U.S. Equity Markets reversed afternoon gains to close lower led again by the NASDAQ 100 which ended the day with a loss of 1.71%. Markets were lower as investors retreat from risky stocks amid growing fear the Federal Reserve will maintain an aggressive rate path. The threatened U.S. rail strike seems to have been averted after a tentative deal was reached. The Federal Reserve Banks of Philadelphia and New York released mixed manufacturing data but showed an easing of inflation has continued, while Initial Jobless Claims came in less than expected, which suggests the labour market remains extremely tight. Within the S&P 500, nine of the 11 sectors finished lower. European Markets closed lower. ECB policymakers are increasingly hawkish. A central bank’s primary tool in fighting inflation is raising interest rates. By doing so, the value of the underlying currency should rise, boosting its buying power. Said another way, when that currency is worth more, it should take less of it tomorrow to buy the same amount of goods as it did today. Last Thursday, the ECB raised interest rates by 0.75%. The change marked the largest-ever rate hike by the central bank and an increase of 1.25% over the last two meetings. The adjustment got the benchmark Deposit Facility rate back to 0.75%. As I have discussed before, the ECB’s lack of action on interest rates has made the regional inflation outlook even worse. The U.S. Federal Reserve began raising rates in March, while the ECB waited until July for its first rate increase in 11 years. Consequently, the Euro weakened compared with the Dollar, diminishing its buying power. This comes as natural gas and electricity prices in the region are skyrocketing. Russia has reduced energy supplies to Germany – Europe’s biggest economy – because of sanctions imposed following the invasion of Ukraine. That, combined with the drop in the Euro, has driven regional inflation to its highest level since the inception of the Euro-Zone. So, the central bank has little choice but to take action. If it does not and the Euro keeps plummeting, the inflation outlook will grow even worse. Yet, as policy tightens, it should begin to weigh on the value of the Dollar. Typically, a declining Dollar bodes well for the sale of American goods abroad. The turn won’t happen overnight, but it should act as a long-term tailwind for the S&P 500. But don’t take my word for it. Look at what ECB Governing Council members are saying. On Wednesday, Bank of France Governor François Villeroy de Galhau called for a rapid rate increase. While speaking in Washington, D.C., he said the Deposit Facility rate should be at 2% by the end of this year. In other words, he wants to see it rise by another 1.25% over the next two meetings in October and December. Villeroy said the bank cannot become complacent with regards to inflation. Instead, by targeting 2%, the ECB will have interest rates back to the perceived neutral level. That is a point at which central bankers believe monetary policy is neither hurting nor helping the economy. But by getting there, he feels rates can then be adjusted accordingly to start weighing on inflation growth. Bank of Latvia Governor Mārtiņš Kazāks echoed similar sentiment. While conducting an interview with Market News International, he discussed the recent central-bank statement that rates will rise over the next several meetings. He said that does not mean hikes will be completed by the end of this year. Kazāks stated monetary policy remains too accommodative at the moment. He said upside risks to inflation still exist. So, he feels policymakers must be prepared to keep raising rates beyond February in order to bring inflation growth back under control. Fed policymakers have said they are targeting interest rates of 3.5% to 4% by the end of this year. Currently, they are at 2.50% and the Fed is expected to increase rates by another 0.75% next week. That will mean the Federal-Funds target rate must rise by another 0.75% over the November and December meetings to get to the high end of the guidance at 4%. Thought of another way, once September is behind us, the Fed should have less policy work to do to reach its year-end rate target than the ECB. There is a lot of time left between now and the end of the year. Volatility and the consequent market swings are unlikely to diminish in the interim. But the last time the Euro was this low was in September 2002. A year later, it gained 18.2%. And over that same period, the S&P 500 rallied 24.4%. So, while the near-term outlook may be fraught with uncertainty, the long-term picture is where we should focus. In Asia, Equities had a relatively directionless day in trading. Currency markets had the biggest movement with the Yen giving up much of its ground from the day before. The People’s Bank of China left rates unchanged as expected, while Australian labour market data was mixed but played into expectations that the central bank will slow the pace of tightening in October. Elsewhere, Oil fell 3.71% while Gold closed over 2% lower.
To mark my 2625th issue of TraderNoble Daiy Commentary I am offering a special 2-Year Rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day to demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 60 points yesterday and is now ahead by 2357 points for September, after closing August with a gain of 2228 points, 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 1.13% lower at a price of 3901.
The Dow Jones Industrial Average closed 173 points higher for a 0.56% loss at a price of 30,961.
The NASDAQ 100 closed 1.71% higher at a price of 11,927.
The Stoxx Europe 600 Index closed 0.65% lower.
This morning, the MSCI Asia Pacific Index fell 0.4%.
This morning, the Nikkei closed 1.08% lower at a price of 27,574.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% lower.
The Euro closed 0.1% higher at $0.9990.
The British Pound closed 0.3% lower at 1.1468.
The Japanese Yen rose 0.1% closing at $143.40.
Bonds
Germany’s 10-year yield closed 4 basis points higher at 1.78%.
