U.S. Equity Markets finished Tuesday’s session mixed following another volatile trading session. Both the NASDAQ and S&P 500 closed lower for the fifth consecutive trading session while the Dow closed with a small gain of 0.12%. Markets were choppy as anticipation grows for inflation figures later this week. Earnings season also kicks off in a few days with reports from major banks. Investors fear that 2023 estimates will see sizeable downward revisions. The New York Fed’s Survey of Consumer Expectations for September showed that consumers still see medium-term inflation pressures as significant and expect to cut down even further on spending. September’s inflation figures at the end of the week will serve as the main catalyst for a potential fourth 75-basis-point rate hike at the Federal Reserve’s November meeting. Just like last week, this week is filled with important, market-moving economic data. Today, and tomorrow, the U.S. Bureau of Labour Statistics releases Producer Price Index (“PPI”) and Consumer Price Index (“CPI”) figures for September. Each of those numbers will give us an idea of whether inflation growth is cooling or accelerating. We need look no further than recent manufacturing surveys from regional Fed banks, which suggest that costs are easing. Taking into account the recent data, it is clear that both PPI and CPI are falling. The problem is the current outlook from policymakers. Since the last meeting of the rate-setting Federal Open Market Committee (“FOMC”) in September, they have all struck the same message- Interest rates need to go to the 4.5% to 4.75% range by early next year – no matter the economic outcome. Fed Governor Christopher Waller even said signs of falling employment would have no bearing on the FOMC’s decisions. Until institutional investors get a sense of a policy shift, continued hawkish (inclined to raise rates) rhetoric will weigh on the outlook for the S&P 500 Index. But do not take my word for it, look at what policymakers are saying: On Monday, Vice Chair Lael Brainard said that interest rates will need to remain “restrictive” for some time. In other words, they will need to remain high or above the central bank’s so-called neutral target of 2.5%. By getting above that level, rates can start to weigh on inflation growth. She said the central bank’s initial rate hikes are just starting to be felt in the form of slowing economic data. Brainard stated that it’s still going to take some time for additional policy tightening to be felt. She believes this will weigh on both the global and domestic economies in the months ahead. But she wants to give the data more time to play out. Chicago Fed President Charles Evans conveyed a similar message. He reiterated that the Federal-Funds target range should be around 4.50% by March of next year. He said at that point, the central bank can step back and study the fallout from the current rate-hike cycle. He suggested the above-average pace of increases is necessary because interest rates have remained too low for too long. Evans said there still remains a lot of uncertainty around how high rates should go. But he stated policymakers are so focused on restrictive policy, they’ve decided to raise interest rates even further over the next few months, with little concern for the underlying data. But the Fed is not listening to itself: When the central bank first started hiking rates in March, Chairman Jerome Powell said there will be moments when it needs to step back and study the effects of policy on the economy. He, along with FOMC voting members like Vice Chair Brainard and Kansas City Fed President Esther George, said it usually takes six to eight months before rate hikes play out in the data. Now, here we are, seven months after the first-rate increase, and economic data is slowing. As we saw last week, job gains are at the lowest level all year, while job-cut announcements have skyrocketed 67.6 % year over year and job openings have fallen off a cliff, dropping more than 15% since March. Despite this, policymakers have said they are ploughing forward. They do not care about what the data tells us because they have got a target in mind. It sounds an awful lot like Powell’s outlook in the Fourth Quarter of 2018, when the U.S. and China were embroiled in a trade fight. He kept raising interest rates even though the global growth outlook was falling apart rapidly. It was not until the S&P 500 dropped 20% that he finally caved on tightening rates and stopped. That is when the market began to rally. In my opinion, this time is no different, Until the outlook changes, and the central bank dials back its rate-hike policy, the shorts are going to press their bets. They know the Fed is not listening or paying attention to the damage it is inflicting on the domestic and global economies. Within the S&P 500 Index, seven of the 11 sectors finished lower. European Markets closed lower. Markets finished lower as the Bank of England announced new support for its currency. International Monetary Fund economists continue to publicly criticize U.K. fiscal policy, with the nation’s government further spending to stimulate growth despite high inflation. Analysts continue to forecast a deep recession for Europe heading into 2023, with high energy prices shrinking consumer income. The European Central Bank is also eyeing another 75-basis-point hike this month. In Asia, Markets fell mostly due to negative sentiment surrounding semiconductor stocks. The direction stemmed from the U.S.’s decision to increase sanctions of exports to China. Now, markets await U.S. inflation figures later this week. Elsewhere, Australia’s Westpac Consumer Sentiment Index for October fell. In an interview with the Financial Times, Japanese Prime Minister Fumio Kishida signalled his support for the Bank of Japan’s monetary easing. In South Korea, exports fell 20.2% year over year in the first 10 days of October, as diminishing global demand for chips and technology continue to hit the nation’s economy hard. Elsewhere, Oil fell 2.75% while Gold closed flat after a quiet session.
