U.S. Indexes closed higher on Friday, with broad-based strength seeing the SPX, NDX and DJI rise by around 1%, while the equal-weight S&P gained 0.8%. The majority of sectors finished higher, with Communication Services, Technology and Consumer Discretionary outperforming, while Utilities, Health Care and Energy lagged; Utilities and Health Care were the only sectors to close in the red. Sentiment was initially supported by Oracle (ORCL) earnings released after-hours on Thursday, although the stock ultimately faded its gains and closed the session lower. The highlight of the session was the US CPI report. The majority of metrics were in line with expectations, although core CPI rose 0.3% M/M, above the 0.2% forecast. The hotter-than-expected core print saw markets price a 25 basis points Fed rate hike next week with greater conviction, with the implied probability rising to around 86% from 70% pre-data, while several banks revised their calls from a hold to a hike. The initial reaction to the data was hawkish, with equities, T-notes and Gold coming under pressure while the Dollar rallied. However, much of the initial move subsequently reversed. The Dollar finished broadly flat, Gold erased its losses to close higher, while equities more than recovered their post-data weakness and finished firmly in the green. The Treasury curve ultimately flattened, with front-end yields rising while the long end was little changed. Front-end yields reflected the hawkish shift in near-term Fed expectations, while the relative resilience of the long end may partly have reflected position squaring following the recent backup in yields, particularly at the long end. The move may also have reflected some concern that tighter monetary policy could ultimately weigh on growth further out. In FX, the Yen and Antipodeans outperformed, while the Swiss Franc and Canadian Dollar lagged. Crude prices settled lower, paring some of the sharp gains seen earlier in the week after the FT reported that Gulf foreign ministers are planning to meet with their Iranian counterpart as part of efforts by Oman and Iran to secure a deal on shipping through the Strait of Hormuz. Meanwhile, US President Trump reportedly rejected a Saudi request to strike the Houthis. Nonetheless, tensions remain elevated, with a Saudi Arabian oil pipeline struck by projectiles, resulting in the temporary shutdown of the East-West pipeline. Reports also suggested that Saudi Arabia is considering launching strikes against the Houthis independently, although no final decision has been made. Attention this week will largely be on the FOMC rate decision, where a 25bps hike is now largely priced in following Friday’s CPI report. As such, the updated SEP and dot plot, alongside Chair Warsh’s commentary, will be important in shaping expectations for the policy path beyond September. The Bank of Japan and Bank of England rate decisions will also be in focus. Core CPI rose 0.29% M/M in August, above the expected 0.22%, while the Y/Y rate eased to 2.4%, in line with forecasts and below the prior 2.5%. Headline CPI rose 0.396% M/M, in line with the forecast and accelerating from the prior 0.1%, while the Y/Y rate was unchanged at 3.4%, in line with expectations. Within the report, supercore inflation accelerated to 0.51% M/M from 0.19%, while core goods inflation eased marginally and core services accelerated slightly. Following the slightly hotter-than-expected core M/M print, the implied probability of the Federal Reserve hiking by 25bps next week increased to 90% from 70% pre-data. The inflation side of the mandate is currently the Fed’s primary focus, so an above-consensus M/M print may be enough for the Committee to lift rates by 25bps next week. Oxford Economics writes that next week’s confab is on a knife’s edge, and while the firmer core CPI reading pushes them towards a hike, it is still no guarantee, particularly as the Fed’s preferred inflation measure is likely to prove more benign. Oxford adds that the acceleration in core prices was most notable within non-housing core services, particularly transportation services, which underscores the risk of further energy pass-through to a broader array of consumer prices. The University of Michigan Consumer Sentiment survey deteriorated in the preliminary September report, with headline sentiment falling to 47.8 from 51.7, below the 51.0 forecast. The weakness was led by a decline in the forward-looking expectations index to 45.8 from 51.5, also below the 50.5 forecast. The political-party breakdown showed sizeable declines among both Democrats and Republicans, while sentiment among independents was little changed from August. Five-year expected business conditions remained stable at levels well below their historical average, suggesting consumers believe the emerging risks this month have not materially worsened the longer-run outlook. Pantheon Macroeconomics notes that the downbeat report can “probably be pinned mostly on consumers’ worries about potential increases in interest rates and the renewed climb in energy prices.” Inflation expectations also moved higher, with the 1-year measure jumping to 4.6% from 4.0%, its highest since June, while long-run inflation expectations ticked up to 3.4% from 3.3%, ending three consecutive months at 3.3%. Finally, on Thursday the ECB hiked rates by 25 basis points as expected in a unanimous decision and maintained its non-committal guidance. Meanwhile, its 2027 HICP inflation forecast was raised, although the projection was lower than some desks had expected. Later sources suggested further tightening is likely, with an October hike in play. Elsewhere, Oil closed lower by 2% while Gold was basically flat following a volatile two-way trading session.
