U.S. Equity Markets finished Thursday higher after a five-day losing streak, led by the 1.22% gain in the NASDAQ 100. The across-the-board rally saw the VIX close lower by 1.72%. Markets reversed some of this week’s decline, including the S&P 500 Index breaking a five-straight streak of daily declines. There were little macro-economic data today besides Jobless figures showing that the labour market continues to weaken slowly. A lot of the headlines coming out of the Goldman Sachs U.S. Financial Services Conference this week has been focused on the consensus that next year is likely to bring about a recession and suppressed economic activity. Investors look forward to this afternoon’s Producer Price Index (“PPI”) reading, and next week’s Consumer Price Index report to give any solid signs about the Federal Reserve’s policy direction. Investors will also be looking for a further rebound in Consumer Confidence when the University of Michigan’s Surveys of Consumers is released at 3.00 pm. Investors hate uncertainty. As I have discussed throughout this year, Money managers have been unclear about the direction of interest rates. After all, the U.S. Bureau of Labour Statistics’ (“BLS”) Consumer Price Index (“CPI”) shows inflation has ballooned from 2.3% annualised growth in December 2019 to a 40-year high of 9.1% this past June. It is a similar story for the European Union. According to its statistical office, cost growth increased from 1.3% at the end of 2019 to the recent peak of 10.6% in October. That number was the highest level on record since the formation of the EU. The dynamic has caused the Federal Reserve and European Central Bank (“ECB”) to raise interest rates at an aggressive rate to combat the inflation crisis. The uncertainty around what that would mean for corporate margins has caused investors to remain cautious on investing in risk assets like stocks and interest-rate-sensitive assets like Bonds. But it would appear that inflation has peaked across much of the globe, and especially in America. That dynamic could change the global central bank’s outlook on future rate hikes, implying peak interest rates could be right around the corner. The removal of uncertainty regarding future rate increases would support a steady long-term rally in the S&P 500 Index. Looking at a chart of the American Automobile Association’s (“AAA”) national price average for a gallon of regular unleaded gasoline compared with the BLS’ CPI. We can see that gas prices are a leading indicator. We can also see that inflation appears to have peaked in June. Natural gas prices appear to have also peaked this summer, especially after falling over 10% this week. So, one would surmise that inflation should start to follow suit. This increases the chances that global central banks will slow the pace of interest-rate hikes as a result. There are two “pivots” investors will be looking for in the next eight to 10 months. The first is a switch to lower rate increases, which is likely to happen this month. The Fed is already positioning itself to raise rates by 50 basis points, thereby stopping its streak of four consecutive 75-basis-point increases. Chairman Jerome Powell said this is likely the outcome when he spoke last week. In addition, policymakers like Vice Chair Lael Brainard and Governor Christopher Waller have said they would support such a move. At the same time, ECB policymakers are making similar statements. Governing Council member Franç ois Villeroy de Galhau has said rates need to rise by at least 50 basis points to 2% in December, while President Christine Lagarde has said interest rates still need to reach a level where they weigh on inflation growth once more. But most Governors think that by the end of the first quarter of next year, they will be closer to a level where future policy decisions can be more data-dependent. That is central bank speak for go slower or stop. The second is a pivot to sustained rates and no further increases. Based on the rhetoric from both central banks, this is likely to occur sometime in the second quarter of next year. These two pivots will likely mean economic growth in America and globally has slowed to a crawl. But they will remove uncertainty around borrowing costs and growth. Then, analysts looking to model corporate earnings and revenue based on the growth outlook will feel more comfortable about the potential returns. Money managers, anticipating a pending recession, will be ready to pounce. Because the sooner institutional investors get a sense that we are at peak interest rates, the quicker they will become more optimistic about risk assets like stocks. They will also rush to lock in attractive yields on high-quality assets, like U.S. Treasurys, before it is too late. This, in turn, will support a longer-term rally in the S&P 500. Within the S&P 500, nine of the 11 sectors finished higher. European Markets closed lower. Markets ended the day lower despite a relatively quiet day on the macro news front. The latest RICS survey showed a consensus for falling house prices in the U.K. Furthermore, the industry survey showed wages and hiring slowing as the U.K. is likely entering a prolonged recessionary period. Meanwhile, a Reuters poll of economists outlaid expectations for an increase of 50 basis points from the Bank of England next week. Investors continue to speculate on the future of rate policy. Uncertainty increases around the terminal rates of the Bank of England as well as the European Central Bank. In Asia, Asian markets ended mixed with much of the region lower. But Hong Kong rallied more than 3% on COVID-19 reopening reports. Hong Kong’s government is reportedly close to easing many COVID-19 restrictions, including travel entry limits. The rest of the region, including China, extended losses this week as global demand and economic prospects continue to weaken. Japan’s Third-Quarter Gross Domestic Product was revised to a smaller contraction as export growth was slightly higher than the preliminary reading. Investors are looking toward the release of China’s November inflation figures this morning. Elsewhere, Oil fell 0.50% after a volatile session while Gold closed 0.17% higher.
To mark my 2675th 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 339 points yesterday and is now ahead by 920 points for December after closing November 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 0.75% higher at a price of 3963
The Dow Jones Industrial Average closed 183 points higher for a 0.55% gain at a price of 33,781.
The NASDAQ 100 closed 1.22% higher at a price of 11,637.
The Stoxx Europe 600 Index closed 0.17% lower.
