U.S. Equity Markets got hit hard yesterday following a volatile trading session led by the NASDAQ 100 closing lower by 2.33%. January’s Consumer Price Index (“CPI”) release was the driver Yesterday. January’s CPI jumped 7.5% year over year (“YOY”) compared with Wall Street’s expectation for a 7.3% bump and the prior month’s 7% gain. On a month-over-month (“MOM”) basis, those same numbers rose 0.6% compared with the expectation for a 0.4% increase. This fuelled inflationary fears. And comments from St. Louis Federal Reserve President James Bullard didn’t help…Bullard said that based on current inflation metrics, he would support raising the Federal Funds target range by a full percentage point by the beginning of July. That would mean at least one 50-basis-point (0.50%) hike. That is more aggressive than Wall Street would like. These comments accelerated the sell-off toward the afternoon. There was another economic data release that got less attention: Jobless Claims. Weekly Claims fell and came in below estimates, getting closer to the pre-pandemic average. While this is a strong sign for the economy, it could also mean the Fed is right in its decision to hike rates (possibly aggressively). Tech shares were the big drawdowns today, as the rate hike concerns indicated that borrowing costs could be headed higher. Big tech was not immune – with Microsoft (MSFT), Apple (AAPL), and Alphabet (GOOGL) all weighing heavily on the S&P 500 Index. On the positive side, Coca-Cola shares rose after a strong earnings report, which showed that away-from-home sales (like restaurants, sporting events, and concerts) have rebounded above pre-pandemic levels. Within the S&P 500, all 11 sectors finished lower. European Markets closed higher. The European Commission lowered its economic growth forecast for 2022 from 4.3% to 4% while raising the 2023 outlook from 2.4% to 2.7%. European Central Bank Executive Board member Isabel Schnabel said inflation may remain above target for longer than anticipated, potentially forcing a policy response. But Bank of England Chief Economist Huw Pill said the central bank will stick to 15-basis-point rate hikes, adding the strategy is better than a more aggressive hike schedule. This could have eased some concerns over central banks tightening too quickly. In Asia, Japan’s Producer Price Index (“PPI”) numbers for January rose more than expected but continued to ease versus the four-decade high made in November. China’s national and local governments are expected to spend more on infrastructure projects during the first half of the year, potentially boosting steel and iron ore demand. Japanese Prime Minister Fumio Kishida held a call with Iranian President Ebrahim Raisi, encouraging a return to 2015 nuclear accord compliance. Australia’s consumer inflation expectation figures for February rose versus January, yet still remain below December’s peak. Elsewhere, Oil rose 0.21% after OPEC said that crude demand could increase by more than previously expected in 2022, while Gold fell 0.49% as the high inflation print pushed Treasury yields higher, giving investors a yield-providing alternative to gold.
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Equities
The S&P 500 closed 1.81% lower at a price of 4504.
The Dow Jones Industrial Average closed 526 points lower for a 1.47% loss at a price of 35,241.
The NASDAQ 100 closed 2.33% lower at a price of 14,705.
The Stoxx Europe 600 Index closed 0.6% higher.
Yesterday, the MSCI Asia Pacific Index fell 0.2%.
Yesterday, the Nikkei closed 0.42% higher at a price of 27,696.
Currencies
The Bloomberg Dollar Spot Index closed 0.1% higher.
The Euro closed 0.1% lower at $1.1427.
The British Pound closed 0.3% higher at 1.3560.
The Japanese Yen fell 0.3%, closing at $116.02.
Bonds
Germany’s 10-year yield closed nine basis points higher at 0.31%.
Britain’s 10-year yield closed ten basis points higher at 1.53%.
US 10 Year Treasury closed ten basis points higher at 2.04%.
Commodities
West Texas Intermediate crude closed 0.21% higher at $90.35 a barrel.
Gold closed 0.49% lower at $1,825.10 an ounce.
This morning on the Economic Front we have German CPI at 7.00 am. At the same time we will see the release of U.K. GDP, Index of Services and the Trade Balance. Finally, at 3.00 pm we have the University of Michigan Consumer Sentiment and the Fed Monetary Report.
Cash S&P 500
Incredible two-way volatility in the S&P with the market recovering earlier losses before getting hammered into the close on the back of Fed Member Bullard looking for a 1% increase in Rates by July 1. Thankfully, we had no buy level in the S&P yesterday and are still flat. The Fed is now in real trouble after Bullard’s comments with Yields rising through the roof. They have lost all credibility with the market ahead of Powell’s confirmation vote next week. Despite the volatility the S&P is clinging onto support as we closed last Friday at 4500 exactly where we are this morning despite the bearish news. Given how oversold most Indexes are I am still clinging to the view that the S&P will hold the now key 4450/4470 support area where I will be an aggressive buyer today with a 4435 stop. A head of the weekend I do not want to be short the market at this time.
EUR/USD
My Euro plan worked well with the market trading lower to my 1.1390 buy level before rallying to my 1.1435 T/P level and I am now flat. Today I will again be a buyer from 1.1320/1.1370 with a 1.1275 stop. I still do want to be short the Euro at this time.
March Dollar Index
My patience paid off with the Dollar rallying to my 95.80 sell level before trading lower to my 95.50 T/P level and I am now flat. Today, I will again be a seller from 95.95/96.45 with a higher 96.91 stop.
Cash DAX
No Change. I refuse to chase the DAX higher, thus leaving my 14900/14980 buy level unchanged with the same 14815 stop. If I am taken long I will have a T/P level at 15050.
Cash FTSE
I am still flat. Today, I will continue to be a buyer on any dip lower to 7490/7550 with a tight 7445 stop. I no longer want to be short the FTSE at this time.
Dow Rolling Contract
My Dow plan worked perfectly with the market trading lower to my 35500 buy level post the CPI release before rallying to my 35710 T/P level and I am now flat. The Dow subsequently fell 500 points into the close. The Dow has strong support from 34800/34980 where I will be an aggressive buyer with a 34595 wider stop. Ahead of the weekend I do not want to be short the Dow at this time.
Cash NASDAQ 100
Although the NDX led yesterday’s declines the market never came close to my buy level and I am still flat. The NDX has support from 14450/14550 and I will now raise my buy level to this area with no stop. If I am taken long I will have a T/P level at 14680.
March BUND
No Change. I am still long at 166.26 with the same 166.50 T/P level. Given we are having a nice month of gains I do not mind holding this Bund position with no stop given how oversold Bond Markets are at this time.
Gold Rolling Contract
Gold again consolidated above 1800 on little news and I am still flat. Today, I will leave my buy level unchanged at 1795/1809 with a tight 1783 stop. If I am taken long I will have a T/P level at 1817.
Silver Rolling Contract
No Change. I am still a buyer on any dip lower to 22.20/22.80 with no stop. If I am taken long I will have a T/P level at 23.25.
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