To mark my 3425th 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 1140 points on Friday and is now ahead by 2440 points for September after ending the month of August with a gain of 2645 points after closing July with a gain of 8031 points, after ending June with a new record of 10527 points after ending May with a loss of 1104 points, having ended April with a gain of 1730 points, after ending March with a massive gain of 9002 points, having closed February with a strong gain of 5482 points after ending January with a gain of 4757 points, having closed December with a gain of 2599 points, after ending the month of November with a gain of 4542 points, after ending October with a nice gain of 5110 points after closing September with a gain of 3774 points while ending August with a gain of 3362 points after closing July with a gain of 3753 points after closing June with a gain of 3530 points, having closed May with a gain of 3606 points, after closing April with a gain of 7685 points after closing March with a gain of 2254 points while closing February with a gain of 4180 points. January ended with a gain of 2768 points while 1997 points were gained in December. October ended with a gain of 2179 points, after closing September with a gain of 4402 points, following a loss of 301 points in August. July gained 1908 points while June saw a gain of 2074 points. The Platinum Service made a previous record 9619 points in October 2022. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 2300 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 0.86% higher at a price of 7656.
The Dow Jones Industrial Average closed 509 points higher for a 0.98% gain at a price of 52,573.
The NASDAQ 100 closed 0.91% higher at a price of 29,368.
The Stoxx Europe 600 Index closed 0.48% higher.
This Morning, the MSCI Asia Pacific closed 0.8% lower.
This Morning, the Nikkei closed 0.75% lower at 63,529.
Currencies
The Bloomberg Dollar Spot Index closed 0.05% higher.
The Euro closed 0.21% lower at $1.1598.
The British Pound closed 0.25% lower at $1.3526.
The Japanese Yen rose 0.21% closing at $153.61.
Bonds
U.K.’s 10-Year Gilt closed 5 basis points higher at 5.31%.
Germany’s 10-Year Bund Yield closed 4 basis points higher at 3.50%
U.S.10 Year Treasury closed 5 basis points higher at 4.97%.
Commodities
West Texas Intermediate crude closed 2.37% lower at $100.00 a barrel.
Gold closed 0.41% higher at $4348.10 an ounce.
Incredibly we have no Economic data due to be released on either side of the Atlantic. Personally I cannot remember ever having a trading day with no economic releases.
Cash S&P 500
The CPI report puts the Fed in a box heading into Wednesday’s FOMC Meeting. The market is now pricing about an 80% chance of a 25 basis point hike. Some of this could have been avoided if Chris Waller had said nothing before the blackout period, but he chose to say the CPI report would help him decide whether the Fed should raise rates. The market clearly thinks it should, and we do not really know what he is thinking, which has made things more challenging for the Fed this week. On top of that, the ECB raised rates this past week and is now expected to raise them further, with the market pricing a rate around 3.20% to 3.25% by April, another three hikes. The Bank of Japan is pretty much expected to hike 25 basis points this week, and another 25 by January, and the Bank of England is expected to hike, potentially as soon as November, to 4%. The Reserve Bank of Australia has an 85% chance of a hike priced for September 29; the Bank of Korea has been raising fairly aggressively and could go again by mid-November; and the Bank of Canada is potentially looking at a hike by the beginning of December. So, the Fed is in a corner. Every other major central bank is raising rates or is signalling it is expected to, except the Fed. That puts a lot of pressure on the Dollar Index, which has struggled recently even with the stronger CPI data. The Dollar closed flat on Friday, which I think signals the market does not know what the Fed will do. If the Fed does not want to give forward guidance and wants the market to play ball, that is fine. But the market now thinks it should be hiking; every other major central bank is, and if the Fed opts not to, that is going to put immense pressure on the Dollar and raise the question of what it does to its credibility. They have talked a lot about getting inflation back to 2% on headline PCE, and now they have to do it by raising rates at this meeting. The Interest Rate market is saying the same thing. The 2-year yield has moved up to 4.63%, suggesting the market expects the Fed to raise rates. The spread between the 3-month Treasury bill one year forward and the 3-month spot rate is up to about 75 basis points, meaning the market expects 3-month yields around 4.75% a year from now, and the T-Bill itself rose five or six basis points on Friday. So, T-Bills are pricing in a hike and further hikes after that, pointing to the 2-year yield returning to the 5% region if the Fed starts this cycle. Based on the pricing, this is not a one-and-done. The market expects two to three, maybe even four hikes before this is all said and done, because inflation has not come back to target in five years and it does not look like it will on its own. Financial conditions add to the case. The