Despite a late comeback U.S. Equity Markets closed lower across the board, led by the 0.42% fall in the Dow. Despite the equity fall, the VIX got slammed on Friday, closing 4% lower at a price of 17.07. This is the lowest close in the VIX since last December. 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. On Friday, I discussed how the central bank has been dead set on bringing inflation back down to its 2% target, as inflation hit its highest level in four decades. As I said, March’s inflation grew 5.0% year over year. That was down from June’s 9.1%, and growing ever closer to the Federal Reserve’s 2% target. But Chairman Jerome Powell has told us that now, like in previous Fed rate-hike cycles, the end goal is a positive real Fed-Funds rate. With inflation falling, the central bank is approaching that point of stopping rate hikes. History is telling us that the current cycle could be at its end, leading to big returns for the S&P 500 Index and bond markets. 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%. And since June 2022, the monthly increase has been 0.3%. As a result, I think the most likely outcome from a sustainable monthly growth rate is between 0.2% and 0.3%. Based on updated models, I see a positive real Fed-Funds rate in May – or when April’s CPI data releases and the Federal Open Market Committee (“FOMC”) meets next. Though inflation slowed toward the end of 2022, we still want to be realists. Month over month, inflation grew 0.5% in January and 0.4% in February. In the pre-pandemic environment, those numbers would have been near the high end of the monthly swings. So, we wanted to see what the outcome would look like in that scenario as well. If inflation increased 0.5% every month going forward, the real Federal-Funds rate would turn positive in May. But that would require inflation falling further in April combined with a 25-basis-point rate hike from the FOMC. Now, if we look at a scenario in which inflation really starts to fall off – or the same model with a negative 0.1% monthly projection – we see a similar timeline of when the real Fed-Funds rate turns positive. However, the end of 2023 is where we see the difference. In this model, headline CPI would remain basically flat for the entirety of the fourth quarter. But in the near term, we may very well be reaching the end of the rate-hike cycle. That is what is key here. As that happens, it should stimulate economic activity and provide a boost for equity and bond markets. Within the S&P 500 Index, seven of 11 sectors finished lower. European Markets closed higher. ECB Member Nagel said that core inflation should begin to move lower in the coming months but reiterated that the central bank is not done with rate hikes, while Vasle said that the central bank is not ruling out a half-point rate hike at next month’s meeting, given the resilient rebound of the financial sector following the banking sector crisis last month. Germany is narrowly expected to avoid a recession in the first quarter according to the latest report from the Economy Ministry. In Asia, major Chinese Banks are planning bond sales of up to $5.8 billion to comply with capital requirements. Asian bonds recorded the largest foreign inflows over the last year as regional central banks were forecasted to end rate hikes sooner than global peers. Elsewhere, Oil rose 0.58% while Gold had a huge reversal off its morning high at 2061, closing 1.76% lower.
For anyone following my Platinum Service it made 132 points on Friday and is now ahead by 1182 points for April after closing March with a gain of 6168 points, while 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 HEREHERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 0.21% lower at a price of 4137.
The Dow Jones Industrial Average closed 143 points lower for a 0.42% loss at a price of 33,886.
The NASDAQ 100 closed 0.23% lower at a price of 13,079.
The Stoxx Europe 600 Index closed 0.58% higher.
Yesterday, the MSCI Asia Pacific closed 0.60% higher.
Yesterday, the Nikkei closed 1.20% higher at a price of 28,493.
Currencies
The Bloomberg Dollar Spot Index closed 0.6% higher.
The Euro closed 0.4% lower at $1.0991.
The British Pound closed 0.8% lower at 1.2414.
The Japanese Yen rose 1% closing at $133.80.
Bonds
Germany’s 10-year yield closed 5 basis points higher at 2.43%.
Britain’s 10-year yield closed 9 basis points higher at 3.66%.
U.S.10 Year Treasury closed 7 basis points higher at 3.52%.