Britain’s 10-year yield closed 4 basis points lower at 3.17%.
US 10 Year Treasury closed 3 basis points higher at 3.47%.
Commodities
West Texas Intermediate crude closed 3.71% lower at $83.39 a barrel.
Gold closed 2.02% lower at $1669.10 an ounce.
This morning on the Economic Front we already had the release of U.K. Retail Sales which fell 1.6% for August versus -0.5% expected. At 9.30 am we have a speech from ECB President Lagarde, followed at 10.00 am by Euro Zone Inflation. Next, we have the Bank of England Quarterly Bulletin at 12.00 pm. Finally, at 3.00 pm we have the University of Michigan Consumer Sentiment Index.
Cash S&P 500
My S&P plan worked well as after the market hit my 3924 buy level we rallied to my 3950 T/P level. This tuned out the be the high of the day as the market sold off into the close and again overnight. Tech led yesterday’s decline as the two-year rate hit new highs. This is not sustainable and the Fed’s reaction next week will be key. The Fed have talked themselves into a hawkish corner but rates anywhere close to 3.5/4% are not sustainable given the level of debt. On top of this the Atlanta’s FED GDP Now forecast took another beating, risking a third negative GDP print in a row. In my opinion this suggests that this next rate hike will virtually guarantee a recession. Prices Paid are dropping hard as I have mentioned at length over the past few weeks, growth is collapsing while rising Bond Yields are putting stress on the economy. There is no Fed Meeting in October but we do have one at the start of November which is just ahead of the Mid-Term Elections. Politically this will be a disaster for the Democrats. Although, the S&P still has a target level at 3820 (where I will continue to be an aggressive buyer) I bought the S&P this morning here at 3875 in small size with a 3849 ‘’Closing Stop’’. I will have a T/P level at 3902 on this position. If this level is triggered, I will come back with a new update for my Platinum Members
EUR/USD
No Change. I am still long from Monday at an average rate of 1.0060. I have no stop while lowering my T/P level to 1.0100.
March Dollar Index
I am short and wrong the Dollar as I patiently wait for a weaker Dollar to kick in. Equity Markets will not have a sustained rally without a weaker Dollar and Central Banks know this. It is only a matter of time before we see some intervention to stem the fall in the Japanese Yen. This morning, the Dollar is trading unchanged at 109.50. I will now add to my existing 107.50 short position on any further move higher to 110.10.
Cash DAX
If there is any Index in the world that has had every excuse to break the uptrend line, it is the DAX. No major economy has a worse fundamental outlook than Germany at the moment, given the energy crisis, massive overall inflation and Europe facing a massive recession. The DAX should be breaking down but the short-term chart shows continued support. The recent reversal on U.S. CPI has seen the DAX break below the weekly 200 Day Moving Average again. But what is fascinating is that the price is hovering where it was seven years ago having twice tested this support in the past year. I do not know what more they can throw at Germany at the moment with sentiment being the worst ever. The DAX has not tagged its 200 Day MA since February 2 so a rally in my opinion is imminent. Of course, we do need to see a weaker Dollar to enhance my view. This morning, the DAX has traded the whole of yesterday’s buy range and I am now long at an average rate of 12840. Remember the Sept Contract expires this morning so this may set up a post expiration rally. I will have a T/P level on this position at 12950 while leaving my 12695 stop unchanged.
Cash FTSE
Overnight, the FTSE hit my buy range and I am now long at 7230 with a now lower 7290 T/P level. I will add to this position at 7170 while leaving my 7135 stop unchanged.
Dow Rolling Contract
I am still seeing positive divergences on the Dow. With four open gaps on the VIX below and the $NYSE at max oversold, I just cannot be a seller of markets at this time. Sentiment is terrible and the world and his mother are now bearish. I am seeing a picture that is potentially completely counter to everybody’s sudden bearish expectations. What is the old saying? The market likes to screw with the most amount of people most of the time. The biggest screw job right now would be a big rally into late September. This morning, the Dow has hit yesterday’s buy range. I am now long in small size at 30780. I will add to this position at 30580 with a now lower 30395 ‘’Closing Stop’’. I will have a T/P level at 32080 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
Cash NASDAQ 100
The NDX has now fallen over 1000 points since Tuesday’s CPI report for an 8% decline. This is a massive move in less than 72 hours. This move lower has me long at an average rate of 11890. I will leave my 11695 stop unchanged while lowering my T/P level to 12020.
December BUND
This morning, the Bund has sold off to yesterday’s buy range. I am now long at 142.30 with the same 143.10 T/P level. I will add to this position at 141.60 while leaving my 140.95 ‘’Closing Stop’’ unchanged.
Gold Rolling Contract
My Gold plan did not work out as I stopped myself out of my latest 1702 long position at 1682 and I am now flat. As I have so many open positions I am going to stay flat Gold until Monday.
Silver Rolling Contract
No Change. I am still long at 19.25. I will continue to look to add to this position on any further move lower to 18.55 while lowering my T/P level to 19.80.
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