufacturing PMI
  • Eurozone – Flash Manufacturing PMI
  • US – Flash Manufacturing PMI
  • US Crude oil inventories

Thursday 24th September

  • Japan – Flash Manufacturing PMI
  • Eurozone – German Ifo Business Climate
  • Eurozone – Targeted LTRO
  • US – Durable Goods Orders
  • US – Weekly Jobless Claims
  • US – New Home Sales

Friday 25th September

  • Japan – CPI
  • US – Q2  GDP (final)
  • US – University of Michigan Consumer Sentiment (final)


Monday 28th September

  • US – Personal Consumption Expenditure
  • US – Pending Home Sales

Tuesday 29th September

  • Eurozone – German CPI
  • US – Case Shiller Home Prices Index
  • US – Consumer Confidence

Wednesday 30th September

  • UK – Current Account
  • Eurozone – CPI (flash)
  • US – ADP Employment Report
  • Canada – GDP (monthly)
  • US Crude oil inventories

Thursday 1st October

  • Japan – Final Manufacturing PMI
  • China – Manufacturing PMI
  • Eurozone – Final Manufacturing PMI
  • UK – Manufacturing PMI
  • US – Weekly Jobless Claims
  • US – ISM Manufacturing PMI

Friday 2nd October

  • US – Non-farm Payrolls
  • US – Unemployment and Average hourly earnings
  • US – Factory Orders


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