U.S. Equity Markets finished Friday lower led by the 1.92% fall in the NASDAQ 100 as the market corrects some of its overbought condition. This move lower saw the VIX end the week with a gain of 5% at a price of 20.60. Markets closed lower as the Dollar renewed its strength following a record-setting inflation number in Germany. Federal Reserve Bank of St. Louis President James Bullard said he is open to the idea of another 0.75% interest-rate increase at the central bank’s meeting next month. Investors look ahead to the annual Jackson Hole Economic Symposium this week, when Fed Chairman will be the main attraction. Money managers believe the central bank could use the summit to bolster its policy pivot pushback. The housing market’s pending demise is overly exaggerated…The Federal Reserve has said it is going to kill housing prices. Chairman Jerome Powell has stated multiple times over the last year that the supply-and-demand picture for homes is out of balance. The dynamic is driving prices and inflation growth higher. So, in order to fulfil its objective of bringing rising costs back under control and meeting its stated goal of price stability, the central bank is raising interest rates. The Fed is hoping higher borrowing costs will shrink demand for homes, driving purchase and rental prices lower. Shelter is the largest weighting in the U.S. Bureau of Labour Statistics’ Consumer Price Index (“CPI”) at 40%, so a fall in housing prices will have an outsized effect on inflation. A sustained change will give the central bank room to slow its path of aggressive interest-rate hikes going forward. That should support a longer-term rally in the S&P 500 Index… Housing starts data from the U.S. Census Bureau indicates the Fed’s tactics are working… But that does not mean the housing industry is going bust. In fact, underlying metrics point toward industry activity returning to pre-pandemic levels and the potential for improving profits. Industry stability there should function as support for the broader economy. According to the National Association of Homebuilders, housing and the ancillary industries associated account for roughly 18% of gross domestic product (“GDP”) on an annual basis. In other words, it is not just the fabrication of a home but the finishing goods like tables, chairs, sofas, lighting fixtures, appliances, carpet, and flooring that also drive spending. That makes housing one of the most important contributors to annual economic output. So, we want to pay attention to these metrics for a sense of overall economic direction. Early second-quarter GDP data indicates we’ve experienced two consecutive quarters of contracting growth. That is typically defined as a recession. Lumber and Stell prices are now lower by 65% and 59% respectively off their earlier peak. The headline numbers around building and sales activity seem daunting. The Federal Reserve is raising interest rates and activity appears to be slowing. It is easy for the media to say the housing industry is imploding, creating broader economic fears. What we can see is activity appears to be returning to pre-pandemic levels. When it was here prior, the national economic output average was around 2.3% annually. There is a huge swing pre- and post-pandemic, but the numbers appear to be returning to normal. Look, you cannot throw tons of government stimulus at the economy and not expect to have consequences. As you can tell by the chart on GDP, growth in 2021 exploded higher from all the money handed out. The 5.7% final economic expansion for last year was more than double the average of the decade prior to the pandemic. So, we are currently feeling the fallout of a return to normal. And while it may not feel great at the moment, it is what’s needed to bring inflation growth back down toward something households and businesses can better tolerate moving forward. And as that happens, it should give the Fed room to back off interest-rate hikes and possibly cut them down the road. The change should support a steady long-term rally in the S&P 500. Within the S&P 500, nine of 11 sectors finished lower. European Markets closed lower. Germany’s Producer-Price inflation accelerated to its highest level in 70 years at 37.2% in July. The country has plans to reduce tax levies on energy sales as it struggles to lessen the cost burden on consumers. U.K. Retail Sales beat expectations due to summer discounting, but Consumer Confidence fell to its lowest level since 1974. The Bank of England is facing more criticism over its policy following a double-digit inflation print. In Asia, Japan’s inflation continues to climb, with July’s core inflation metric having risen 2.4% over the previous year. Indonesia President Joko Widodo said Presidents Xi Jinping and Vladimir Putin plan to attend the G20 summit in October, marking the first time the two have met with Western leaders since the pandemic and Russia-Ukraine War. New Zealand’s Trade Deficit widened on the backs of soaring imports. Elsewhere, Oil fell 0.50% while further Dollar strength saw Gold closed lower by 0.59%.
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For anyone following my Platinum Service it lost 5 points on Friday and is now ahead by 1693 points for August, having made 2660 points in July, following a gain of 3371 points in June. The Service made 3651 points in May, after making 762 points in April, following a gain of 5883 points in March. The Platinum Service made an impressive 5324 points in February, after ending January with a gain of 3878 points, more than making up for December’s 932 points loss. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 1.29% lower at a price of 4228.
The Dow Jones Industrial Average closed 292 points lower for a 0.86% loss at a price of 33,706.
The NASDAQ 100 closed 1.92% loss at a price of 13,242.
The Stoxx Europe 600 Index closed 0.7% lower.
This morning, the MSCI Asia Pacific Index fell 0.7%.
This morning, the Nikkei closed 0.50% lower at a price of 28,784.
Currencies
The Bloomberg Dollar Spot Index closed 0.5% higher.
The Euro closed 0.5% lower at $1.0040.
The British Pound closed 0.8% lower at 1.1831.
The Japanese Yen fell 1.1% closing at $137.22.
Bonds
Germany’s 10-year yield closed 11 basis points higher at 1.22%.
Britain’s 10-year yield closed 10 basis points higher at 2.42%.
