Following volatile trading session, U.S. Equity Markets finished the week lower, led by the 0.90% fall in the Dow Jones. Markets finished Friday lower. Investors continue to focus on the risk narrative of growth worries – a decisive shift from inflation concerns of the past few months. November’s headline and core Producer Price Index was hotter than expected, but annual growth declined from October’s number. Michigan’s Consumer Sentiment and Expectations Survey showed that inflation expectations for the next 12 months fell to its lowest in the past five quarters. But the major news that investors will be awaiting comes this week with November’s Consumer Price Index (“CPI”) data and the Federal Reserve’s rate-hike meetings.
Anecdotal evidence indicates manufacturing inflation growth is easing. When inflation growth first began to take off last year, the single item that many of the stock market bears pointed to was the U.S. Bureau of Labour Statistics’ Producer Price Index (“PPI”). That index measures input costs for domestic manufacturers. In other words, what they must pay for raw materials to make the goods that you and I consume. Typically, when input costs first rise, many producers will eat the increase so they do not have to forgo sales. After all, in a normal environment, supply constraints usually remedy themselves pretty quickly. So, why rock the boat? But, if those numbers keep rising on a sustained basis, at some point the manufacturer is going to pass the increase on to the consumer. That starts to show up in Consumer Price Index gains. Now enter the COVID-19 pandemic. Hundreds of millions of individuals in America were stuck at home, not traveling, not dining out, receiving stimulus checks, and experiencing rent, mortgage, and student loan forgiveness. In other words, they wound up with a lot of extra time and money on their hands. So naturally, they spent it. But the system could not keep up. Inventories of all types of goods and raw materials got wiped out. Prices jumped as a result. Then Russia decided to invade Ukraine. It made matters even worse. Access to raw materials and commodities was suddenly interrupted. It took time for businesses and supply chains to mitigate the problem. Costs shot up even more. But eventually, the situation started to take care of itself. Higher costs for goods began to eat into consumer savings, diminishing their ability to spend. Businesses have figured out ways to fix the supply-chain problem. As a result, after the initial jump, the costs for manufacturers to produce goods are falling once more. That should lead to falling PPI metrics and should ease the price burden for consumers. The change will support a steady long-term rally in the S&P 500 Index. Looking at chart of the London Metal Exchange Index which is a measure of all the Metals traded on the exchange. You can see the rally last year, followed by the spike higher in late February of this year when Russia invaded Ukraine. But now, the measure is much lower. So, when I see this type of momentum, I like to follow it up with evidence from individuals whose living depends on access to these types of materials. Recent discussions with friends in the construction and infrastructure industries confirm what the charts are showing us. Prices are easing and supply is improving. My first conversation was with a friend in the excavation business. He started with a backhoe and a trailer when he was 20 years old. He dug foundations for houses and slowly built a business. This individual now has more than 70 pieces of equipment in addition to a staff of around 250 people. I constantly have conversations with him about what he is seeing. His business went south just ahead of the financial crisis and turned before the broader economy. So the incremental colour is important to me. He started by doing work locally for a lot of the big homebuilders but has since expanded to working with industrial companies in the surrounding states as well. His company clears out raw building sites, does all of the pipe and culvert work, puts in the roads, and gets the land to the point where it is ready for construction to start. The time required for all the work is usually several years. We caught up last week when I was in Florida. He is as busy as he has ever been. His company’s backlog is at least two years out. In addition, he is still seeing a ton of bids come across his desk for jobs. He is swamped with work he is doing and work yet to be done. What was really striking was his comments about access to building materials. He said during the pandemic, supply availability went from a week to months to who knows when, as prices went through the roof. It made pricing and budgeting time for projects difficult, to say the least. As a result, he had to charge clients more. But now, he said the opposite is happening. He told me most materials are becoming easy to access. Suppliers have said major customers are starting to cancel double orders left and right, leaving them stuck with supply. In addition, prices are starting to drop. The change means better planning and turnaround on jobs. It is also allowing him to drop the prices he is charging clients for work. As a result, he said his workflow is speeding up as he plays catch-up with some of his backlog. Another contact is in the commercial roofing business. He works throughout the mid-Atlantic. We recently had a similar conversation. He also told me that his suppliers are seeing double orders cancelled. The change has meant it is becoming easier to get his hands on supplies and the turnaround is quicker. In addition, he is also seeing prices come down for some metals supplies he needs for jobs. I can vouch for this as our flight school in Florida is currently building three hangars for aircraft storage. These data points also keep with numbers we are seeing from regional Federal Reserve Bank manufacturing surveys. We combined the data from the Dallas, Kansas City, New York, and Philadelphia Feds’ surveys. According to the U.S. Bureau of Economic Analysis, the regions they serve make up over 22% of the U.S. Gross Domestic Product. To me, this speaks volumes about the current economic trend. After the economy has suffered through runaway inflation growth for the last couple of years, it is finally starting to turn. The change should allow our central bank to slow the pace of interest-rate hikes and eventually stop them altogether. At some point in the next year, it is likely they will start cutting rates once more. 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. Then, those same Money managers will work their way down the investment food chain, looking for other opportunities and attractive returns. This, in turn, will support a longer-term rally in the S&P 500. Within the S&P 500 Index, 10 of the 11 sectors finished lower. European Markets closed higher. Markets ended the day higher despite a quiet session regarding macro-economic data. Investors are anticipating this week’s U.S. CPI reading and key central bank policy decisions. Economists now expect the European Central Bank to hike rates at least two more times before a shift in policy. Meanwhile, the British Chambers of Commerce economic update forecasts that the economy will sink into a five-quarter long recession for the U.K. In Asia, Asian markets ended higher with much of the region ending on positive notes. China’s inflation data showed November prices contracted for the second month in a row. The “zero-COVID” policies that were recently eased are starting to show its depressed economic growth effects. But Chinese leaders have already hinted at supporting greater growth policy moving forward. News out of Japan shows that the government is prepared to raise corporate taxes to boost defense spending. Investors look forward to a batch of new manufacturing and production data coming out of the region this week. Elsewhere, Oil closed flat after a volatile session while Gold rose a further 0.39%.
