Following another volatile trading session, U.S. Equity Markets finished Thursday mixed. Although the Dow closed higher by 0.61%, the NASDAQ 100 fell 1.88% and that fall has continued overnight following the awful results from Amazon, which sees their shares trading lower by 20%. Markets finished a wild day of trading following further poor tech earning. Meta Platforms (META) was the latest tech giant to miss expectation with disappointing expense guidance for 2023. Preliminary gross domestic product (“GDP”) figures for the third quarter came in slightly stronger at a 2.6% annualised rate. However, most of the gains were attributable to net exports and government spending, while residential investment and consumer spending fell. Investors look ahead to next week’s Federal Reserve policy meeting where the overwhelming expectation is for a fourth consecutive rate hike of 75 basis points. Central banks’ momentum for continued rate hikes is fading. Throughout the past nine months, the most important factor in terms of stock market performance has been central-bank rate hikes. As inflation spiralled higher, central banks around the world were forced to increase rates in an attempt to bring cost growth back under control. Money managers are worried about what the long-term consequences of those policy actions will mean for the global economic growth outlook. After all, policymakers like Federal Reserve Chairman Jerome Powell have said they need to kill economic demand to slow inflation. Now, with rates going up and stocks and bonds falling, investors are wondering when the cycle might end. When they get a sense that the tide has turned, they will want to do two things: lock in the highest yields on U.S. sovereign debt in over a decade and buy cheaper equities. Over the past few weeks, global central banks are beginning to signal that time may be coming, supporting the long-term outlook for the S&P 500 Index. The Reserve Bank of Australia (“RBA”) was the first global central bank to flinch earlier this month. Governor Philip Lowe said it would raise the benchmark cash rate by 25 basis points (or 0.25%) to 2.6%, compared with the consensus expectation for a 50-basis-point increase (or 0.50%). This caught investors anticipating continuously aggressive global central-bank rate tightening off guard. This week, the Bank of Canada (“BOC”) followed suit, unexpectedly slowing its pace of interest-rate hikes as the nation is on the brink of a recession. Policymakers raised the overnight lending rate by 50 basis points (or 0.50%) to 3.75%, compared with the consensus expectation for a 75-basis-point increase (or 0.75%). While these two global central banks are the first to slow rate hikes, others may not be that far behind. You see, New Zealand’s Chief Economist Paul Conway said this week that the central bank is “hopeful” that inflation has peaked and that slower rate hikes are not too far off. Meanwhile, Bank of England (“BOE”) Deputy Governor Ben Broadbent said last week that the current expectations of rates rising above 5.00% could be a backbreaker for the economy. Two of the top central banks have already started to decelerate. With the BOE’s and Federal Reserve’s rate decision next week, investors will be very interested in the forward guidance provided. Now, don’t get me wrong. The RBA and other central banks are not finished with increasing interest rate, but the change in strategy is significant. You see, this adjustment could signal that we are getting closer to peak interest rates for this rate-hike cycle. In other words, central banks are starting to recognise that the consequences of their policy actions are becoming entrenched in the global and domestic economies. It was only a few weeks ago that the International Monetary Fund warned that global central banks sharply raising interest rates in unison puts the world on the brink of a global recession and threatens financial-market stability. The takeaway here is that investors and Money managers are eagerly awaiting a sign that the Fed is about to “pivot” in policy – in other words, slow the pace of rate hikes. When this happens, yields on U.S. sovereign debt are unlikely to go higher, enticing investors to lock in rates. Additionally, risk assets like technology stocks – which typically have the highest exposure to interest-rate risk due to larger borrowing needs – will begin to be viewed more favourably, especially if rates drop. Long term, this will support the outlook for the S&P 500. Within the S&P 500 Index, six of the 11 sectors finished lower. European Markets closed higher. Markets extended their gains after recovering from early declines. The European Central Bank hiked rates by 75 basis points, in line with expectations. The central bank also provided future guidance that future rate hikes were likely. Elsewhere, Consumer Confidence data from Germany stabilised albeit at weak levels and Italian Consumer and Business Confidence fell. In other news, the U.K. Prime Minister Rishi Sunak is considering the previously debated tax rises and spending cuts after a rapid improvement in public finances. In Asia, Markets ended mostly higher but were largely mixed as bank and tech names in Japan came under pressure. Australia held on to a modest rise. Greater China was mixed, and Hong Kong clung on to a gain but had lost two-thirds of its morning gains by the close. South Korea ended up as battery manufacturers rallied and third-quarter GDP figures met expectations. Reserve Bank of Australia’s rate-hike expectations moved higher following higher-than-expected inflation figures. Japan is reported to be considering a move that would cut household utility bills by about 20% early next year to combat high costs. Elsewhere, Oil closed 0.83% higher, while a stronger Dollar saw Gold fall 0.21%.
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Equities
The S&P 500 closed 0.61% lower at a price of 3807.
The Dow Jones Industrial Average closed 194 points higher for a 0.61% gain at a price of 32,033.
The NASDAQ 100 closed 1.88% lower at a price of 11,191.
The Stoxx Europe 600 Index closed 0.03% lower.