Commodities
West Texas Intermediate crude closed 0.58% higher at $82.64 a barrel.
Gold closed 1.76% lower at $2004.10 an ounce.
This morning on the Economic Front we no data of note from either the U.K. or the Euro-Zone. At 1.30 pm we have the New York Empire State Manufacturing Index. Finally, we have the NAHB Housing Market Index at 3.00 pm and a speech from ECB President Lagarde at 6.00 pm.
Cash S&P 500
Just when it looked like the S&P was going to have a technical break lower buyers stepped up to the plate in the last few hours of trading helping the market to close unchanged. Earlier the S&P had been lower by 1.5%. The $400bn increase in the Fed’s balance sheet proves yet again how difficult it is to have a meaningful short position. I suspect that this scenario will continue until we get to May. The S&P hit a low at 4113 enabling me to cover my 4124 average short position at my revised 4117 T/P level as emailed to my Platinum Members and I am now flat. Today, I will again be a seller on any further rally to 4160/4175 with a tight 4191 ‘’Closing Stop’’. The S&P has support from 4095/4110 where I will be a strong buyer with a 4079 wider ‘’Closing Stop’’.
EUR/USD
My 1.1060 short Euro position worked well as the Euro traded lower to my 1.1010 buy level and I am still flat. The Euro is overbought having risen 500 points in the past few weeks. Today, I will again be a seller on any further rally to 1.1070/1.1130 with a higher 1.1185 ‘’Closing Stop’’. I still do not want to be long the Euro at this time.
June Dollar Index
My 101.15 average long Dollar position worked well as the market rallied to my 101.60 T/P level and I am now flat. Given how oversold the Dollar is trading I will continue to be a buyer on dips. The Dollar has support from 100.60/101.20 where I will be a strong buyer with a wider 99.95 ‘’Closing Stop’’.
Cash DAX
Unfortunately, the DAX missed my 15850-sell level by six points before having a nice 100-point fall. I am still flat. I will now raise my sell level in the DAX to 15900/16000 where I will be an aggressive seller with a 16075 ‘’Closing Stop’’. Given how overbought the DAX is trading I still do not want to be long the market at this time.
Cash FTSE
Despite the two-way volatility in the American Indexes the FTSE traded in a narrow range on Friday. I am still short at 7850. I will continue to look to add to this position at 7920 while leaving my 7975 ‘’Closing Stop’’ unchanged. With the FTSE trading at 7890 as I go to press, I will now raise my T/P level on this position to 7805. 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 as the market traded lower to my 33780-buy level before having a late 150-point rise. This move higher enabled me to cover this position too early at my 33832 revised T/P level and I am still flat. Today I will again be a buyer on any dip lower to 33430/33680 with a lower 33195 ‘’Closing Stop’’. Until the Dow breaks and closes below its 50-Day Moving Average (33102) I have no interest in having a short position.
Cash NASDAQ 100
Friday’s sell-off saw the NDX trade lower to my 13030-buy level. I am still long with a now lower 13130 T/P level. I will add to this position at 12870 while leaving my 12795 tight ‘’Closing Stop’’ unchanged.
June BUND
Wrong!! I was stopped out of my 135.60 average long position at 134.75 and I am still flat. The Bund has had a nasty 600-point sell-off over the past few weeks and is now oversold. We have support from 133.00/133.80 where I will again be a seller with a 132.35 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 134.40.
Gold Rolling Contract
Frustratingly, Gold missed my 2062 initial sell level by 1$ before falling over 600 points into the New York close. Gold has support below from 1962/1980 where I will be a small buyer with a 1949 ‘’Closing Stop’’.
Silver Rolling Contract
Silver fell 100 points off its 26.10 high print which is no surprise given the 14-Day RSI closed at 78 on Thursday night. Silver has strong support from 23.70/24.40 where I will be an aggressive buyer with a 22.95 ‘’Closing Stop’’.
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