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 401 points on Friday and is now ahead by 1321 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 0.73% lower at a price of 3934
The Dow Jones Industrial Average closed 305 points lower for a 0.90% loss at a price of 33,476.
The NASDAQ 100 closed 0.64% lower at a price of 11,563.
The Stoxx Europe 600 Index closed 0.80% higher.
Last Friday, the MSCI Asia Pacific Index rose 0.8%.
Last Friday, 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 0.3% higher at $1.0533.
The British Pound closed 0.5% higher at 1.2260.
The Japanese Yen fell 0.1% closing at $136.59.
Bonds
Germany’s 10-year yield closed 9 basis points higher at 1.84%.
Britain’s 10-year yield closed 9 basis points higher at 3.09%.
U.S.10 Year Treasury closed 8 basis points higher at 3.46%.
Commodities
West Texas Intermediate crude closed 0.01% higher at $72.60 a barrel.
Gold closed 0.39% higher at $1797.10 an ounce.
This morning on the Economic Front we have U.K. Trade Balance, Index of Services, Industrial Production and GDP at 7.00 am. This is followed by a 10-Year U.S. Treasury Auction at 6.00 pm. Finally, we have the Monthly Budget Statement at 7.00 pm.
Cash S&P 500
A volatile session that saw plenty of two-way price action before a late sell-programme saw the S&P fall 40 Handles into the close. This leaves the door open for a move lower to my 3850/3870 aggressive buy level especially if we get a stronger than expected CPI release tomorrow. This will be a wild week as we have the Fed Meeting on Wednesday to navigate as well. The S&P continues to struggle with its overhead resistance – namely its 200 Day Moving Average. The $NYSI has turned lower opening the possibility of lower prices. If it was not for the seasonal factors I would be tempted to go short but the risk is not worth it as we are less than two weeks from Christmas. On Friday, my S&P plan worked well with the market trading the whole of my buy range for a 3950 average long position. Subsequently, we rallied back above 3975, enabling me to cover this position at my 3962 revised T/P level and I am now flat. The S&P has support from 3893/3913 where I will again be a strong buyer with a 3779 ‘’Closing Stop’’.
EUR/USD
Unfortunately, the Euro missed my higher 1.0480 buy level by 9 points before rallying to sit higher at 1.0533 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
No Change. I am still a buyer on any dip lower to 103.50/104.20 with the same 102.95 ‘’Closing Stop’’.
Cash DAX
The DAX missed my 14200 initial buy level by three points before having a nice 150-point rally and I am still flat. There is no doubt, the 14200 level is strong support as we have now tested this level four times last week, with each test followed by a strong rally. Today, my buy level will be from 14140/14220 with a higher 14075 ‘’Closing Stop’’.
Cash FTSE
After the FTSE hit my initial 7440 buy level I had too many open positions. To reduce my risk I exited this trade at 7466 and I am still flat. Today, I will continue to be a seller on any further rally 7570/7640 with a 7705 ‘’Closing Stop’. The FTSE has support from 7340/7400 where I will again be a buyer with a lower 7285 ‘’Closing Stop’’.
Dow Rolling Contract
My Dow plan worked well as the market sold off to my 33580-buy level on the PPI release. The low was 33521 before the market rallied over 300 points. As I wanted to end Friday with a points’ gain I covered this position too early at 33700 and I am still flat. After the Dow made an afternoon high above 33800, a large sell programme ensued in the last hour of trading, driving the Dow to new lows for the day. However, ahead of CPI tomorrow and the FOMC Meeting on Wednesday, I would not chase the Dow lower. We have short-term support from 33000/33250 where I will be a strong buyer with a lower 32855 ‘’Closing Stop’’. I still do not want to be short the Dow at this time.
Cash NASDAQ 100
The plan to buy the dip across all American Indexes worked well on Friday. The NDX hit my buy level at 11570 before rallying to my revised 11650 T/P level. Subsequently, I emailed my Platinum Members to buy the NDX again which I did near the close at a price of 11580. I will add to this position at 11430. My T/P level will be at 11660 while I will have a wider stop at 11295 which is just below the 50-Day Moving Average.
March BUND
The stronger than expected 7.4% print in U.S. PPI saw Bond markets fall up to 10 basis points across the board. As a result, the Bund hit my initial 140.90 buy level. I will add to this position at 140.10 while leaving my 139.45 ‘’Closing Stop’’ unchanged. I will also lower my T/P level to 141.30. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Gold Rolling Contract
I am still flat as Gold continues to build on last week’s gains. This move higher saw Gold rally above 1800. I will now raise my buy level slightly to 1765/1780 with a higher 1753 ‘’Closing Stop’’.
Silver Rolling Contract
Any long position that I have had in Silver over the past few weeks required patience due to the lack of volatility. On Friday, my latest 22.70 Silver position paid off as the market rallied to my 23.25 T/P level and I am now flat. Silver has strong resistance from 24.00/25.50 which if overcome will finally see the start of a major bull run for this precious metal. Today, I will again be an aggressive buyer on any dip lower to 22.30/23.00 with no stop and a T/P level at 23.70 if executed.
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