U.S Equity Markets surged on Friday on the basis that rate hikes are soon a distant memory. The real Federal-Funds rate is quickly approaching positive territory. In the past, this has signalled the end of rate hikes. The central bank might only have one further rate hike planned. The NASDAQ 100 led Friday’s huge gains closing higher by 1.68% after Treasury Yields fell across the board. Friday marked the final day of March and the first quarter of 2023, and the narrative surrounding inflation seems to have done a full 360-degree spin over the last month. Investors who once forecasted interest rates to peak north of 5.50% in December, now see multiple rate cuts towards the end of the year with rates falling to just north of 4.00% by years’ end. While the recent media coverage surrounding the banking crisis has played a role in rate expectations, the Federal Reserve largely remained fixated on inflation. As we experienced in 2021 and 2022, inflation skyrocketed. In fact, last June, the U.S. Bureau of Labour Statistics’ (“BLS”) Consumer Price Index (“CPI”) grew 9.1% on a year-over-year (“YOY”) basis. That marked the highest level in over four decades. So, the Fed has been dead set on bringing inflation back down to its 2% target. It has raised the Federal-funds rate from a level of 0% to 0.25% last March to a current range of 4.75% to 5.00%. The uncertainty around the path of future rate hikes has kept investors guessing. Increased borrowing costs have put households and businesses even more in debt. This has led to a larger decline in economy activity, or spending. So, until the Fed signals that it is done raising rates, consumers will remain cautious. February’s CPI inflation grew 6.0% YOY. Now, that is way down from June’s 9.1%, but it still has a long way to fall before hitting the 2% target. Yet, we want to look at how the CPI influences the real federal-funds rate (the current federal-funds target minus annualised inflation). Chairman Jerome Powell has told us that now, like in past Fed rate-hike cycles, the end goal is a positive real fed-funds rate. So, the next question is when can the real federal-funds rate turn positive again? I modelled different projections based on current expectations for the federal-funds rate compared with month-over-month inflation trajectories. Prior to the pandemic, the average rate of growth was 0.1%. Since the start of the pandemic, it swelled to 0.4%. Since June 2022, the monthly increase has been 0.3%. As a result, I think the most likely outcomes from a sustainable monthly growth rate are between 0.2% and 0.3%. Based on updated models, we can see a positive real fed-funds rate in April – around the time that March’s CPI data is released. As Fed officials have repeatedly told us, it takes six to eight months before the economic fallout is felt. That means we are only now experiencing about 50% of the central bank’s interest-rate policy effects. But the moment the central bank stops raising rates, households and businesses will become more financially certain since they won’t have to worry about their debt growing more expensive. They will be able to better budget their funds and adjust their spending accordingly. And as that happens, it should stimulate economic activity and provide a boost for equity and bond markets. Within the S&P 500 Index, all 11 sectors finished higher. European Markets closed higher. Euro-Zone CPI for March fell to 6.9%, the lowest level since February 2022, as a steep decline in energy costs outweighed certain pricing upticks seen in food and services. Major German Banks saw a sizeable uptick of deposit inflows in the wake of the U.S. banking crisis, as German consumers withdrew deposits from smaller foreign banks with higher rates. The EU agreed to accelerate 2030 renewable energy targets as the region continues to explore ways to decrease its dependence on fossil fuels and Russia. In Asia, China’s Manufacturing and Services PMI for March proved that the nation’s economy continues to gain momentum towards a recovery with services activity providing the greatest boost. Elsewhere, Oil rose 1.67% while Gold closed higher by 0.57%
To mark my 2750th 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 was lost 300 points on Friday, closing March with a gain of 6168 points, after finishing February with a gain of 3164 points, after closing January with a gain of 4687 points, while 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 1.44% higher at a price of 4109
The Dow Jones Industrial Average closed 415 points higher for a 1.26% gain at a price of 32,859.
The NASDAQ 100 closed 1.68% higher at a price of 13,181.
The Stoxx Europe 600 Index closed 0.66% higher.
Last Friday, the MSCI Asia Pacific fell 0.16%.
Last Friday, the Nikkei closed 0.93% higher at a price of 28,041.
Currencies
The Bloomberg Dollar Spot Index closed 0.4% higher.
The Euro closed 0.4% lower at $1.0843.
The British Pound closed 0.5% lower at 1.2336.