This morning, the MSCI Asia Pacific Index fell 0.7%.
This morning, the Nikkei closed 0.88% lower at a price of 27,105.
Currencies
The Bloomberg Dollar Spot Index closed 1.1% higher.
The Euro closed 0.9% lower at $0.9978.
The British Pound closed 0.4% lower at 1.1548.
The Japanese Yen fell 0.3% closing at $146.40.
Bonds
Germany’s 10-year yield closed 16 basis points lower at 1.98%.
Britain’s 10-year yield closed 17 basis points lower at 3.41%.
US 10 Year Treasury closed 9 basis points lower at 3.94%.
Commodities
West Texas Intermediate crude closed 0.81% higher at $90.15 a barrel.
Gold closed 0.21% lower at $1658.10 an ounce.
This morning on the Economic Front we already had the release of U.K Retail Sales which fell 0.1% versus +0.7% expected. At 9.00 am we have German GDP, followed by Euro-Zone Economic Indicator at 10.00 am. Next, we have German CPI at 1.00 and and the all-important Personal Income/Spending and the PCE Indicator at 1.30 pm. Finally, we have Pending Home Sales and the University of Michigan Consumer Sentiment Index at 3.00 pm.
Cash S&P 500
There is no doubt, that in my Opinion, one of the best technical indicators is the McClellan Oscillator. It may only generate 10/15 signals per year but each time we see a reading close to -250 or +230, the market reacts. As I mentioned in yesterday’s commentary, the MO closed at +230 on Wednesday, resulting in the S&P trading 100 Handles lower this morning, while the NDX has fallen over 5% since the latest MO was generated. Tech earnings have been extremely weak with Amazon being the next giant to get slammed, falling over 20% after it released its earnings after the close. The S&P hit a post close low of 3747 before trying to stabilise, trading at 3778 as I go to press. Earlier, my S&P plan worked well with the market trading lower to my 3816 buy level before rallying to my 3835 T/P level and I am now flat. This morning, the S&P is telling us that it will open with a large gap to the downside. Although, the S&P surged last Friday, nine of the previous 10 Fridays saw the S&P close lower. We have short-term support from 3735/3755 where I will be a strong buyer with a 3719 ‘’Closing Stop’’. Despite the weak earnings, Bond Yields have collapsed as the market reckons the Fed will pivot at next week’s FOMC Meeting. Lower Bond Yields should support the S&P going forward especially after we get through the Mid-Term Elections in two weeks. Ahead of the Fed Meeting, I do not want to be short the S&P.
EUR/USD
The Euro reversed most of Wednesday’s gains on the back of the ECB saying it will see how the latest rate hikes filter through the economy over the coming weeks. The Bund is back below 2% as a result sending the Euro lower. The Euro has support from .9840/.9920. I will now lower my buy level to this area while leaving my .9795 ‘’Closing Stop unchanged. I still do not want to be short the Euro at this time.
March Dollar Index
I am still flat. Ahead of the weekend, I will now raise my sell level to 111.20/111.80 with a higher 112.45 stop.
Cash DAX
It took a while but following the Amazon results, the DAX traded lower to my 13010-buy level before rallying to my 13090 T/P level and I am now flat. Today, I will again be a buyer from 12000/12990 with a lower 12835 ‘’Closing Stop’’.
Cash FTSE
Gilt Yields have now fallen a massive 120 basis points since PM Truss resigned. This is an incredible move, that helped support Sterling and the FTSE. I am still flat the market and reluctant to chase higher. Ahead of the weekend, I will now lower my buy level to 6880/6950 with the same 6835 ‘’Closing Stop’’.
Dow Rolling Contract
My Dow plan worked really well with the market rallying to my 32300 sell level (high 32388) before selling off after the close to my aggressive 32010 T/P level and I am now flat. As I mentioned above the +230 print in Wednesday’s closing MO gave me the confidence to look to short the Dow. The Dow is trading lower at 31940 this morning. We have support from 31450/31700 where I will be an aggressive buyer with a 31295 ‘’Closing Stop’’. My only interest in selling the Dow is from 32220/32470 with a lower 32655 ‘’Closing Stop’’.
Cash NASDAQ 100
My NDX plan worked well as shortly before the American Indexes opened the NDX traded lower to my 11320-buy level before rallying to my 11380 revised T/P level with a rebound high at 11417 and I am now flat. This was a good cut as the NDX subsequently fell over 400 points. With Bond Yields trading lower I am reluctant to sell the NDX despite the awful tech earnings. The NDX has support from 10840/10990 where I will be an aggressive buyer with a 10695 ‘’Closing Stop’’.
December BUND
The Bund hit a low of 137.60, just missing yesterday’s initial buy level by 10 points before rallying over 300 points on comments from ECB President Lagarde. This is an enormous move and helped correct some of its oversold condition. The Bund has support from 138.00/138.80. I will now move my buy level to this area with a wider 136.95 ‘’Closing Stop’’.
Gold Rolling Contract
No Change. I will continue to be a buyer on any dip lower to 1627/1642 with the same 1615 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. I am still long at 20.05 the same 20.60 T/P level.
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