Chicago Fed’s NFCI (National Financial Conditions Index) sits at negative 0.56, in the bottom third of its history over the last forty or fifty years, which suggests conditions are fairly loose. The Fed is not creating a policy stance that looks restrictive anywhere; if anything, you can argue policy is accommodative. Credit spreads are about as tight as they can get. The ICE BofA corporate option-adjusted spread is among the tightest levels since the late 1990s; the high yield spread over AAA has moved up a little in recent weeks but remains near those levels, and the high yield spread itself is among the tightest since 2007. Since the NFCI is mostly made up of credit spreads, it is not surprising the two look almost identical over time. The consequence, if the Fed does not hike this week, is that Treasury rates are likely going significantly higher. The 10-year rose about 18 basis points last week and finished at its highest closing yield since 2007, which I think is an important tell. All it needs is a break above 5%, and we could be headed toward 5.25%. The 30-year also closed at its highest level since around 2004 and looks to be in an ascending triangle pattern, a bullish indication of further rate increases, with the potential to reach around 5.5%. Putting the pieces together, the market is expecting a hike. If the Fed does not deliver, I think the long end of the curve goes substantially higher while the 2-year probably comes down. Right now, the market is telling the Fed it needs to hike, and that is pretty much what I think will have to happen this week. My S&P plan worked well as the market sold off to my 7600-buy level before rallying over 70 Handles. This move higher saw my revised 7618 T/P level triggered and I am now flat. The S&P has short-term support from 7582/7607 where I will be a strong buyer with a 7561 ‘Closing Stop’. I will now lower my sell level to 7700/7720 with a lower 7741 ‘Closing Stop’. If I am taken long, I will have a T/P level at 7635. If I am taken short, I will have a T/P level at 7676. If any of these views change, I will be back with a new update for my Platinum Members.
EUR/USD
Despite the ECB hiking rates on Thursday the Euro continues to trade in narrow daily ranges and I am still flat. Today, I will continue to be a buyer from 1.1460/1.1540 with the same 1.1385 ‘Closing Stop’. I will also leave my sell level unchanged at 1.1690/1.1760 with the same 1.1835 ‘Closing Stop’. If I am taken long, I will have a T/P level at 1.1605. If I am taken short, I will have a T/P level at 1.1630.
Dollar Index
This morning, the Dollar rallied to my 99.40 T/P level on my latest 99.05 average long position and I am now flat. The Dollar has strong support from 98.30/99.10 where I will again be a buyer with a higher 97.55 ‘Closing Stop’. If I am taken long, I will have a T/P level at 99.60.
Russell 2000
I am still flat. Today, I will lower my buy level to 2800/2860 with a lower 2745 ‘Closing Stop’. If I am taken long, I will have a T/P level at 2910.
FTSE 100
The FTSE just missed my 10730 T/P level on Friday before selling off into the New York close. I am still long the FTSE at an average rate of 10670. I will now lower my T/P level to 10710 while leaving my 10555 ‘Closing Stop’ unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Dow Rolling Contract
My Dow plan worked well as the market traded the whole of Thursday’s buy range for a 52135 average long position before rallying over 500 points. This move higher saw my revised 52285 T/P level executed and I am now flat. The Dow has short-term support from 52020/52320 where I will again be a buyer with the same 51795 ‘Closing Stop’. If I am taken long, I will have a T/P level at 52580. I still do not want to be short the Dow at this time.
Cash NASDAQ 100
My NDX plan worked well. After the NDX hit my 29040 -buy level the market rallied to my revised 29145 T/P level and I am now flat. I do not know how long the buy the dip will continue given the rise in Bond Yields. The NDX has strong support below from 28760/28960 where I will be a strong buyer with a lower 28595 ‘Closing Stop’. If I am taken long, I will have a T/P level at 29190. If this view changes, I will be back with a new update for my Platinum Members.
December BUND
The Bund sold off to my second buy level at 120.60 for a now 121.00 average long position. I will leave my 119.85 ‘Closing Stop’ unchanged while lowering my T/P level to 121.40. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Gold Rolling Contract
My Gold plan worked well. Gold traded lower to my 4310-buy level before rallying to my revised 4354 T/P level and I am now flat. Gold has support below from 4200/4280 where I will again be a buyer with a lower 4165 ‘Closing Stop’. If I am taken long, I will have a T/P level at 4348. If this view changes, I will be back with a new update for my Platinum Members.
Silver Rolling Contract
My Silver plan worked well. Silver traded lower to my 64.00 buy level before rallying to my revised 65.05 T/P level. Subsequently, I emailed my Platinum Members to buy Silver again at a price of 62.80 before the market rallied to my 64.40 T/P level and I am now flat. Today, I will again be a strong buyer on any further dip lower to 60.30/63.30 with a lower 58.95 ‘Closing Stop’. If I am taken long, I will have a T/P level at 64.90.
Recent Comments