US 10 Year Treasury closed 10 basis points lower at 2.98%.
Commodities
West Texas Intermediate crude closed 0.50% lower at $89.98 a barrel.
Gold closed 0.59% lower at $1749.10 an ounce.
This morning on the Economic Front we have no data of note from either the U.K. or the Euro-Zone. The only U.S. release if the Chicago Fed National Activity Index at 1.30 pm.
Cash S&P 500
Last week the S&P ran into strong resistance at 4325 which is the 200-Day Moving Average following a two-month vertical rally which led to the market getting severely overbought. As the 14-Day RSI hit 75 it was no wonder that we finally saw some profit-taking with the S&P trading lower overnight, sitting at 4204 as I go to press. Lower Bond Yields was the main catalyst for this rally but the subsequent 50 Basis points rally in 10 Year Treasuries have proved to be a strong headwind to the S&P peaking last Monday. With most traders still on vacation, volume has been low which added to the 1.5% fall in the S&P since I marked prices last Thursday night. Friday’s move lower saw the whole of my buy range filled for a now 4242 average long position. I will leave my 4219 ‘’Closing Stop’’ unchanged while lowering my T/P level to 4250. Ahead of Jackson Hole on Thursday I am expecting the S&P to rebound despite 10-Year Treasury Yields closing above its 50-Day Moving Average on Friday. The Dollar is severely oversold and is trading over 10% lower on a Purchasing Parity Basis. A weaker Dollar is key as it will lead to a rally in both Bond and Stock Markets going forward.
EUR/USD
Wrong!!. Late Friday, I was stopped out of my 1.0165 long Euro Position at 1.0050. Subsequently, I bought the Euro again at a price of 1.0039. As I mentioned above the Euro is severely oversold. The Euro has suffered a peak- to- trough decline of over 20% from its 2021 peak highs to last month’s move lower through parity for the first time since the early 2000s. The Euro is now trading 1.5 Standard Deviations below its 200-Day Moving Average, implying there is a lot of negativity reflected in the price. If you are long Dollars I would certainly look to take your long-term gains at current prices. I will add to my 1.0039 long Euro position at .9979 with a lower .9895 ‘’Closing Stop. My T/P level on this position is at 1.0105 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
March Dollar Index
The Dollar continues to rally, trading at 108.00 this morning. The last time the Dollar was this overvalued, at the end of 2016, we quickly saw a 10% decline in the Dollar over the following 12 Months. I am expecting a similar outcome, I just do not know what the catalyst will be. Based on a longer-term outlook, the risk/reward is skewed to the downside. In my view, a key source of prior support has disappeared (strong economic growth) and another is fully discounted and may be on the verge of reversing which of course is a divergence in Central Bank rate hike expectations. I am now short the Dollar at an average rate of 107.50. Given how overbought the Dollar is trading I will have no stop on this position, fully believing that we are close to a reversal in the Greenback. I will leave my T/P level unchanged at 106.80 for now.
Cash DAX
The DAX got hit hard on Friday, trading lower tommy 13510 buy level. As I wanted to be flat over the weekend I covered this position at my revised 13535 revised T/P level. This morning, the DAX is trading lower at a price of 13375. I am reluctant to chase the Market lower. We have short-term support from 13240/13320 where I will be an aggressive buyer with a 13175 tight stop. If I am taken long I will have a T/P level at 13405.
Cash FTSE
No Change. The FTSE surprisingly traded again in a narrow range, despite Gilt Yields rising a further 10 basis points for a 60-point rise in the last week. This is a huge move, driving Sterling lower by over 3% last week. Yet the FTSE continues to hold in. I am a big believer in price action and a market that cannot trade lower on really bad news has to be respected. The FTSE has resistance from 7590/7640 where I will continue to be a seller with a tight 7685 stop. The FTSE has support from 7430/7490 where I will be a small buyer with a 7375 tight stop.
Dow Rolling Contract
After the Dow traded lower to my 33750 buy level on Friday we had a quick 100 point rally, enabling me to cover this position at my revised 33835 T/P level and I am now flat. The Dow sold off into the close and again overnight, trading at 33550 as I go to press. I have no interest in pressing the downside ahead of Thursday’s Jackson Hole. The Dow has support from 33150/33400 where I will be a buyer with a 32995 ‘’Closing Stop’’.
Cash NASDAQ 100
The NDX never came close to my sell level on Friday, falling over 400 points since I last marked prices on Thursday evening. Thankfully we were not long for this decline and are still flat. The NDX has support from 12850/13050 where I will be an aggressive buyer with a 12745 ‘’Closing Stop’’.
September BUND
Bund Yields rose over 40 Basis Points last week which is no surprise given the 10.1% CPI print. This latest move lower has me long at an average rate of 152.65. This morning the Bund is trading slightly lower at 152.45. I will now lower my T/P level on this position to 153.10 while leaving my 151.65 ‘’Closing Stop’’ unchanged. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Gold Rolling Contract
The strong Dollar saw Gold hit Friday’s buy range. I am now long at 1739. I will add to this position at 1725 while lowering my stop to 1714. I will also lower my T/P level to 1755 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
Silver Rolling Contract
No Change. I am still long from Thursday at an average rate of 19.60 with the same 20.10 T/P level. I will leave my 19.10 ‘’Closing Stop’’ unchanged. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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