U.S. Equity Markets finished Thursday higher following a volatile trading session. The Small Cap Russell 2000 led the gains, closing higher by 1.74% on a day the VIX got crushed, falling 11% to close at a price of 18.83. Markets finished higher after an eventful session that saw mixed economic data. Major headline today came from the U.S. Bureau of Labour Statistics’ December Consumer Price Index (“CPI”) which showed headline inflation declined 0.1% on a monthly basis and annual inflation growth falling in line with expectations at 6.5%. Fed speak remained hawkish with James Bullard saying that the central bank needs to hike rates above 5% as soon as possible. Philadelphia Fed’s Harker also offered support for a 25-basis-pointrate hike in the February FOMC meeting. Investors reacted optimistically that cooling inflation signalled the Fed may stop rates hikes sooner than expected. This afternoon, investor focus will turn to the University of Michigan Survey of Consumers’ inflation expectations, and earnings from Wall Street banking giants. For the last six months all anyone spoke about was the Fed Pivot. Now I want to talk about the “inflation pivot” which I believe is just as important. This morning, the U.S. Bureau of Labour Statistics released its Consumer Price Index (“CPI”) for December, coming in as expected at +6.5%. Remember, it was only June of last year when headline inflation peaked, with the CPI showing an annual growth rate of 9.1%. In the most recent report, for November, the CPI had fallen to 7.1%. As such, the Fed eased up on its interest-rate policy ever so slightly by only hiking rates 50 basis points, down from the previous four increases of 75 basis points. The CPI played a major role in central bank policy in 2022 – and we can expect it to do the same in 2023. Since the headline CPI likely peaked last year, the Fed can be confident in further slowing its pace of rate hikes. Now, it will be looking for more concrete signals that pricing pressures are easing. When we put inflation figures under a microscope, it is clear there are two very different types of inflation the Fed is paying attention to. There is flexible inflation and sticky inflation. Sticky prices tend to incorporate long-term expectations about inflation and are slower to react to pricing pressures. Whereas flexible prices respond more quickly to current economic conditions. For example, flexible CPI items include things like gasoline, fresh food, used and new vehicles, and clothing. These items tend to reprice after about 2.6 months. Sticky CPI items include things such as shelter or owners’ equivalent rent, medical care services, education, recreation, and household furnishings. These typically reprice at about 10.7 months. A decline in flexible inflation does not tend to sway the Fed away from its policy stance as much as when sticky inflation starts to decline. That is because sticky inflation accounts for about 75% of headline inflation and incorporates much larger economic components such as the housing market. Once sticky inflation peaks – what I call the “inflation pivot” – the central bank is far more likely to slow rate hikes and even consider potential rate cuts. However, a slowdown in both flexible and sticky inflation would give investors and money managers more confidence diving back into risk assets like stocks. In fact, the flexible CPI tends to peak even before the headline CPI reading does. History tell us that a peak in the flexible CPI occurs about 10 months before a peak in the sticky CPI and about two months before a peak in the headline CPI. As of the latest CPI reading for November, the sticky CPI was still rising. This means that over the next few months, the Fed will be paying close attention to inflation components such as Owners’ Occupied Rent (“OER”), for signs it can further decelerate its rate tightening. The next few months will key to this forecast. Within the S&P 500 Index, eight of the 11 sectors finished higher. European Markets rose. Euro-Zone markets finished higher on cooler U.S. inflation data that boosts speculation that the Federal Reserve may slow rate hikes. In comparison, the European Central Bank (“ECB”) is expected to continue its aggressive rate policy which should support a rally in the Euro as the U.S. Dollar weakens further. Like the markets stateside, the focus is also on earnings, with investors looking for any positives coming out of the holiday spending season. Additionally, the ECB’s most recent Consumer Expectations survey revealed that inflation expectations declined while nominal income growth expectations rose. In Asia, Markets finished mostly higher on a quiet trading day as investors in Asia react to the further 2.5% rally in the Japanese Yen overnight. This comes on the heels of China December CPI accelerating faster than expected and the Producer Price Index slowing as factory output fell due to the economic conditions surrounding COVID-19 reopening plans. The Bank of Japan said it will review side effects of ultra-easing policy next week, sending the yen lower. In Korea, investors look toward today’s rate policy decision that is expected to see a 25-basis-point increase. Elsewhere, Oil rose 1.23% while Gold closed 1.18% higher falling the 1.2% fall in the U.S. Dollar.
To mark my 2700th 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 185 points yesterday and is now ahead by 2158 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 0.49% higher at a price of 3988
The Dow Jones Industrial Average closed 216 points higher for a 0.64% gain at a price of 34,189.
The NASDAQ 100 closed 0.50% higher at a price of 11,459.
The Stoxx Europe 600 Index closed 0.63% higher.
This morning, the MSCI Asia Pacific fell 0.7%.
This morning, the Nikkei closed 1.25% lower at a price of 26,119.
Currencies
The Bloomberg Dollar Spot Index closed 1.3% lower.
The Euro closed 0.8% higher at $1.0839.
The British Pound closed 0.4% higher at 1.2198.
The Japanese Yen fell 2.5% closing at $129.10.
