Weekly Trading Notes – Market turmoil is ramping up once more


  • Market turmoil is ramping up once more as the weak data that continues to roll out of China suggests further slowdown. This is driving a renewed flight into safe haven assets. The classics such as German Bunds, US Treasuries and the Japanese yen are being favoured as equity markets are being sold off. The volatility is still high and on a day to day basis markets are still flying around a lot, however there is a bearish bias that continues to underpin the markets. The dollar has been underperforming as traders have favoured the yen but also the market turmoil could give Fed members another excuse to hold off in October’s FOMC meeting and this is helping to support the euro (amid signs that the carry trade has still got further to unwind).


  • The economic data this week is again vital. There is a raft of tier one US data, whilst the announcement of the China manufacturing PMI on Thursday looks certain to be a massive driver. Any signs of light at the end of the tunnel would certainly be welcomed by the market but the expectation is not great.
  • If the rhetoric of Fed speakers is anything to go by then a 2015 hike is increasingly likely. Yellen’s comments last week would certainly suggest this to be the case, whilst yesterday we had John Williams (centrist) and perhaps more interestingly Bill Dudley (dove) were both suggesting that a rate hike in 2015 was viable, both of whom are voting members. The comments of Dudley are especially interesting as previously he has been seen as one of the most dovish members of the FOMC. He said that a rate hike could be as soon as October and also that the Fed’s 2% inflation target could be hit next year. The hawkish comments have continued again today with Loretta Mester (non-voting hawk), but certainly the market will be looking out for the comments of Stanley Fischer (vice chair and centrist) and also Janet Yellen (mild dove). It would appear that the FOMC members are positioning for at least a December hike.
  • Commodity prices have come under big pressure once more. The big question marks over China’s growth is once more pulling base metals prices sharply lower. The bearish outlook on the prospects of mining giant Glencore have also kept prices under pressure. The gold price seems to have topped out too, but perhaps the big surprise so far is that oil prices have held up fairly well. On WTI oil (NYMEX) the support at $43.20 remains intact but if this support goes then there would certainly be a big impact on market sentiment.
  • This pressure on commodities is part of a wider flight to safety across markets. The decline on the US 10 year Treasury yield to a new 5 month low confirms this mood and reflects the serious concerns over the prospects of global growth. However, with the Fed giving the excuse of international developments to prevent a rate hike in the meeting just gone, if the current market situation persists then it is difficult to see how they can move in October.
  • Forex markets reflect all this. Commodity majors remain under pressure and are being sold into strength. The euro and yen remain supported amid safe haven flows, whilst sterling is in a way at the mercy of the dollar. The Bank of England is likely to follow the lead of the Fed so this is not a great environment for Sterling to outperform the greenback. This is why sterling is having a massive support level tested now.
  • There is lots of tier one US economic data this week with Consumer Confidence being the main data in front of the big ISM manufacturing PMI. However the China data has been crucial to the outlook for markets in recent months and a continuation of the deterioration in the China manufacturing PMI could send sentiment into a tailspin. The culmination of Non-farm Payrolls is always key for the market but after the core PCE picked up again the market will certainly be looking towards average hourly earnings as the key takeaway. An improvement to say 2.4% or 2.5% (+2.3% exp) would be a hawkish signal.
  • Watch for: China Manufacturing PMI, US ISM Manufacturing, Non-farm Payrolls, Average Hourly Earnings



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

  • Safe haven flows are supporting the euro as any time the market sentiment is hit is results I a flight from  risk and the euro benefits of the unwinding of the carry trade.
  • The support at $1.1100 has been bolstered in recent weeks and remains a key pivot near term. The range between $1.1100/$1.1465 is developing with a near term resistance around $1.1300 as the euro settles into a more sideways and neutral outlook.
  • Watch for: Eurozone CPI (flash), China Manufacturing PMI, US ISM Manufacturing, Non-farm Payrolls, Average Hourly Earnings

GBP/USD – A two day close below $1.5170 opens $1.5088 and then the old pivot at $1.5000

  • Sterling is moving on the outlook of the markets and the perception of the dollar. However with it being seen as flying on the coattails of the dollar there is little to be bullish about for now.
  • The pressure on the support at $1.5170 continues. Being such an important support I would be looking for a two day close to confirm a breakdown. Momentum indicators are negative but for now there is a significant battle going on for control and the sterling bulls are hanging on by their fingertips. A confirmed breach opens $1.5088 and then $$1.5000. The key overhead resistance is now at $1.5330.
  • Watch for: China Manufacturing PMI, UK Manufacturing PMI, US ISM Manufacturing, Non-farm Payrolls, Average Hourly Earnings

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 continues swings on Dollar/Yen without any direction. The market is in need of a catalyst. Traditionally this has been monetary policy based.
  • The tight range continues between 118.50/121.70 but is tightening as the days go on.The Bollinger Bands are tightening  – which suggests that a breakout could be a big move. This would be consistent with previous trading on Dollar/Yen. When the breakout comes it is usually a big trend formation.
  • Watch for: China Manufacturing PMI, US ISM Manufacturing, Non-farm Payrolls, Average Hourly Earnings

Gold – The long term bear trend remains intact as rallies are a chance to sell

  • Gold has fallen over again despite the flight to safe haven plays. This would suggest there is still a disconnect between demand for gold and its traditional safe haven status. Traders are still not prepared to buy gold in a continued low inflation environment.
  • Technically the peak at $1156 has come in and a correction below $1121 would now re-open $1098. This looks to have been another near/medium term rally within the longer term bear market and the bulls are not ready to take on the trend.
  • Watch for: China Manufacturing PMI, US ISM Manufacturing, Non-farm Payrolls, Average Hourly Earnings

Indices – Watch the key data releases and also the moves on US 10 Year Treasury yield to reflect similar moves on equities  

  • S&P 500 – The S&P 500 falling below 1903 support is a bearish development as it re-opens the 1867 low. Rallies are a chance to sell and sentiment will remain under pressure unless some positive data starts coming through. Next week’s earnings season beginning cannot come soon enough but will it be a positive distraction?
  • DAX Xetra – The double whammy of exposure to China and also the impact of the VW emissions scandal continues to see the DAX underperform. The volatility remains high but selling into strength remains the way to play the DAX as consistent pressure on the low at 9338 is likely. A decisive breach opens a full retracement to 8350!
  • FTSE 100 – The FSTE is not as negative as other indices currently but is not escaping the selling pressure as rallies are increasingly seen as a chance to sell. Expect a retest of 5768. Needs a close above 6250 to defer the bears now.



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



Monday 5th October

  • Eurozone – Services PMIs
  • UK – Services PMI
  • US – ISM Non-manufacturing PMI

Tuesday 6th October

  • Australia – RBA monetary policy
  • US – Trade Balance

Wednesday 7th October

  • Japan – BoJ monetary policy
  • UK – Manufacturing Production
  • US Crude Oil Inventories

Thursday 8th October

  • UK – BoE monetary policy
  • US – Weekly Jobless Claims
  • US – FOMC meeting minutes

Friday 9th October

  • UK – Trade Balance
  • Canada – Unemployment