U.S. Equity Markets closed lower after a volatile session. The Federal Reserve as expected raised interest rates by 25 basis points and signalled it will take a data dependent approach going forward. The Dow led yesterday’s declines, closing lower by 0.80% while the VIX closed higher by over 3%. The growing unrest surrounding the banking sector combined with weakening labour data present an easy off ramp for the Fed to provide a reprieve to a declining economic landscape. In Fed Chair Powell’s press his opening statement was as follows:
The US banking system is sound and resilient.
We’re committed to learning the right lessons from banking rout.
We remain strongly committed to bringing inflation back down to 2% goal.
Looking ahead, we’ll take a data dependent approach.
There are some signs that labour supply and demand are coming back into balance.
Nominal wage growth has shown some signs of easing and job ads are down.
But overall, demand far outweighs supply of labour.
The process of getting inflation back down to 2% has a long way to go.
It will take time for effects of rate hikes to have full effect, especially on inflation.
Economy likely to face pressure from tighter credit conditions.
The extent of effects of credit tightening remain uncertain.
Future policy actions will depend on how events unfold.
We are prepared to do more if warranted.
Reducing inflation is likely to require below-trend growth and some softening of jobs market.
Last night, the Fed announced it was raising its benchmark bank-lending rate by another 25 basis points to a range of 5% to 5.25%, as expected. It is the central bank’s “tightest” lending rate since September 2007 ahead of the great financial crisis and double the previous rate peak of 2019. That is what inflation, and the threat of runaway higher prices, will do to the string-pullers of the U.S. central bank – 10 rate hikes in a little more than a year. But this appears to be the end of the road. With cracks showing in the banking system for which it is responsible, in its carefully worded post-policy-meeting announcement today, the Fed omitted a few notable phrases that it used in the past to suggest more raises ahead. The Fed now plans to “closely monitor incoming information and assess the implications for monetary policy.” Like it said in March, it will “take into account the cumulative tightening” when plotting the path forward. He stopped short of saying the word “pause,” but everything else he said pointed in that direction. Notably, Powell said credit tightening after this spring’s bank crisis is likely to slow the economy more than the Fed previously thought earlier this year. He also did not do anything to suggest rate cuts, or a “pivot,” are on his mind, though. Powell said the other end of the Fed’s dual-mandate – the job market – is still “extremely tight” with 3.5% unemployment, and that the process of getting inflation back down to 2% has a long way to go… [and] is likely to require a period of below-trend growth and some softening of labour-market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. In other words, Jerome Powell and Co. say they will watch what happens next with the economy before doing anything else. As the Fed chair said in a press conference today
The collapse of First Republic Bank sent shockwaves through the financial sector that saw many regional banking stocks plummet. PacWest Bancorp (PACW) and Western Alliance Bancorp (WAL) were two of the more notable names to lead the steep selloff on Tuesday. Further negative consumer sentiment could lead to a reinvigoration of bank runs on vulnerable banks. Ford (F) posted strong revenue and profit in the first quarter of 2023, driven by robust demand for trucks and SUVs. The automaker, however, issued a measured full-year outlook, citing continued losses in its electric-vehicle unit. Starbucks (SBUX) beat Wall Street expectations for earnings, driven by a resurgence in Chinese sales and activity coming out of the pandemic. But full-year guidance was not raised as the coffeehouse chain cited moderating sales growth as the primary reason. Job openings and layoffs saw a sizable jump in March, while hiring and quits softened. The markings of a deceleration in the labour market are starting to gain steam. An easing labour market should be a clear signal to the Federal Reserve that any further rate-tightening will only do harm to the economy moving forward. Investors ran for the safety of U.S. Treasury bills Tuesday following signs that banking sector and labour market conditions were worsening. In turn, yields on Treasury bills plummeted as a result – and the popular two- year maturity fell by as much as 21 basis points. European Markets closed higher. It was a quiet session for the European Markets as the markets had a small rebound after Tuesday’s rout. In Asia, for the first time in three years, millions of Chinese travellers spent their Labour Day holiday at major tourist hubs throughout the country. The Transport Ministry reported that the number of trips made by travellers was up 162% from the same time last year. A resurgence in consumer spending to 2019 levels would be a major tailwind for an economy struggling to regain its footing following several years of suppressed activity. Japan and South Korea held their first join finance leaders’ meeting in seven years on Tuesday. The two nations agreed to hold regular meetings moving forward as they attempt to mend relations given the recent intensification of economic pressures – most notably the worsening geo-political climate with China and slowdown in global demand. Elsewhere, Oil fell 4.93% while Gold surged 1.3%.
To mark my 2800th 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 375 points yesterday and is now ahead by 1258 points for May. April saw a gain of 3354 points while March closed with a gain of 6168 points. The Platinum Service made 3164 points in February, 4687 points in January 2054 points in December, 4789 points in November and a record 9619 points last October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1900 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 0.70% lower at a price of 4091.
The Dow Jones Industrial Average closed 270 points lower for a 0.80% loss at a price of 33,414.
The NASDAQ 100 closed 0.64% lower at a price of 13,030.
The Stoxx Europe 600 Index closed 0.32% higher.
This morning, the MSCI Asia Pacific closed 0.40% higher.
This morning, the Nikkei closed 0.12% higher at a price of 29,157.
Currencies
The Bloomberg Dollar Spot Index closed 0.6% lower.
The Euro closed 0.4% higher at $1.1051.
The British Pound closed 0.6% higher at 1.2560.
The Japanese Yen rose 0.9% closing at $135.15.
Bonds
Germany’s 10-year yield closed 1 basis points lower at 2.25%.
Britain’s 10-year yield closed 2 basis points lower at 3.69%.
U.S.10 Year Treasury closed 9 basis points lower at 3.35%.
