U.S. Equity Markets reversed most of Thursday’s gains, led by the 3% fall in the NASDAQ 100 following another wild trading session. Markets were lower following last week’s higher-than-expected inflation metrics that offer little resistance to any thought of slowing rate hikes from the Federal Reserve. A fourth 75-basis-point rate hike this year at the Fed’s November Meeting looks very likely. Earnings season kicked off Friday, with major banks like JPMorgan Chase reporting impressive increases to the firm’s net-interest-income outlook. The University of Michigan Consumer Sentiment Survey reported stronger-than-expected optimism, but one-year inflation expectations rose for the first time since March. Investors will continue to evaluate economic signals and further earnings next week. Inflation growth is not following the Federal Reserve’s directions. Thursday’s, hotter-than-expected inflation metrics for September surprised Wall Street. Investors and money managers had anticipated that a steady decline in energy prices and easing food costs would lead the way for a quick deceleration in inflation. The U.S. Bureau of Labour Statistics’ (“BLS”) Consumer Price Index (“CPI”) data for September rose 8.2% year over year (“YOY”) compared with Wall Street’s expectation for an 8.1% increase and the prior month’s 8.2% gain. On a month-over-month (“MOM”) basis, it rose 0.4% compared with the expectation for a 0.2% gain and a 0.1% increase in August. The lack of change all but assures the Federal Reserve will raise interest rates by another 0.75% when it meets again on November 1 and November 2. We must remember that inflation does not disappear overnight. After all, it took 26 months to get here. It will take at least another 12 months before we see a meaningful slowdown in cost growth. Central-bank policymakers have told us they want to see interest rates around the 4.50% to 4.75% level before they consider pausing hikes. There was nothing in Thursday’s numbers to change that missive. Getting there is going to be painful for investors. But the sooner it is done, the better it will be for the long-term outlook for the economy and the S&P 500 Index. While this marked the third consecutive decline in inflation on a YOY basis, it still comes as a disappointment. As Fed Governor Michelle Bowman said Wednesday night, until inflation data shows a material slowdown, the central bank needs to continue with large rate hikes. That means borrowing costs for households and businesses will rise even more. Those increased payments for servicing credit-card debts, mortgages, and car loans mean less disposable income, while all of that materialises into declining economic output. On a core basis, the CPI rose 6.6% YOY compared with the expectation for a 6.5% increase and August’s 6.3% gain. The same number jumped 0.6% on a MOM basis compared with the estimate for a 0.4% rise and the prior month’s 0.6% climb. The core numbers are a bit concerning. The YOY numbers are making a new high during this cycle compared with the headline data, which is falling. What sticks out even more is looking at the MOM data on an annualised basis. The year-to-date average is 0.5% growth, or 6% annualised. And it has risen despite the rate hikes. That is a troubling sign for the Fed because it is likely a signal, consumers are becoming more accepting of price increases. Owners’ equivalent rent (“OER”) contributed the most to the high core numbers. It’s the amount of money an owner would pay in rent to live in the same home. It’s important because shelter accounts for 42% of the CPI, while OER makes up about 24%. OER rose 6.7% in September compared with the 6.3% jump in August. This was the highest growth on record, with the data going back to 1983. So, despite any gains made in other areas – like say gasoline or car prices – OER underpinned overall inflation growth, and until that changes, the Fed will do whatever it can to lower costs. In other words, the central bank needs to kill housing prices. And the No. 1 tool for accomplishing the task is raising interest rates. According to the U.S. Census Bureau, the median single-family home price is down 6.3% from the July peak, but it is still up 8% YOY. So, the trend is going to take some time to play out. While increasing interest rates will weigh on housing affordability and prices, a substantial change won’t happen overnight. The rate-setting Federal Open Market Committee next meets on November 1 and November 2. Policymakers have said they want to see interest rates reach 4.25% to 4.50% by year-end. As I said earlier, they are looking for another increase to the 4.50% to 4.75% range early next year before they consider pausing rate hikes. We are closer to the Fed’s interest-rate target than we were back in March, but rates still need to rise. The sooner we get there, the better it will be for the long-term outlook for the economy and the S&P 500. Within the S&P 500 Index, all 11 sectors finished lower. European markets closed higher. Markets finished higher as U.K. policy headlines remain in investor focus. U.K. Chancellor Kwasi Kwarteng was removed from his position as Prime Minister Liz Truss announced plans to reverse part of her previously announced fiscal stimulus plan. There was limited data Friday from the region, with the only notable development being the widening of the Euro-Zone’s trade deficit. However, currency markets reacted strongly as volatility roiled Gilts and Sterling. In Asia, the markets advanced sharply on Friday as Chinese inflation figures came in on par with expectations, but underlying momentum continues to point to slowing growth and deflation. China is reportedly set to continue its zero-COVID policy until next spring. South Korea’s Unemployment numbers came up slightly higher than consensus, rebounding from a month prior. Japan remains ready to act on further Yen volatility following the G20 meeting this week. Meanwhile, Singapore’s Gross Domestic Product rebounded and beat consensus for the third quarter. Elsewhere, Oil fell 3.79% while a higher Dollar saw Gold close 1.64% lower.
