U.S Equity Markets reversed earlier gains to close higher. The S&P again bounce off its 50 Day Moving Average while lower Bond Yields saw the NASDAQ 100 lead yesterday’s gains at +0.94%. This move higher saw the VIX close lower by 5% at a price of 21.14. Thursday’s economic indicators that pointed toward a stronger-than-expected economic outlook did little to change investors’ bearish outlook. This has pushed the rate-repricing narrative even further, with expectations that the Federal Reserve will leave peak rates in place through the end of the year. Initial Jobless Claims for the week fell to its lowest level in three weeks, as another 192,000 Americans filed new unemployment claims for the week ending February 18. Fourth Quarter GDP was revised down by 0.2% to 2.7%, with lower consumer spending as the catalyst. The Chicago Fed National Activity Index for January rose to 0.23 from -0.46 in December thanks to significant economic growth in the production-related sectors. This afternoon the U.S. Bureau of Economic Analysis is scheduled to release its PCE data for January. The figures are important because it is the Federal Reserve’s preferred gauge for measuring inflation growth, with money managers cautious about investing in risk assets ahead of the report. You see, investors are increasingly worried about inflation growth. The U.S. Bureau of Labour Statistics’ January jobs report and Consumer Price Index growth numbers both pointed toward economic growth holding up. If that proves to be the case and high inflation proves resilient, the Fed could be forced to raise interest rates even more. The stock market naysayers have not wasted any time pouncing. They are making the case that price pressures will heat back up while saying that the PCE data will show an increase in January compared with December. They are also claiming Fed officials are growing increasingly hawkish (inclined to raise rates) as a result. However, despite these claims, the stories from those central bank members have not changed. The negative sentiment being created means today’s inflation numbers will have to be pretty bad to create an even larger drop than the 4.3% the S&P 500 Index fell over the last five trading days. That tells me the near-term risk is for a PCE result that is better than feared, causing a stock market rally. Let us look at the change in the Federal-Funds rate expectations and recent comments from central bank officials. So, the first place we want to look is interest-rate probabilities. They tell us what investors are anticipating for future rate hikes. At the start of February, money managers foresaw a peak interest rate in June of 4.9% and cuts occurring in the back half of this year. Institutional investors’ thinking began to change last week. Fed officials started speaking publicly once more. The two-week blackout period ended following the most recent meeting of the interest-rate-setting Federal Open Market Committee (“FOMC”). The commentary highlighted the most was that of St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester. Out of every Fed member, they are two of the biggest hawks (inclined to raise rates). Both have said they endorsed a 50-basis-point increase on February 1. Bullard and Mester also stated they could see the case for a similar hike in March and would support policy changes if inflation picks back up. Now, to money managers hoping for interest-rate cuts later this year, the commentary was unsettling. And when we consider that January’s job gains were stronger than expected and the pace of slowdown in inflation eased, it is easy to understand why the stock market shorts chimed in. Yet, Bullard and Mester both stated there is nothing in the recent economic data that has changed their outlooks… Their “adjust policy if necessary” comments were reiterations but taken as new. Prior to the December FOMC meeting, they called for reaching a terminal rate above 5%, which was much higher than the current 4.63% level. In fact, this week, Bullard said he would like to see the Federal-Funds rate at 5.4%. That is right in line with the current consensus expectation, while Mester has said the same. In other words, institutional investors are already pricing it in. Other Fed officials like Richmond President Thomas Barkin and Philadelphia President Patrick Harker have said there is a lot of noise in the January numbers due to government readjustments. They also think it is too early to say there is a change in trend. Both have said the central bank’s December guidance for a 5.1% peak interest rate is appropriate. As a result of the changing inflation narrative, the equity markets are repricing interest-rate risk. The chance of higher interest rates has caused stocks to drop. The Fed’s next policy decision is on March 22. It is an important meeting because the central bank will update its Summary of Economic Projections and interest-rate outlook. So, if this afternoon’s PCE numbers are hot, look out! The market could be in for more pain. And there would be a month before we got more colour on rates. But, based on all the negativity heading into the release, the short sellers may be setting themselves up for disappointment. If the PCE numbers show inflation growth continues to ease, the S&P 500 is set up for a rally. Easing price pressures would mean another reset on inflation expectations and the consequent rate outlook. Within the S&P 500 Index, seven of the 11 sectors finished higher. European Markets again closed mixed. U.K. Retail Sales data for February remained flat after dipping in January. However, stores expect further declines ahead as the rising cost of living hinders consumers’ discretionary spending. Euro-Zone final CPI for January came in in line with expectations, but core CPI posted a record high – making further rate increases by the European Central Bank more likely. Bank of England (“BOE”) policymaker Catherine Mann urged for further interest-rate increases, claiming that elevated price growth remains too high. ECB Governing Council member François Villeroy de Galhau said investors’ expectations for peak interest rates in September may be too aggressive. U.K. Prime Minister Rishi Sunak said he will hold talks with European Commission President Ursula von der Leyen to resolve Brexit hang-ups and boost trade. In Asia, the Bank of Korea left interest rates unchanged at 3.50%, while Governor Rhee Chang-yong said most board members endorse a peak rate of 3.75%. Reserve Bank of New Zealand Governor Adrian Orr said interest rates must rise further but signs are emerging that inflation growth is starting to ease. Japanese automotive giants Toyota Motor (TM) and Honda Motor (HMC) agreed to increase workers’ wages – the biggest hike in several decades – likely stoking inflation growth and future interest rate increases. Elsewhere, Oil rose 2.20% while Gold closed lower by 0.63% following a further rally in the U.S. Dollar.
