U.S. Equity Markets finished Monday higher led by the 1.34% gain in the Dow. Markets continued last week’s late rally. S&P Global’s Purchasing Managers’ Index (“PMI”) for October showed a weakening economy, which prompted hope among investors looking for any signs that the Federal Reserve might be close to slowing rate hikes. Further economic indicators are emerging that suggest the economy is starting to feel the effects of tight monetary policy. Bloomberg reported that rent growth is finally starting to tail off, while a CNBC survey showed that the percentage of Americans living paycheck to paycheck is near an all-time high. Meanwhile, investors are awaiting third-quarter earnings from the majority of companies in the S&P 500 Index this week. Economic data have yet to catch up with real-time inflation metrics. Until those changes, the Federal Reserve will continue to press forward with its rate-hike plans. This week is the next in what seems like an unending string of important moments for global equity markets. We will receive policy announcements from the European Central Bank and Bank of Japan. The former is growing increasingly hawkish, while the latter is content with maintaining easy-money policies to stoke inflation. But they are not the only show in town. We also get preliminary details on how global economic growth fared in the third quarter, just as central banks everywhere grew increasingly aggressive on tightening monetary policy. The U.S., France, Germany, South Korea, and Taiwan all release important data. But there is a catch. All of these numbers are backward-looking. The data does not survey what is happening now. It is capturing what transpired over the summer months, which is the period when everyone in the Northern Hemisphere likes to travel and spend. It also happens to be the weakest quarter in terms of year-over-year growth in 2021. So, the scenario sets up for fairly decent growth metrics. If we see strong third-quarter output numbers, especially in the U.S., it will signal to central banks and investors that the global economy is holding up despite their rate hikes. That would be the opposite of what they are seeking to accomplish. In other words, strong growth numbers this week would support more interest-rate hikes, weighing on the near-term outlook for the S&P 500 Index. To see what I am talking about, let’s look at recent rent-growth numbers from apartment data and multifamily research firm RealPage Analytics. Demand for apartment rental units experienced an historic decline in the third quarter. Following two years of rampant demand and rental activity, the market has experienced a downturn much faster than expected. Jay Parsons, RealPage’s head of Economics & Industry Principals, said that the pace of deceleration in the downturn was the most surprising. He said the occupancy rate has dropped from around 98% to 95%. However, it typically takes a while before this type of shift shows up in the numbers. Apartment-rental companies are not likely to drop prices the first time they see an ebb in potential customers. They will want to see a sustained move before they make any changes. After all, shifting too soon could cost them potential profits. Then there is real-time inflation data from the regional Federal Reserve banks’ monthly manufacturing surveys. So far this month, we have received data from New York and Philadelphia. Both reports show that Producer Prices have rebounded but consumers appear less willing to bear those costs. This measure tells us what companies are collecting for their finished goods, in other words, what it is costing individuals to buy something. So, we can think of it relative to the BLS’s Consumer Price Index (“CPI”). Both indexes are well off their highs from last year. They point to economic activity that is slowing because high inflation and rising interest rates mean households and businesses have less disposable income. So, they are becoming less willing to pay up for items that are “wants” and not “needs.” Lastly, here is another piece of data that will also take time to show up in the official economic figures. It is the number of multifamily rental units currently under construction that were delayed due to the pandemic. It totals about 890,000, which is the highest level since February 1974. Now, according to commercial real estate information provider CoStar, much of the new supply is expected to come online in early 2023. The Federal National Mortgage Association said this will push vacancy rates higher and rental rates down. So, if demand falls and supply is poised to increase, that means the rental market’s balance should adjust quickly. This, in turn, will weigh on prices as management companies will want to fill empty units with occupants in a hurry. Eventually, this will lower housing demand even further because would-be homebuyers will opt for cheaper rentals instead, leading to declining housing prices. With shelter holding the largest weighting in the Consumer Price Index at 33%, any significant movement in the housing market will have an outsized effect on overall inflation. So, a slowdown in shelter inflation should be the single-largest driver for a slowdown in headline inflation. Right now, the stock market is fraught with uncertainty. Economic data point to slowing growth, especially as companies are rapidly changing their plans to hire people and even downsizing their staff. And while that may weigh on the near-term outlook for the stock market, this won’t last forever. Even so, these effects are going to take time to show up. As I demonstrated above, we are seeing, reading, and hearing all of the stories about slowing growth right now. But the lag effect of market-moving data means our central bank is making forward-looking decisions based on backward-looking statistics. Until that changes, it will keep pressing forward with interest-rate hikes. That is why we want to keep our focus on the horizon. There is impetus building for a rally, but we are just not there yet. Slowing inflation would signal to the Fed that its rate-hike policy is working. And the central bank could then back down on additional aggressive rate hikes, boosting investor sentiment and the long-term outlook for the S&P 500. Within the S&P 500, nine of the 11 sectors finished higher. European Markets closed higher. Markets started the week on a positive note despite further signs an economic recession is imminent for the region. The Euro-Zone S&P Global PMI data showed that the economy’s contraction continues to accelerate, with the Index hitting a near-two-year low. The U.K. PMI showed similar results. However, positive news came out of the U.K. after the announcement that Rishi Sunak is to become the next Prime Minister. Equity and bond markets responded kindly with the belief that he will further support tighter monetary-policy conditions, while investors look toward the European Central Bank’s policy decision later this week. In Asia, Markets saw a big sell-off in Hong Kong after China’s Communist Party Congress concluded. Mainland China markets also fell sharply on broad-based sector weakness. Chinese President Xi Jinping clinched a historic third term as the Communist Party’s leader following the conclusion of the congress. China’s Third-Quarter Gross Domestic Product expanded more than expected, following a delayed release. The Yen saw numerous rallies, largely attributed to intervention measures from the Bank of Japan (“BOJ”). And the BOJ’s Financial System Report for October sounded caution amid global central-bank rate hikes increasing the nation’s risk exposure. Elsewhere, Oil fell 0.35% while Gold closed flat after a quiet session.
