U.S. Equity Markets had a strong last hour led by the NASDAQ 100 which ended Thursday with a gain of 1.75%. This move higher saw the VIX crushed again, closing lower by 4.56% at a price of 21.78. Markets were higher as investors await Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Economic Symposium this afternoon. The St. Louis Fed President James Bullard restated his belief that at this time, the direction of inflation is far more important than any target rate. Jobless Claims printed lower than expected as investors continue to receive mixed economic signals. Earlier this week, the Federal Reserve Bank of Richmond released its Survey of Manufacturing Activity for August. The overall number showed mid-Atlantic output continues to contract, with a reading of -8 compared with the expectation for -2 and July’s breakeven reading. It continued a steady decline that started in July of last year. For August, new shipment orders and backlogs declined further into negative territory. In addition, lead times contracted for the first time since October of 2015. While the data support slowing economic output, they also indicate supply-chain activity should be returning to normal as businesses are able to complete unfinished work. The shift supports falling costs as evidenced by the recent trend in prices paid and received. These are key measures of inflation growth. Both metrics showed a steady downward trend since peaking earlier this year. This is the same result that we saw from the New York and Philadelphia Feds’ Manufacturing Surveys earlier this month. A sustained move lower in inflation growth should support a steady rally in the S&P 500 Index. The report is a gauge of business activity in the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia. The Richmond Fed began administering the survey in November 1993. It sends electronic questionnaires out to manufacturing executives in the area, asking them about the state of current business in addition to forecasting the state of activity six months down the road. Prices paid is important because it tells us what manufacturers are paying to produce goods… In other words, 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… in other words, what it is costing individuals to buy something. So, 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 subindexes tell us inflation growth and expectations for sustained high prices are cooling. That has been a mantra 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. 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 hyper 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 perspective. It took roughly 26 months for inflation to reach these levels, and it’s 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. This will support a longer-term rally in the S&P 500. Within the S&P 500, all 11 sectors finished higher. European Markets again closed mixed. European Union leaders mull an emergency meeting as fears of a prolonged recession continue to increase with energy prices rising with little resistance. Minutes from the European Central Bank depict high levels of concern regarding inflation among members. German business confidence falls as economic conditions worsen. In Asia, China announced another round of stimulus support as it becomes desperate to uphold the fragile economy. The Bank of Korea hiked rates by 0.25%, as expected. Bank of Japan’s Koji Nakamura reaffirmed his belief that the central bank needs to maintain its conservative rate policy. Elsewhere, Oil fell 1.85% while Gold closed with a gain of 0.59% after a quiet trading session.
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Equities
The S&P 500 closed 1.41% higher at a price of 4199.
The Dow Jones Industrial Average closed 322 points higher for a 0.98% gain at a price of 33,291.
The NASDAQ 100 closed 1.75% gain at a price of 13,143.
The Stoxx Europe 600 Index closed 0.4% higher.
This morning, the MSCI Asia Pacific Index rose 0.4%.
This morning, the Nikkei closed 0.57% higher at a price of 28,641.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% lower.
The Euro closed 0.1% lower at $0.9970.
The British Pound closed 0.1% higher at 1.1810.
The Japanese Yen rose 0.1% closing at $136.72.
Bonds
Germany’s 10-year yield closed 6 basis points lower at 1.32%.
Britain’s 10-year yield closed 8 basis points lower at 2.62%.
US 10 Year Treasury closed 7 basis points lower at 3.04%.
Commodities
West Texas Intermediate crude closed 1.85% higher at $92.48 a barrel.
Gold closed 0.59% higher at $1759.10 an ounce.
This morning on the Economic Front we already had the release of German GFK Consumer Confidence which came in at -36.5 versus -31.8 expected. Next, we have Euro-Zone Money Supply at 9.00 am. This is followed by Personal Income/Spending and Wholesale Inventories at 1.30 pm. Finally, we have the University of Michigan Consumer Sentiment and Fed Chair Powell’s key Jackson Hole Speech at 3.00 pm.