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Equities
The S&P 500 closed 0.65% lower at a price of 3588.
The Dow Jones Industrial Average closed 36 points higher for a 0.12% gain at a price of 29,239.
The NASDAQ 100 closed 1.24% lower at a price of 10,791.
The Stoxx Europe 600 Index closed 0.56% lower.
This morning, the MSCI Asia Pacific Index rose 0.5%.
This morning, the Nikkei closed 0.02% lower at a price of 26,396.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% higher.
The Euro closed 0.2% higher at $0.9718.
The British Pound closed 0.2% lower at 1.1015.
The Japanese Yen fell 0.3% closing at $146.10.
Bonds
Germany’s 10-year yield closed 1 basis points higher at 2.33%.
Britain’s 10-year yield closed 3 basis points lower at 4.44%.
US 10 Year Treasury closed 7 basis points lower at 3.92%.
Commodities
West Texas Intermediate crude closed 2.75% lower at $88.99 a barrel.
Gold closed 0.05% lower at $1665.10 an ounce.
This morning on the Economic Front we already had the release of U.K. GDP which fell 0.3% versus 0.0% expected. Next, we have Euro-Zone Industrial Production at 10.00 am, followed by a German 10-Year Bond Auction at 10.30 am. This is followed by U.S. Producer Prices at 1.30 pm and a speech from ECB President at 2.30 pm. Finally, we have a 10-Year Treasury Auction at 6.00 pm and the Minutes from last Month’s Fed Meeting at 7.00 am.
Cash S&P 500
An incredibly volatile trading session that held afternoon lows resulting in the S&P making a high at 3641 before falling apart in the last hour of trading after Andre Bailey (BoE Governor) gave U.K. pension funds a three-day ultimatum to sort their stuff out. In other words, get your capital requirements in order by Friday when the BoE will stop intervening, causing a flush into the close. However, Markets held their lows and are rallying hard as I go to press. All eyes are on PPI this afternoon and of course CPI tomorrow. Any sign of an easing in inflation will see a melt-up in stocks given the technical and sentiment background. However, a strong print will see the S&P test my 3493/3530 aggressive buy range. Yesterday, my S&P plan worked well with the market trading lower to my 3575 buy level before rallying to my 3598 revised T/P level and I am still flat. Today, I will again be a buyer on any dip lower to 3560/3580 with a tight 3549 ‘’Closing Stop’’.
EUR/USD
My latest .9700 long Euro position worked well as the Euro rallied to my .9770 T/P level and I am now flat. Subsequently, the Euro fell 70 points into the New York close. Today, I will again be a buyer from .9630/.9700 with the same .9585 ‘’Closing Stop’’.
March Dollar Index
No Change. I am still short at 108.90 with a now higher 110.85 exit level. If this level is triggered, I will be back with a new update for my Platinum Members.
Cash DAX
After the DAX traded lower to my 12100 buy level we had a nice rally to my 12184 T/P level and I am now flat. The DAX has strong support from 12010/12110 where I will again be a buyer with the same 11895 ‘’Closing Stop’’.
Cash FTSE
This volatility in Gilts saw the FTSE trade heavy. I am still long at 6885 from yesterday morning with a now lower 6940 T/P level. I will add to this position at 6815 with the same 6775 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 28900 buy level before rallying a huge 700 points. Unfortunately, I covered my long position at 29070 and I am still flat. The Dow has short-term support from 28900/29150 where I will again be an aggressive buyer with a with a higher 28695 ‘’Closing Stop’’.
Cash NASDAQ 100
Although the NDX traded heavy all-day yesterday, my NDX plan worked well as the market traded lower to my 10780-buy level before rallying to my 10950 T/P level and I am now flat. It was interesting that internally the market is holding despite the aggressive sell-off this week. The McClellan Oscillator improved last night, closing at -123 which surprised me. The NDX is severely oversold after falling 34% year-to-date. I am seeing lots of positive divergence for the NDX on the charts I follow and for that reason I would not be short the market. Today, I will be a buyer from 10680/10830 with a higher with 10555 ‘’Closing Stop’’.
December BUND
My Bund plan worked well with the market trading lower to my 135.70 buy level before rallying to my 136.35 T/P level and I am still flat. This morning, the Bund is trading at 136.10. We have support from 134.70/135.50 where I will be an aggressive buyer with the same 133.95 ‘’Closing Stop’’.
Gold Rolling Contract
Thankfully, Gold rallied to my 1681 T/P level on my 1670 long position and I am now flat. Gold has support from 1648/1663 where I will again be a buyer with a 1639 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. I am still long Silver at an average rate of 20.05 with the same no stop strategy. I will leave my T/P level unchanged at 20.60.
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