This morning, the MSCI Asia Pacific Index rose 0.8%.
This morning, the Nikkei closed 1.18% higher at a price of 27,901.
Currencies
The Bloomberg Dollar Spot Index closed 0.5% lower.
The Euro closed 0.5% higher at $1.0560.
The British Pound closed 0.3% higher at 1.2229.
The Japanese Yen rose 0.2% closing at $136.49.
Bonds
Germany’s 10-year yield closed 5 basis points higher at 1.84%.
Britain’s 10-year yield closed 4 basis points higher at 3.09%.
U.S.10 Year Treasury closed 4 basis points higher at 3.46%.
Commodities
West Texas Intermediate crude closed 0.50% lower at $72.55 a barrel.
Gold closed 0.17% higher at $1789.10 an ounce.
This morning on the Economic Front we have U.K, Consumer Inflation Expectations at 9.30 am. This is followed by U.S. PPI at 1.30 pm. Finally, we have the University of Michigan Consumer Sentiment Index and Wholesale Inventories at 3.00 pm.
Cash S&P 500
How can anyone still be talking about inflation when Commodity prices have peeled off 30% from the 2022 highs? Energy prices have plunged 39%. Food prices are still high but have fallen 19% from their highs. Base Metals are down 26%, while Soft Commodities like Cotton have plunged 47%. Meanwhile, Textile prices are off 17%. Remember, Inflation is a rate of change not a level. There is no inflation cycle any longer with Commodities on a clear downward path. The big question is whether what I have outlined above will be reflected in today’s PPI and/or Tuesday’s CPI Report. The consensus is for PPI to fall to 7.4% yoy compared to last month’s 8% print. Given the rally off yesterday’s morning’s 3912 low, a weak number may now be priced in with the S&P trading at 3980 as I go to print. I was unlucky yesterday as the S&P missed my 3920-buy level by six handles before trading higher and I am still flat. Disappointing data can still drive the S&P lower to my 3850/3870 aggressive buy level target. There are only 15 trading days left for 2022, making it very difficult to be short as we know once CPI and the Fed are out of the way next week that unless something extraordinary happens we will then get the Santa Rally into early January. Today, I will be a buyer of the S&P from 3943/3958 with a 3929 ‘’Closing Stop’’. I still do not want to be short the market at this time.
EUR/USD
Unfortunately, the Euro missed my higher 1.0480 buy level by 9 points before rallying to sit higher at 1.0560 this morning. Ahead of PPI, I am reluctant to chase the Euro higher from here, leaving my 1.0410/1.0480 buy level unchanged with the same 1.0355 ‘’Closing Stop’’. I no longer want to be short the Euro at this time.
March Dollar Index
Shortly after I posted the Dollar rallied to my 105.35 tight T/P level before spending of the rest of the session on the defensive. I am still flat. The Dollar has further support from 103.50/104.20 where I will again be a buyer with a 102.95 wider ‘’Closing Stop’’.
Cash DAX
My DAX plan worked well as the market traded lower to my 14200-buy level before rallying 100 points. As I want to continue to build points I covered this long position at my 14240 revised T/P level and I am still flat. Today, I will again be a buyer on any dip lower to 14120/14200 with a tight 14055 ‘’Closing Stop’’.
Cash FTSE
No Change. I am still flat as the FTSE again traded in a narrow range. The FTSE has short-term support from 7380/7440 where I will be a small buyer with a 7335 ‘’Closing Stop’’. I will now lower my sell level to 7570/7640 with a lower 7705 ‘’Closing Stop’.
Dow Rolling Contract
Just like the S&P above, the Dow missed yesterday’s buy level by a few points before having a nice 350-point rally off its morning lows. I am still flat as we wait for PPI. I presume once PPI is released, we will be dealing with a major gap event. This makes it tricky to plan today’s action. The Dow has short-term support from 33400/33650. I will move my buy level to this area with a higher 33255 ‘’Closing Stop’’. I still do not want to be short the Dow at this time.
Cash NASDAQ 100
The NDX had a nice rally after the American Markets opened. This move saw my 11650 T/P level triggered on Tuesday’s 11540 long position. Subsequently, I emailed my Platinum Members to buy the NDX again at a price of 11580. This morning the market rallied to my aggressive 11690 T/P level and I am now flat. Lower Treasury Yields should continue to support tech stocks. After falling 30% this year I have no interest in being short the NDX. The market has support from 11460/11610 where I will again be a buyer with the same 11295 wider ‘’Closing Stop’’.
March BUND
My Bund plan worked well with the market trading lower to my 141.70 buy level before rallying to my revised 142.14 T/P level and I am now flat. With PPI today ahead of CPI on Tuesday there is scope to see some increased volatility. A lot of good news is now priced into the Bund having rallied over 800 points over the past few weeks. The Bund has short-term support from 140.10/140.90 where I will be a buyer with a 139.45 ‘’Closing Stop’’.
Gold Rolling Contract
I am still flat as Gold continues to build on this week’s gains. Ahead of PPI I will not chase the market higher leaving my 1753/1768 buy level unchanged with the same 1741 ‘’Closing Stop’’.
Silver Rolling Contract
Silver hit a high this morning at 23.29 which is just below my 23.30 T/P level on my ongoing 22.70 long position from last week. I will now lower my T/P level to 23.25 while continuing to add on any dip lower to 22.20. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Recent Comments