To mark my 2650th 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 460 points on Friday and is now ahead by 6252 points for October, after finishing September with an incredible gain of 6660 points, 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 2.37% lower at a price of 3583.
The Dow Jones Industrial Average closed 403 points lower for a 1.34% loss at a price of 29,634.
The NASDAQ 100 closed 3.10% lower at a price of 10,692.
The Stoxx Europe 600 Index closed 0.56% higher.
This morning, the MSCI Asia Pacific Index fell 0.5%.
This morning, the Nikkei closed 1.16% lower at a price of 26,775.
Currencies
The Bloomberg Dollar Spot Index closed 0.4% higher.
The Euro closed 0.4% lower at $0.9731.
The British Pound closed 1.1% lower at 1.1209.
The Japanese Yen fell 0.8% closing at $148.31.
Bonds
Germany’s 10-year yield closed 5 basis points higher at 2.34%.
Britain’s 10-year yield closed 18 basis points higher at 4.37%.
US 10 Year Treasury closed 10 basis points higher at 4.02%.
Commodities
West Texas Intermediate crude closed 3.79% lower at $85.35 a barrel.
Gold closed 1.64% lower at $1645.10 an ounce.
The only data of note to be released on either saw of the Atlantic is the New York Empire State Manufacturing Index which will released at 1.30 pm.
Cash S&P 500
The S&P plan got sold again on Friday despite Thursday’s impressive upside Key Day Reversal. This was the 8th Friday out of the past nine, that the S&P has closed lower with the same spiel: Dollar and Bonds up and stocks down. The 10 Year Treasury has now closed higher for 11 straight weeks which is unprecedented with the yield closing over 4% for the first time in over 10 years. Higher yields are killing homebuilder stocks which are now down a massive 36% after falling nearly 6% alone last week. This has to hurt housing and if the Fed are not careful they will cause a serious recession in the next few months. The ongoing political disaster in the U.K. was again the main culprit as PM Liz Truss was forced to fire her Chancellor after just 38 days in the job. This Government has zero confidence by either the population or financial markets and it seems only a matter of time before she will be forced to resign. With 20 Days to the Mid-Term Elections I would certainly not be pressing the downside here despite Friday’s ugly sell-off into the close. Even after Thursday’s upside reversal, the market remains structurally oversold. Share buybacks are coming back in late October which should support any sell-off from here. Initially my S&P plan worked well on Friday as the market traded the whole of my buy range for a 3665 average long position before rallying to my 3680 T/P level. Unfortunately, I bought the S&P again at 3640 before getting stopped at 3619 and I am still flat. Although, the S&P closed at 3583 on Friday, we have rallied overnight, sitting at 3621 as I go to press. I will not chase the S&P, preferring to buy the market on any dip lower to 3570/3590 with a 3549 ‘’Closing Stop’’.
EUR/USD
My Euro plan worked well with the market trading lower to my .0725 buy level before rallying to my .9785 T/P level and I am now flat. Today, I will again be a buyer from .9630/.9700 with a.9575 ‘’Closing Stop’’.
March Dollar Index
No Change. I am still short at 108.90 with a now higher 111.20 exit level. If this level is triggered, I will be back with a new update for my Platinum Members.
Cash DAX
My DAX plan again worked well with the market hitting my 12420 buy level before rallying to my 12500 T/P level and I am still flat. This morning, the DAX is trading at 12450. We have short-term support from 12270/12350 where I will be a small buyer with a tight 11275 ‘’Closing stop’’.
Cash FTSE
After the FTSE hit my initial 6880 buy level, we had a nice rally to my 6930 T/P level and I am now flat. Due to the ongoing political mess, the FTSE is trading lower at 6850 this morning. The FTSE has support from 6740/6810 where I will be an aggressive buyer with a 6685 ‘’Closing Stop’’.
Dow Rolling Contract
I was lucky with my Dow call. After the market hit my 29780 buy level we had a quick rally to my revised 29930 T/P before selling off 300 points into the close. Most of that last hour sell-off has been reversed overnight with the Dow trading higher at 29900 as I go to press. The Dow has support from 29450/29700 where I will again be a buyer with a 29295 tight ‘’Closing Stop’’.
Cash NASDAQ 100
My NDX plan worked well with the market trading lower to my 10950 buy level before rallying to my not aggressive 11040 T/P level. Despite the NDX falling 400 points into the close I stayed flat. The NDX is severely oversold as the market again led Friday’s losses, closing lower by over 3%. We have short-term support from 10550/10700 where I will again be an aggressive buyer with a 10395 wider ‘’Closing Stop’’.
December BUND
The Bund traded the whole of Friday’s buy range for a now 136.60 average long position. I will now lower my T/P level to 137.30 while leaving my 135.65 ‘’Closing Stop’’ unchanged.
Gold Rolling Contract
The buy the dip has worked well in Gold over the past few weeks. On Friday after my 1648 buy-level was triggered, we rallied to my revised 1662 T/P level and I am still flat. Today, I will again be a buyer on any further dip to 1623/1638 with a wider 1609 ‘’Closing Stop’’.
Silver Rolling Contract
Silver got slammed on Friday, falling over 4%. However, given how oversold Silver is trading I will continue to hold my 20.05 long position with the same 20.60 T/P level.
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