Commodities
West Texas Intermediate crude closed 4.93% lower at $68.13 a barrel.
Gold closed 1.3% higher at $2033.10 an ounce.
This morning on the Economic Front we have German, Euro-Zone and U.K. Services PMI at 8.55 am, 9.00 am and 9.30 am respectively. Also, at 9.30 am we have U.K. Money Supply and Consumer Credit. This is followed by Euro-zone PPI at 10.00 am and the ECB Rate Announcement at 1.15 pm where another 25-basis point increase is expected. At 1.30 pm we have U.S. Weekly Jobless Claims, Trade Balance and Non-Farm Productivity. Finally, we have the Lagarde Press Conference at 1.45 pm.
Cash S&P 500
Thankfully the S&P rallied as expected ahead of the FOMC Statement. This move higher enabled me to cover my 4137 average long position for a small loss at 4135. Subsequently, I emailed my Platinum Members to buy the S&P at an average rate of 4085. This price was filled late yesterday and overnight before rallying to my 4100 T/P level and I am now flat. The major indexes were volatile as Powell spoke, but nowhere near the level of previous Fed chair press conferences. The benchmark S&P 500 Index finished slightly down, after trading slightly higher just before the Fed announcement. Heading into yesterday, bond traders were expecting the Fed to raise its Federal-Funds range by 25 basis points, do nothing for the next several months, and start cutting rates by the fall. After last night’s announcement and Powell’s press conference, those expectations remain, according to the CME Group’s FedWatch Tool. For several big reasons – including human nature and 15 years of conditioning from near-zero rates – Mr. Market cannot or does not want to believe Powell. He is talking about pausing rates – and not cutting them – until further notice… But folks are not listening. If the Fed keeps its sole focus on inflation, there are risks. The bond market expects a recession in the second half of this year, and then it predicts that the Fed will start cutting rates in response. But Powell said today that he doesn’t expect this scenario: ‘’ The case of avoiding a recession is in my view more likely than that of having a recession. But… I don’t rule that out, either. It’s possible that we will have what I hope would be a mild recession’’. Among other things, there is also a big fact about self-inflicted rising interest costs on $31.4 trillion in U.S. government debt – a pressure point that still goes largely underreported. In February, the Congressional Budget Office (“CBO”) projected that net interest costs would be $640 billion in 2023… and $1.4 trillion in a decade. May will be an interesting month given the seasonality. The 50 Day Moving Average for the S&P comes in at 4038. This level will offer strong support on any test. Today, I will be an aggressive buyer from 4040/4060 with a 4025 ‘’Closing Stop’’. The S&P has resistance from 4115/4130 where I will be a small seller with a 4145 ‘’Closing Stop’’ which is just above yesterday’s high print.
EUR/USD
I am still flat the Euro as the market continues to rise ahead of this afternoon’s rate announcement. This move higher in Euro is overdone. We have resistance from 1.1140/1.1210 where I will be a small seller with a 1.1275 ‘’Closing Stop’’. I will continue to be a buyer on any dip lower to 1.0910/1.0980 with the same 1.0865 ‘’Closing Stop’’.
June Dollar Index
I am still flat the Dollar as the market never came close to yesterday’s sell range, closing lower by 0.60%. The Dollar has support from 99.80/100.50 where I will be a small buyer with a 99.15 ‘’Closing Stop’’. I do not want to be short the Dollar at this time.
Cash DAX
The DAX rallied to my 15890-sell level as Powell started his press conference. Subsequently, the DAX fell to my 15820 T/P level and I am now flat. I am expecting plenty of two-way price action in the DAX this afternoon as the ECB is expected to raise rates by 25 basis points. Today, I will again be a seller from 15940/16020 with a 16095 ‘’Closing Stop’’. The DAX has support from 15600/15680 where I will be a small buyer with a 15545 ‘’Closing Stop’’.
Cash FTSE
The sell-off in the Dow late yesterday saw the FTSE hit my second buy level at 7760 for a now 7795 average long position. The FTSE hit an overnight low at 7713 before bouncing to sit at 7770 as I go to press. I will now lower my T/P level to 7820 on this position. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Dow Rolling Contract
The Dow traded in a narrow range before accelerating lower into the close. This move saw my initial 33400 buy level executed. As I was long both the FTSE and S&P, I exited this long position at 33425 as emailed to my Platinum Members and I am now flat. The 50-Day MA comes in at 33078. Just like the other American Indexes any test of this level should see aggressive buying. Therefore, I will be a buyer from 33000/33250 with a tight 32895 ‘’Closing Stop’’.
Cash NASDAQ 100
My NDX plan worked well as the market traded lower overnight to my 12990 initial buy level before rallying to my 13090 T/P level as emailed to my Platinum Members and I am now flat. All eyes will be on the Earnings from Apple which will report after the close. All three American Indexes are still trading above their respective 50- and 200-Day Moving Averages making it very difficult to have a short position for any length of time. The NDX has support from 12730/12880 where I will be a strong buyer with a 12595 wider Closing Stop’’. The 50 Day MA comes in at 12663 and should offer strong support on any initial test. Ahead of Apple I do not want to be short the NDX.
June BUND
No Change. I am still flat as I continue to be a buyer on any dip lower to 134.70/135.40 with the same 133.95 ‘’Closing Stop’’. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold surged yesterday, closing above the key $2000 pivot point for the second consecutive session. Gold has support from 1998/2013 where I will be a buyer with a 1989 tight ‘’Closing Stop’’.
Silver Rolling Contract
Following the Fed hike Silver rallied to my 25.60 T/P level on Monday’s latest 25.10 long position and I am now flat. Today, I will again be a buyer on any dip lower to 24.50/25.20 with the same 23.85 ‘’Closing Stop’’.
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