U.S. Equity Markets surged on Friday. The NDX led the gains, closing higher by 2.78%. Markets ended sharply higher driven by softer U.S. wage data and an unexpected contraction in the Institute of Supply Management’s December services reading. December’s job growth was higher than expected, which drove the Unemployment rate down to 3.5%. Without a clear and concise pivot to stopping rate hikes from the central bank, investors are increasingly sceptical about the market’s potential for a sustained rally. The main narrative and focus continue to zero-in on the labour market and how it could be the key data point to whether the Federal Reserve can achieve a “soft landing” and avoid a moderate recession. The Federal Reserve’s interest-rate hikes are killing the economy. Manufacturing activity is getting crushed. That is an important barometer to watch because it is considered a leading indicator of overall economic growth. If manufacturers are seeing tons of demand for their goods, it signals strong economic growth. As more orders roll in the door, companies hire more workers to increase output and meet that demand. In theory, there will also be more people with money in their pockets, spending it on all types of goods and services throughout the economy. In turn, that change feeds into increased demand as more folks dine out and travel. However, if manufacturers are seeing the number of new orders decline, that signals economic growth is slowing. With fewer orders, companies have fewer jobs for workers to do. If the situation persists long enough, businesses start firing people to cut costs. That will continue until those entities find a level where they have enough workers to continue operating and be profitable. Recent figures from the Institute for Supply Management (“ISM”) show us new orders are in freefall. The last time there was a significant increase in manufacturing orders was in February of last year. That was right before the central bank started raising interest rates from a range of 0% to 0.25% to the current range of 4.25% to 4.5%, while economic demand has been falling off a cliff ever since. Yet central bank members are dead set on raising rates even further. They keep saying they have to kill the economy to bring down inflation. In fact, Minneapolis Fed President Neel Kashkari recently said he would like to see interest rates rise to 5.4% before stopping, while Kansas City Fed President Esther George said they need to remain above 5% for some time. If these rate hikes do not stop soon, you and I will be the ones who really suffer. But don’t take my word for it – look at what economic data is telling us. On Wednesday, the ISM released its manufacturing Purchasing Managers’ Index (“PMI”) for December. Not only did the numbers show business activity contracted more than expected, but the Index also experienced its second consecutive monthly downturn and fell to the lowest level since May 2020. That last part is significant, as May 2020 was when the U.S. economy was just starting to emerge from COVID-19-related shutdowns. Activity had been at a standstill, so businesses were barely operating. It was one of the worst quarterly contractions for the U.S. Bureau of Economic Analysis’ (“BEA”) gross domestic product (“GDP”) on record. In other words, the current state of business has not been this bad since the pandemic brought the economy to a standstill. Every month, ISM mails out questionnaires to purchasing and supply managers at businesses across the country. It then weighs the responses based on industry and their relevant contribution to gross domestic product (“GDP”). Respondents are asked a series of questions about how business activities this month compare with the month prior. These questions cover new orders, the backlog of orders, new export orders, imports, production, supplier deliveries, inventories, customers’ inventories, employment, and prices. The Index total is based on whether conditions are better, worse, or the same. One of the key components we want to pay attention to is the prices paid by manufacturers for raw materials. That gives us a better idea of what it is costing companies to produce goods. If that number is falling, it typically means demand is doing the same. Looking at a chart it shows that the prices paid index also hit its lowest level since the COVID-19 pandemic. The prices paid index tends to lead the PPI. I can see that it peaked well before the BLS data and dropped sooner. So, based on what is happening today, we should see even slower inflation growth when the next round of manufacturing cost figures is released on January 18. We also cannot forget that a lower cost to manufacture goods means companies can pass on those cost savings – bringing down consumer inflation. So, that makes the Survey’s results important from an interest-rate-policy perspective. As I initially noted, central bank policymakers have said they want to cool GDP growth to bring down rising prices. In fact, Chairman Jerome Powell has said he wants to see it run “below trend” for some time. That is Fed speak for at least a year or 18 months. Over the 10 years prior to the pandemic, economic output grew by an average of 2.3%. Right now, the GDP for 2022 is on track for no growth compared with the year prior. But, if the Fed does not back down on its rate-hike plans soon, the outlook for 2023 could worsen in a hurry. Within the S&P 500 Index, all the 11 sectors finished higher. European Markets rose. Euro-Zone markets finished higher with investors reacting positively to softer Euro-Zone inflation data. Subsequently, Euro-Zone economic sentiment data improved for the second consecutive month as fears of a sustained and deep recession subside. The European Central Bank’s member, Villeroy, said that interest rates should peak by the summer but could stay at the terminal rate for longer than expected. In the U.K., house prices are predicted to drop as much as 8% this year, according to mortgage lender Halifax. In Asia, Markets ended mostly higher as China added to its economic support measures for the property market. Additionally, the People’s Bank of China extended its programme that would allow local governments to reduce mortgage rate floors. In Japan, yield curve control continued to dominate discussion among investors as the Bank of Japan’s policy gets put under the microscope. Japan’s 10-year bond yield traded above its 0.50% limit Friday. Japan’s wage growth for November came in well below expectations. In South Korea, weak export figures were highlighted by Samsung’s massive plunge in its fourth-quarter profits as global chip demand continues to sink historically low. Elsewhere, Oil closed flat while Gold gained a further 1.65% on Dollar weakness.