To mark my 2650th issue of TraderNoble Daily 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 1172 points yesterday and is now ahead by 9260 points for October, after finishing September with an incredible gain of 6660 points, 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 1.24% higher at a price of 3799.
The Dow Jones Industrial Average closed 417 points higher for a 1.34% gain at a price of 31,499.
The NASDAQ 100 closed 1.06% higher at a price of 11,430.
The Stoxx Europe 600 Index closed 1.40% higher.
This morning, the MSCI Asia Pacific Index rose 1.1%.
This morning, the Nikkei closed 0.97% higher at a price of 27,237.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% lower.
The Euro closed 0.1% higher at $0.9875.
The British Pound closed 0.1% lower at 1.1281.
The Japanese Yen fell 0.9% closing at $148.90.
Bonds
Germany’s 10-year yield closed 10 basis points lower at 2.32%.
Britain’s 10-year yield closed 28 basis points lower at 3.77%.
US 10 Year Treasury closed 2 basis points lower at 4.20%.
Commodities
West Texas Intermediate crude closed 0.35% lower at $86.66 a barrel.
Gold closed 0.12% higher at $1646.10 an ounce.
This morning on the Economic Front we have German IFO Business Survey at 9.00 am, followed by U.S. Housing Price Index at 2.00 pm. Finally, we have Consumer Confidence and the Richmond Fed Manufacturing Index at 3.00 pm.
Cash S&P 500
Yesterday’s follow through gains for the S&P was encouraging. As I said last week the character of the market has chained with dips being aggressively bought. The S&P has now rallied over 300 Handles off its post CPI low, trading this morning in the key 3800/3820 resistance zone. A break of this area will see the S&P test its 50-Day MA (3877) over the coming days. The S&P needs to negotiate this week’s earnings and economic reports while share buybacks begin next Monday, which will certainly help the bullish case. The Dow closing over its 50 Day MA will attract buying on any test which should underpin the market. My S&P plan worked well yesterday, generating 500 points alone. After I posted the S&P hit my 3735-buy level with a low of 3726 before rallying to my 3755 T/P level. Subsequently, I emailed my Platinum Members to buy the S&P again at a price of 3746 before we rallied to my second T/P level at 3766. Just before the close the S&P surged to my 3803-sell level before having a small sell-off, hitting my 3793 revised T/P level and I am now flat. The S&P is short-term overbought so a small pullback should not surprise. We have support from 3762/3782 where I will be a buyer with a 3749 ‘’Closing Stop’’. I will be a small seller from 3817/3835 with a tight 3851 ‘’Closing Stop’’.
EUR/USD
The Euro rallied to my revised .9880 T/P level (high .9898) on my latest .9805 long position and I am now flat. Today, I will again be a buyer of the Euro on any dip lower to .9770/.9840 with a higher .9695 ‘’Closing Stop’’ unchanged.
March Dollar Index
No Change. I am still short at 108.90. As I want to exit this short position before Friday, I will now raise my loss level on this position to 111.58 which is just below the overnight low of 111.62.
Cash DAX
The DAX missed yesterday’s initial 12710 buy level by a few points before rallying to a rebound high above 13000. Today, I will raise my buy level to 12710/12800 with a higher 12625 ‘’Closing stop’’.
Cash FTSE
My FTSE plan worked well as the market traded lower to my 6920-buy level before rallying to my 6985 T/P level and I am now flat. The price action continues to tell me to be a buyer of dips. Today, my buy level will be from 6870/6950 with a tight 6825 ‘’Closing Stop’’.
Dow Rolling Contract
My Dow plan could not have worked better yesterday with both my buy and sell levels being triggered in what turned out to be a wild trading session. First, the Dow hit my 30900-buy level before rallying to my 31280 T/P level. Subsequently, we surged to my 31430-sell level with a 31550 initial high, before selling off to my revised 31265 T/P level as emailed to my Platinum Members and I am now flat. The fact that the Dow closed over its 50-Day MA (31079) is bullish and this level will attract buying on any retest. Today, I will be a strong buyer from 31020/31250 with a 30895 tight ‘’Closing Stop’’.
Cash NASDAQ 100
Frustratingly, the NDX missed my 11200-buy level by 15 points before rallying over 200 points and I am still flat. Lower bond yields will help underpin any sell-off in the NDX and for this reason I have no interest in being a seller of the market. Today, I will move my buy level higher to 11200/11350 with a wider 10995 ‘’Closing Stop’’.
December BUND
The buy the dip in the Bund continues to pay dividends. Shortly after I posted the Bund hit my 135.40 buy level before rallying to my 136.25 T/P level and I am now flat. The huge fall in Gilt Yields sees the Bund trading higher at 137.20 this morning. The Bund has support from 135.70/136.50 where I will again be a buyer with a wider 134.95 ‘’Closing Stop’’.
Gold Rolling Contract
No Change. I will now raise my buy level to 1620/1635 with a higher 1609 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. I am still long at 20.05 the same 20.60 T/P level.
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