Following a volatile trading session, a late rally saw U.S. Equity Markets finished yesterday’s session mixed as the Dow closed higher by 0.46% while the Small Cap Russell 2000 finished the day lower by 1.15%. Thursday’s session saw that a batch of better economic data played into the narrative that good news is bad news, with further rate hikes anticipated. August ISM manufacturing index came in at 52.8, matching July’s level. U.S. mortgage rates hit 5.66%, marking the highest level since late June. Initial Jobless claims and company layoff announcements both fell, suggesting the labour market remains tight. Leading metrics tell us inflation growth is dropping…Over the last several months, we have been monitoring data from the regional Federal Reserve Banks’ individual manufacturing surveys. And while we have noticed that overall growth is slowing, the more important trend to watch is prices. After all, the path of cost growth indicates to us the potential for outsized central bank rate hikes of 0.75% or a more gradual 0.25%. We have wanted to see the overall direction for prices as it relates to cost growth for both producers and consumers of goods. The numbers show both prices paid and received are falling rapidly. These are key measures of inflation growth. A sustained move lower should support a steady long-term rally in the S&P 500 Index. But don’t take my word for it. Look at what the data is showing us…The manufacturing surveys are gauges of business activity within the regional central banks’ districts. The research teams send questionnaires out to manufacturing executives in their areas, asking them about the state of current business in addition to forecasting the state of activity six months down the road. So, we combined the data from the surveys of the Dallas, Kansas City, New York, and Philadelphia Feds. All of their numbers go back to at least June of 2004. We left out the figures from the Richmond Fed because the data set was less complete. These figures are important when we consider the scope of each of those regions as it relates to the national economy. According to the U.S. Bureau of Economic Analysis, the state of Texas accounts for 9.4% of domestic economic output, New York makes up 7.7%, Pennsylvania is 3.7%, and Kansas is 0.8%. In other words, they make up just under 22% of Gross Domestic Product. That means trends in those Fed districts will have a large effect on what is taking place nationally. Prices paid is important because it tells us what manufacturers are paying to produce goods… So, we can think of it relative to the U.S. Bureau of Labour Statistics’ Producer Price Index (“PPI”). Prices received is an equally important reading. This measure tells us what companies are collecting for their finished goods… or basically what it is costing individuals to buy something. We can think of it relative to the U.S. Bureau of Labour Statistics’ Consumer Price Index (“CPI”). The August reading points toward further weakness in the CPI.. The readings for prices paid and received have a tendency to peak before or right around the same time as the PPI and CPI. They are returning back toward pre-pandemic levels as activity subsides. That has been a missive of the Federal Reserve. Chairman Jerome Powell has told us the central bank will need to slow overall economic growth in order to ease rising costs. The central bank started down that path in March by raising interest rates. The change in policy direction corresponds closely with the shift in prices paid and received. Last Friday, at the Kansas City Fed’s Annual Economic Symposium in Jackson Hole, Powell reiterated the same commentary we have been hearing. He said the central bank will focus on bringing down inflation growth, and investors should expect interest rates to head to the 4% level. So, he did not deliver any incremental commentary around the central bank’s interest-rate outlook leaning toward even more rate hikes than previously forecast. But at the same time, he didn’t say anything that would convince the naysayers about when the central bank would back down on the pace of interest-rate increases. And the next policy announcement is not until September 20, giving investors time to wonder what comes next. But longer term, this is a trend money managers who are investing for eight to 12 months down the road must see in order for them to grow more optimistic about risk assets like stocks. They realise the growth experienced during 2021 due to massive amounts of stimulus is unsustainable. Those big-money investors want to see economic activity revert back toward the mean. That way, they have less to worry about from a liquidity and Fed policy standpoint. It took roughly 26 months for inflation to reach these levels, and it is going to take at least 12 months to notice a meaningful slowdown. This is a step in the right direction. A sustainable move lower will tell us the Fed can back off its aggressive rate hike path moving forward. And this will support a longer-term rally in the S&P 500. Within the S&P 500, eight of the 11 sectors finished higher. European Markets closed lower. China-exposed sectors were the biggest decliners, as new lockdowns hurt global supply chains. There was a positive surprise in latest German Retail Sales data, which increased 1.9% month over month compared with the 0.0% consensus. Markets are heavily pricing in bigger rate hikes from the European Central Bank (“ECB”) and the Bank of England at their next policy meetings. In Asia, Concerns surrounding China’s economy continued to weigh on markets, with the city of Chengdu shut down due to a COVID-19 outbreak. The city represents around 1.7% of Chinese Gross Domestic Product and is home to manufacturers Toyota and Intel. The outlook for production from this region has fallen significantly. August Markit PMIs reflect growing manufacturing differentials in technology-driven northern Asia and those in Southeast Asia. Australian and New Zealand home prices are declining at a steeper pace. Elsewhere, Oil fell 3.69% while Gold closed lower by a further 1.18% on a much stronger Dollar.
To mark my 2600th issue of TraderNoble Daiy 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 520 points yesterday, on the first trading for 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 0.30% higher at a price of 3966.
The Dow Jones Industrial Average closed 145 points higher for a 0.46% gain at a price of 31,656.
The NASDAQ 100 closed 0.02% higher at a price of 12,274.
The Stoxx Europe 600 Index closed 1.1% lower.
This morning, the MSCI Asia Pacific Index fell 0.2%.
This morning, the Nikkei closed 0.11% lower at a price of 27,632.