Cash S&P 500
Needless to say we finally got the expected bounce ahead of Fed Chair Powell’s 3 pm Jackson Hole Testimony. Markets again chose to ignore every single hawkish Fed speaker and are now running fully complacent into Powell’s speech. What to make of this complacency? Simple: the market does not believe the Fed. I watched a long interview on Bloomberg last night (which you should be able to pick up on U Tube) with Mohammed El-Elrian which I was very impressed with. He is clearly exacerbated at the Fed’s incompetence and minces no words in his interview. Something has to give this afternoon Bond Yields dropped again yesterday highlighting a further loosing of financial conditions. My S&P plan worked well with the market dropping lower to my 4148 buy level before rallying 50 Handles. This move higher saw my 4168 T/P level triggered and I am now flat. The S&P has resistance from 4240/4260 where I will be a small seller with a tight 4271 ‘’Closing Stop’’. We have short-term support again from 4128/4148 where I will again be a buyer with the same 4107 ‘’Closing Stop’’. Given the expected volatility I have to leave wider parameters with my buy/sell ranges today.
EUR/USD
No Change. I am still long the Euro from last Monday at an average rate of 1.0009. The Euro has suffered a peak- to- trough decline of over 20% from its 2021 peak highs to last month’s move lower through parity for the first time since the early 2000s. The Euro is now trading 1.5 Standard Deviations below its 200-Day Moving Average, implying there is a lot of negativity reflected in the price. If you are long Dollars I would certainly look to take your long-term gains at current prices. Given how oversold the Euro is trading I will continue to hold this position with no stop. I will leave my T/P level at 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 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. This morning, the Dollar is trading slightly higher at 108.40. 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 initial 13220 buy level before turning around and rallying over 100 points. As I had a number of open positions at the time, I exited this long DAX position at 13250 and I am still flat. Ahead of the weekend I will not chase the market higher. The DAX has strong support from 13090/13180 where I will again be an aggressive buyer with a wider 12995 stop.
Cash FTSE
Frustratingly, the FTSE missed my initial 7460 buy level by one point before rallying to my T/P level and I am still flat. Today, I will continue to be a buyer on any dip lower to 7400/7460 with the same tight 7345 stop. Please remember the U.K. Markets are closed on Monday for the August Bank Holiday.
Dow Rolling Contract
My Dow plan worked well yesterday as the market traded lower to my 32970-buy level shortly after the American Markets opened before having a nice 300-point rally into the close. This move higher saw my 33070 revised T/P level triggered and I am still flat. Given the expected volatility emanating when Powell speaks this afternoon, this a difficult session to call. Ahead of the weekend I am reluctant to be short the Dow especially as I have a sell level in the S&P above. The Dow has support below the market from 32800/33000 where I will again be a buyer with a tight 32645 ‘’Closing Stop’’. If I am taken long I will have a T/P level at 33190.
Cash NASDAQ 100
No Change. As expected, the continued rally in Apple Shares is leading the rally in the NDX. The NDX having just missed my initial 12900 buy level before turning around and rallying over 250 points into the close. The NDX has support from 12850/13000 where I will be a small buyer with a 12745 tight ‘’Closing Stop’’.
September BUND
It took a while but finally the oversold conditions saw the Bund have a nice rally into the close enabling me to cover my 150.70 long position at my revised 151.22 T/P level (high 151.39) and I am now flat. Today, I will again be a buyer on any dip lower to 149.50/150.30 with a 148.85 ‘’Closing Stop’’.
Gold Rolling Contract
No Change: I am still flat Gold. Despite the market trading higher at 1760 I am reluctant to chase the price of Gold higher. Therefore, I will continue to be a buyer on any dip lower to 1720/1735 with the same 1709 ‘’Closing Stop’’.
Silver Rolling Contract
Silver sold off to my 19.10 buy level yesterday afternoon before having a small rally overnight. I am still long and I will now lower my T/P level to 19.45. I will add to this position at 18.50 while leaving my 17.95 ‘’Closing Stop’’ unchanged. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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