The Japanese Yen fell 0.11% closing at $132.74.
Bonds
Germany’s 10-year yield closed 8 basis points lower at 2.28%.
Britain’s 10-year yield closed 3 basis points lower at 3.49%.
U.S.10 Year Treasury closed 9 basis points lower at 3.47%.
Commodities
West Texas Intermediate crude closed 1.77% higher at $75.69 a barrel.
Gold closed 0.30% higher at $1975.10 an ounce.
This morning on the Economic Front we German, Euro-Zone, U.K. and U.S. Manufacturing PMI at 8.55 am, 9.00 am, 9.30 and and 2.45 pm. The only other data of note is ISM Manufacturing PMI at 3.00 pm.
Cash S&P 500
What a crazy end to an incredible Quarter which turned out in points terms to be the best ever Quarter for my Platinum Service. Friday’s aggressive rally leaves the market severely overbought especially as the McClellan Oscillator closed at +261 on Friday. History tells us not be long the equity markets when the MO closes north of 250. You would never know that we had a banking crisis two weeks ago as the markets have surged on the back of the aggressive injection of liquidity by the Central Banks. The S&P has rallied over 200 Handles in the past few days. This is not a sustainable move. On Friday when the S&P was trading at 4069, I emailed my Platinum Members to exit any short position and I am still flat. I stayed flat as I had higher sell levels in both the Dow and NDX which were subsequently triggered after the Cash Markets closed. I am now looking for the S&P to give back some of these gains over the coming days. The S&P has resistance from 4130/4150 where I will be a seller with a 4165 ‘’Closing Stop’’. We have support from 4020/4040 where I will be an aggressive buyer with a wider 3999 ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 4104. If I am taken long I will have a T/P level at 4058.
EUR/USD
Just before the New York close the Euro traded lower to my 1.0845 buy level. I am still long. I will add to this position at 1.0780 while leaving my 1.0715 ‘’Closing Stop’’ unchanged. I will now lower my T/P level to 1.0890.
June Dollar Index
I am still flat as the Dollar continues to build value below 103.00. I am still a seller on any rally higher to 102.90/103.60 with the same 104.05 ‘’Closing Stop’’.
Cash DAX
The DAX surged again on Friday, sitting at 15650 as I go to press. The DAX has now rallied over 800 points in the past few days. It proves again that policy does not matter only liquidity and the amount of printing done by the ECB last week is off the charts. The DAX is severely overbought. We have resistance from 15780/15900 where I will be a strong seller with a 16005 ‘’Closing Stop’’.
Cash FTSE
The FTSE has now rallied 500 points since rallying back inside its Daily Bollinger Band. Friday’s move higher means the FTSE is now only 350 points of its all-time February high. What banking Crisis!! I will now raise my buy level to 7490/7570 with a higher 7415 ‘’Closing Stop’’.
Dow Rolling Contract
The Dow surged on Friday, closing above its 50 Day Moving Average (33133). Incredibly the Bank Index only closed higher by 0.88%. I do not trust this rally especially with the MO closing at +261 on Friday. I am now short at 33200. I will add to this position at 33450 while leaving my 33605 ‘’Closing Stop’’ unchanged. I still do not want to be long the Dow at this time.
Cash NASDAQ 100
The NDX has rallied 1400 points in the past week. This is an insane move with the market again accelerating after the Cash Markets closed. The NDX traded the whole of Friday’s sell range for a now 13130 average position. I will leave my 13305 ‘’Closing Stop’’ unchanged for now. I will raise my T/P level to 13030. If any of the above levels are hit I will be back with a new update for my Platinum Members.
June BUND
My Bund plan worked well as the market traded lower to my 134.80 buy level before rallying to my 135.40 T/P level and I am now flat. The Bund continued to rally, closing at 136.20 on Friday. Today, I will again be a buyer on any dip lower to 134.80/135.50 with a tight 134.15 ‘’Closing Stop’’.
Gold Rolling Contract
I am still flat Gold. Gold has support from 1930/1945 where I will be a small buyer with a 1919 ‘’Closing Stop’’.
Silver Rolling Contract
Silver sold off to my 23.75 buy level. I am still long with the same 25.20 T/P level. I will add to this position at 23.10 while leaving my 21.95 ‘’Closing Stop’’ unchanged.
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