Currencies
The Bloomberg Dollar Spot Index closed 0.6% higher.
The Euro closed 0.8% lower at $0.9950.
The British Pound closed 0.4% lower at 1.1533.
The Japanese Yen fell 0.8% closing at $140.21.
Bonds
Germany’s 10-year yield closed 2 basis points lower at 1.56%.
Britain’s 10-year yield closed 8 basis points higher at 2.88%.
US 10 Year Treasury closed 14 basis points higher at 3.24%.
Commodities
West Texas Intermediate crude closed 3.69% lower at $85.73 a barrel.
Gold closed 1.18% lower at $1694.10 an ounce.
This morning on the Economic Front we have Euro-Zone Producer Price Index at 10.00 am. This is followed by U.S. Non-Farm Payrolls including the Unemployment Rate and Average Earnings at 1.30 pm. Finally, we have Factory Orders at 3.00 pm.
Cash S&P 500
Positive seasonally looked dead for most of yesterday’s session as the S&P hit a low at 3903 before a magic rally saw the S&P rally over 60 Handles into the close. After the fact it always is obvious and easy to see the rally coming. However, when the S&P was trading between 3905 and 3925 for a few hours it looked liked we were going to new lows for the day before the late rally materialized. I have huge faith in the McClellan Oscillator as you know. Every time the MO has a print of -250 or lower the S&P tends to have at least a 5% rally within a few days. Despite the S&P’s late rally the MO closed with its lowest reading for 2022 at -323. In my opinion this means that you have to be a buyer especially after we get the NFP data out of the way at 1.30 pm. At yesterday’s 3903 low print the S&P had fallen almost 10% from its high less than three weeks ago. This is an enormous move. My S&P plan worked well as the market traded the whole of my buy range for a 3915 average long position before rallying to my 3932 revised T/P level and I am now flat. The oversold $NYMO hit a new low at -110 yesterday. The last time we saw such a negative print was in March 2020 during COVID. This of course set up a huge bounce. The S&P has support from 3926/3946 where I will be an aggressive buyer with a 3909 ‘’Closing Stop’’. Ahead of the long weekend in America I do not want to be short the S&P.
EUR/USD
The Euro got hit hard yesterday before again bouncing off the key .9900/.9920 support level. This move lower saw my second buy level at .9965 triggered for a now .9990 average long position. I will continue with my strategy of no stop on this position while lowering my T/P level to 1.0060. If any of the above levels are hit I will be back with a new update for my Platinum Members.
March Dollar Index
No Change. The Dollar is trading slightly higher at 109.35 this morning on the back of the weaker Pound and Yen with both currencies trading at multi-year lows. The $Yen is now above 140. My overall view on the Dollar has not changed: The last time the Dollar was this overvalued, at the end of 2016, we quickly saw a 10% decline in the Dollar over the following 12 Months. I am expecting a similar outcome, I just do not know what the catalyst will be. Based on a longer-term outlook, the risk/reward is skewed to the downside. In my view, a key source of prior support has disappeared (strong economic growth) and another is fully discounted and may be on the verge of reversing which of course is a divergence in Central Bank rate hike expectations. I am still short the Dollar at an average rate of 107.50. Given how overbought the Dollar is trading I will have no stop on this position, fully believing that we are close to a reversal in the Greenback. I will continue to leave my T/P level unchanged at 106.80.
Cash DAX
My DAX plan worked well with the market trading lower to my 12620 buy level before rallying to my revised 12680 T/P level and I am now flat. This morning, I will again be a buyer of the DAX on any further move lower to 12570/12650 with the same tight 12495 ‘’Closing Stop’’.
Cash FTSE
My FTSE plan worked well as the market traded the whole of my buy range for a 7155 average long position before rallying overnight to my 7195 revised T/P level and I am now flat. We have short-term support from 7080/7140 where I will again be a buyer with a 7035 stop. If I am taken long I will have a T/P level at 7190.
Dow Rolling Contract
My Dow plan worked well as the market traded lower to my 31320 buy level. As I had so many open positions on board I exited this long position too early at 31440 and I am now flat. This morning the Dow is trading higher at 31650. We have support from 31170/31420 where I will again be a buyer with the same 30945 ‘’Closing Stop’’.
Cash NASDAQ 100
My NASDAQ plan worked well as the market traded lower to my 12080-buy level before rallying over 200 points. Unfortunately, I covered this position too early at 12130 and I am now flat. At yesterday’s 12004 low print the NDX had fallen over 12% from its recent high. Today, I will again be a buyer on any dip lower to 12000/12180 with a higher 11895 ‘’Closing Stop’’.
December BUND
I have now rolled to the December Contract which trades at a huge 240 point Discount to the September Contract. Yesterday my September Bund plan worked well with the market trading lower to my 147.00 buy level before rallying to 147.80 revised T/P level. This morning the December Contract is trading at a price of 145.50. We have support from 144.00/144.70 where I will be a strong buyer with a 143.45 ‘’Closing Stop’’. If I am taken long I will have a T/P level at 145.40.
Gold Rolling Contract
Gold sold off on the back of the stronger Dollar, hitting my 1696 buy level. I am still long with a now lower 1708 T/P level. I will add to this position at 1680 while leaving my 1669 stop unchanged.
Silver Rolling Contract
No Change. I am still long and wrong for now at 18.80 with the same 19.25 T/P level. Given how oversold Silver is trading I will continue to hold this position with no stop.
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