Bonds
Germany’s 10-year yield closed 5 basis points lower at 2.12%.
Britain’s 10-year yield closed 8 basis points lower at 3.33%.
U.S.10 Year Treasury closed 8 basis points lower at 3.46%.
Commodities
West Texas Intermediate crude closed 1.23% higher at $78.44 a barrel.
Gold closed 1.18% higher at $1894.10 an ounce.
This morning on the economic front we already had the release of U.K. GDP which rose 0.1% versus -0.2% expected. At 10.00 am we have Euro-Zone Trade Balance and Industrial Production. Next, we have the U..S. Import/Export Price Index at 1.30 pm. Finally, at 3.00 pm we have University of Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations.
Cash S&P 500
The initial aggressive sell-off on the CPI print was bought hard by investors as the S&P ripped to a new recovery high at 3999 before being brutally dumped again before ripping back to the highs before having a small sell-off into the close. I am still flat the S&P as I had no buy level. With the McClellan Oscillator closing at +311 last night, I do not want to be long the market. Last May we saw the MO print +350 before falling over 10% in a few days. Monday is a Bank Holiday in America and the Cash Markets are closed. With the Dollar and Bond Yields falling further yesterday , the market is now overtly not believing the Fed’s narrative of +5% for longer and no rate cuts in 2023. Bears who were looking for a big sell-off this week were again disappointed while under invested bulls that sold into year-end are watching the tape grind higher with the S&P now closing above its 200 Day Moving Average (3984). The S&P has a strong downward trend line that comes in at 4019. A break and close above here could well see a melt-up in the S&P especially if the NASDAQ starts to outperform. The S&P has strong resistance from 4008/4023 where I will be an aggressive seller with the same 4035 ‘’Closing Stop’’. We have short-term support at yesterday’s 3933 low print. I will be a small buyer from 3918/3934 with a 3899 ‘’Closing Stop’’.
EUR/USD
The Euro has no rallied over 13% since the October lows. This is an enormous move in such a short period. The Euro is no overbought and due a correction. Only last Friday the Euro was trading at 1.0480, before ripping 350 points higher. The Euro has resistance from 1.0920/1.1000 where I will be a seller with a 1.1085 ‘’Closing Stop’’. I will now raise my buy level to 1.0680/1.0750 with a higher 1.0615 ‘’Closing Stop’’.
March Dollar Index
The 2.5% rise in the Japanese Yen saw the Dollar fall 1.2% since my Daily Commentary was published yesterday. This move lower saw the whole of my buy range triggered for a now 102.10 average long position. I will leave my 101.55 ‘’Closing Stop’’ unchanged while lowering my T/P level to 102.70.
Cash DAX
The DAX has now rallied 27% since its October low. This relentless rally saw my 14960 short position stopped at 15075 and I am still flat. European Markets continue to make new highs despite the ongoing economic mess. Markets are now well above their pre–Russian Invasion of Ukraine February 2022 levels. Remember my old adage a market that cannot fall on bad news has to be respected. This has certainly been the case in European Equity Markets over the past few months. Even Bitcoin joined the party yesterday trading like it is in QE mode with a 9% rally above 19,000. The DAX is severely overbought. We have further resistance from 15150/15230 where I will again be a seller with a 15205 ‘’Closing Stop’’.
Cash FTSE
Just like the DAX there is no stopping the FTSE as the market traded over 7800. The FTSE is now trading over 5% higher for the year despite the worsening economy and awful political situation. Thankfully we have had no sell levels in this market as short positions have been squeezed dramatically since the October low. I will now raise my buy level to 7670/7740 with a higher 7595 ‘’Closing Stop’’.
Dow Rolling Contract
My Dow plan worked well yesterday with the market trading lower to my 33720 buy level on the CPI print before rallying to my 33930 T/P level and I am now flat. This morning the Dow is trading at 34150. The next strong resistance comes in at 34350/34550 where I will be a seller with a 34705 ‘’Closing Stop’’. With the MO closing at +311 last night and the $NYMO at an extremely overbought +100, I do not want to be long the Dow at this time.
Cash NASDAQ 100
My NDX plan worked well with the market trading lower to my 11290 buy level before rallying to my 11380 T/P level and I am now flat. The NDX has strong support from 11150/11300 where I will again be an aggressive buyer with a lower 10995 ‘’Closing Stop’’.
March BUND
The Bund rallied again yesterday and I am still flat as the market never came close to my buy range. Given the extent of the rally over the past week I am reluctant to chase the Bund higher – especially on a Friday. Therefore, I will leave my 136.20.136.90 buy level unchanged with the same 135.45 ‘’Closing Stop’’
Gold Rolling Contract
Gold rallied to a high above $1900 before having a small sell-off into the New York close. Gold is now overbought having rallied almost 10% in the past few weeks. However, I will not go short the market given the fact that most investment houses are long Gold for hedge purposes. Gold has support from 1855/1870. I will now raise my buy level to this area with a higher 1845 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. Although Silver hit a high at 24.18 post the CPI release, it was met by strong selling. This is no surprise given the strength of the 24.00/25.50 resistance area. I am still long at 24.00 with the same no stop policy. I will now lower my T/P level to 24.40.
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