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For anyone following my Platinum Service it made 630 points on Friday and is now ahead by 1273 points for January, after finishing December with a gain of 2054 points. November ended with a gain of 4789 points, while finishing October with a record gain of 9619 points, making 6660 points in 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 2.28% higher at a price of 3895
The Dow Jones Industrial Average closed 700 points higher for a 2.13% gain at a price of 33,630.
The NASDAQ 100 closed 2.78% higher at a price of 11.040.
The Stoxx Europe 600 Index closed 1.16% higher.
Last Friday, the MSCI Asia Pacific rose 0.6%.
Last Friday, the Nikkei closed 0.59% higher at a price of 25,973
Currencies
The Bloomberg Dollar Spot Index closed 0.9% lower.
The Euro closed 1.1% higher at $1.0642.
The British Pound closed 1.3% higher at 1.2094.
The Japanese Yen rose 0.8% closing at $132.20.
Bonds
Germany’s 10-year yield closed 8 basis points lower at 2.21%.
Britain’s 10-year yield closed 8 basis points lower at 3.47%.
U.S.10 Year Treasury closed 16 basis points lower at 3.56%.
Commodities
West Texas Intermediate crude closed 0.10% higher at $73.95 a barrel.
Gold closed 1.65% higher at $1864.10 an ounce.
This morning on the economic front we already have German Industrial Production at 7.00 am. This is followed by Euro-Zone Sentix Investor Confidence at 9.30 am and the Unemployment Rate at 10.00 am. Finally, we have U.S. Consumer Credit at 8.00 pm.
Cash S&P 500
I am glad I stuck to my view of respecting the oversold charts across the board as being a buyer of the dip all week has paid dividends. After the S&P hit my 3826 T/P level on Friday, I emailed my Platinum Members to buy the S&P again at 3812, before subsequently exiting this long position too early at 3829 and I am still flat. The S&P closed at 3895 which is the level I had identified on Friday as a key resistance point. With the McClellan Oscillator closing at +170, one more strong rally in the American Markets will see me look to press the downside especially if the MO prints +260 and higher. Shot-term momentum is certainly with the bulls as the bears had every chance last week to make new lows and failed. These shorts are now trapped. The S&P has short-term support from 3860/3878 where I will be a strong buyer with a 3843 ‘’Closing Stop’’.
EUR/USD
My latest long 1.0550 Euro position worked well as the market rallied to my 1.0595 T/P level and I am still flat. The Euro had a nice key day reversal on Friday which is bullish for higher prices. We have short-term support from 1.0560/1.0620 where I will again be a buyer with a tight 1.0495 ‘’Closing Stop’’.
March Dollar Index
Frustratingly the Dollar just missed my initial 105.70 sell level by 20 points before falling 180 points and I am still flat. The Dollar has strong support from 102.10/102.80 where I will be an aggressive buyer with a 101.55 ‘’Closing Stop’’.
Cash DAX
No matter what the news the DAX keeps making new recovery highs. Unfortunately, we have not made any points on this move despite having the correct view. The DAX is now trading at 14650 and is short-term overbought. We have resistance from 14790/14870 where I will be a small seller with a 14935 tight ‘’ Closing Stop’’.
Cash FTSE
Just like the DAX below, the FTSE continues to make new recovery highs despite the awful political and economic backdrop. The FTSE again missed Friday’s buy level before rallying to sit at 7720 this morning. I will now raise my buy level to 7590/7660 with a higher 7545 fixed stop.
Dow Rolling Contract
After the Dow hit my 33090 T/P level on my latest 32990 long position I stayed flat as I have enough exposure with my aggressive long NDX position. The Dow has now broken out of a tight wedge with Friday’s 700 point rally. We have short-term support from 33200/33450 where I will be a small buyer with a wider 32995 ”Closing Stop”. I still do not want to be short the Dow at this time.
Cash NASDAQ 100
The 16 basis points fall in Treasury Yields helped the NDX to outperform the American Indexes on Friday. Thankfully we have stuck to our guns of being aggressive buyer of the NDX on any dip. This strategy again worked well. After the NDX hit my 10960 T/P level, I emailed my Platinum Members to buy the NDX gain at 10930, before rallying to my second T/P level at 11050. AS I wanted to be long over the weekend, I bought the NDX again at a price of 11075. I will add to this position at 10950 with a now higher 10795 ‘’Closing Stop’’. I will have a T/P level on this latest position at 11230.
March BUND
Frustratingly, the Bund just missed Friday’s buy range before following the U.S. Treasury Market higher. I will now raise my buy level to 136.00/136.80 with a tight 135.55 ‘’Closing Stop’’.
Gold Rolling Contract
Gold surged on Friday and I am still flat. Gold has strong support from 1832/1847. I will now raise my buy level to this area with a tight 1819 ‘’Closing Stop’’.
Silver Rolling Contract
Although Silver closed higher on Friday, it is still underperforming Gold. I am still long at 24.00 with the same no stop policy. I will now lower my T/P level to 24.50.
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