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For anyone following my Platinum Service it made 230 points yesterday and is now ahead by 2244 points for February 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 HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 0.53% higher at a price of 4012
The Dow Jones Industrial Average closed 108 points higher for a 0.33% gain at a price of 33,153.
The NASDAQ 100 closed 0.94% higher at a price of 12,180.
The Stoxx Europe 600 Index closed 0.11% higher.
Yesterday, the MSCI Asia Pacific rose 0.4%.
Yesterday, the Nikkei closed 1.34% lower at a price of 27,104.
Currencies
The Bloomberg Dollar Spot Index closed 0.3% higher.
The Euro closed 0.1% lower at $1.0590.
The British Pound closed 0.3% lower at 1.2006.
The Japanese Yen rose 0.2% closing at $134.68.
Bonds
Germany’s 10-year yield closed 4 basis points lower at 2.48%.
Britain’s 10-year yield closed 1 basis points lower at 3.59%.
U.S.10 Year Treasury closed 5 basis points lower at 3.88%.
Commodities
West Texas Intermediate crude closed 2.20% higher at $75.58 a barrel.
Gold closed 0.63% lower at $1821.10 an ounce.
This morning on the Economic Front we have German GFK Consumer Confidence and GDP at 7.00 am. This is followed by U.S. Personal Income/Spending and the PCE Inflation Indicator at 1.30 pm. Next, at 3.00 pm we have the University of Michigan Consumer Sentiment Index and New Home Sales. Finally, we have the speeches from Fed Members Mester and Jefferson with both due to speak at 3.15 pm.
Cash S&P 500
These markets are tricky as there is such much noise on the wires, leading to a lot of uncertainty given the number of possibilities for future prices. However, until the S&P can break its 50-Day Moving Average at 3980 and the NDX breaks its 200 Day Moving Average (11905) then the last two sessions are just back tests opening up the strong possibility of a massive seasonal move higher into April. Although I caught badly on Tuesday’s 2.5% fall, it has been the correct decision to buy all dips so far in 2023. Bears are having the odd successful sell-off but each of these moves lower are met by strong buying. Yesterday my S&P plan worked well. After we hit my 3975 buy level, we rallied to my revised 3989 T/P level and I am now flat. As I go to press, we are trading higher at 4006. All eyes will be on the PCE Deflator which will be released at 1.30 pm. A benign number will see a spike in the S&P while a strong number could well open up a move lower to my next major support level from 3920/3950 where I will be an aggressive buyer with no stop or T/P level if triggered. The S&P has initial support from 3965/3985 where I will again be a strong buyer with a 3949 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 4002. I still do not want to be short the market at this time.
EUR/USD
No Change. I am still long the Euro at an average rate of 1.0635. I will leave my 1.0545 ‘’Closing Stop’’ unchanged while lowering my T/P level on this position to 1.0680. 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 missed yesterday’s sell level by one point and I am still flat. As I am aggressively long the Euro I will now raise my Dollar sell level to 104.90/105.70 with a higher 106.25 ‘’Closing Stop’’ I still do not want to be long the Dollar at this time.
Cash DAX
No Change. Anyone trying to short the DAX is left frustrated as any accrued profit quickly evaporates given the level of buying on any dip. This was evident again in yesterday’s session with the market rallying 100 points off its 15400 low print. This rally came against a background of weak American Indexes. I am still flat. The price action keeps telling me there is no point in being short unless the DAX breaks and closes below 15,000 for two consecutive trading sessions. Today, I will still be a small buyer from 15150/15230 with a wider 15045 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 15305.
Cash FTSE
The boring sideways price action in the FTSE shows no sign of ending anytime soon. I am still long from late Wednesday at 7900. I will continue to look to add to this position at 7830 with the same 7795 tight ‘’Closing Stop’’. I will now lower my T/P level to 7848 which is just above yesterday’s high print.
Dow Rolling Contract
No Change. A volatile session for the Dow that saw two 300 point moves intra-day. I am still flat. My only interest in selling the Dow is still from 33550/33800 with a tight 33905 ‘’Fixed Stop’’. If I am taken short, I will have a T/P level at 33370. I do not want to be long the Dow at this time.
Cash NASDAQ 100
Thankfully the NDX had a nice rally earlier in the day, hitting my 12200 T/P level on Tuesday’s 12130 average long position and I am now flat. The NDX is oversold, has strong support at its 200 Day Moving Average (11904) where I would expect a decent bounce on any initial test. Today, I will be an aggressive buyer from 11850/12000 with a lower 11695 ‘’Closing Stop’’. I still do not want to be short the NDX at this time.
March BUND
I am still flat as the market never came close to yesterday’s buy range. I will now raise my buy level to 133.30/134.00 with a higher 132.65 ‘’Closing Stop’’.
Gold Rolling Contract
I am still flat Gold as the market just missed my 1813 initial buy level before having a small rally into the New York close. I do not like the price action in Gold but I am not confident enough to go short. As I continue to have a large, long position in Silver, I will leave my 1798/1813 buy level unchanged with the same 1787 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. Silver has traded sideways since we saw the market fall 3%,10 days ago. I am still convinced that it is only a matter of time before Silver takes out the key 24.00/25.00 resistance area. Remember in May 2011, Silver was trading above $50. I am still long at an average rate of 23.10 with the same no stop policy. I will leave my T/P level unchanged at 23.50. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
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