U.S Equity Markets were only open for a half-day on Friday. Markets closed mixed as the Dow made a new recovery high, closing with a gain of 0.45% while the NASDAQ 100 finished the session with a loss of 0.70%. Volume as you would expect was non-existent. European Markets closed with small gains. Europe is destined for little economic growth in 2023. The issue at hand is inflation growth. Due to a weakening Euro and gas prices exploding higher, the European Statistical Office’s Consumer Price Index (“CPI”) hit its highest level in October since the inception of the Euro. That presents a problem for the European Central Bank (“ECB”). Unless it gets inflation growth under control, households will continue to see their disposable income disappear. As that happens, the ability of individuals to buy discretionary goods will evaporate. In other words, their needs will outweigh their wants. So, the ECB has little choice but to raise interest rates. It needs the Euro to rise in value for buying power to increase – so households can stretch their budgets once more. As the Euro’s value rises, it will weigh on the U.S. Dollar. After all, the Euro makes up around 55% of the Intercontinental Exchange’s U.S. Dollar basket. So, when it goes up, the Dollar falls. A declining Dollar makes it easier for U.S. companies to sell their goods abroad. That, in turn, will support a long-term rally in the S&P 500 Index. The Organization for Economic Cooperation and Development (“OECD”) painted a bleak picture of the global economic outlook in its report released last week. The OECD projects a 2.2% rise in global economic output in 2023, compared with this year’s estimate of 3.1%. And that is a sizable slowdown from the 2021 figure north of 6.0%. But the OECD expects the hardest-hit region to be the Euro-Zone. The OECD’s outlook for the 19 countries’ comprising the currency union’s economy shows 2023 economic output expanding at a meagre 0.5%. A forecasted Euro-Zone slowdown is especially magnified when we see the data broken down by country. For instance, the region’s largest economy, Germany, is predicted to see a 0.3% contraction in 2023. High inflation has hurt the Euro-Zone since the start of the year. It started with Russia’s invasion of Ukraine – energy prices soared as uncertainty surrounding the global supply of oil and other commodities skyrocketed, creating a greater drag on economic output. While signs are emerging that indicate inflation could be close to peaking, the OECD said it’s unlikely to fall back toward the 2% level targeted by global central banks anytime soon. In the report, the OECD’s Chief Economist Álvaro Santos Pereira said the global economy was “reeling from the largest energy crisis since the 1970s”. Even more, the OECD forecasts inflation to remain stubbornly high in Europe. The research group projects the Euro-Zone’s inflation rate to average 6.8% in 2023, an increase from its September average of 6.2%. At the same time, it expects U.S. inflation to average 3.5% in 2023, nearly half of Europe’s forecast. This is largely due to the Federal Reserve’s rapid pace of rate hikes this year compared with the ECB’s pace. The OECD warned that the ECB must continue to raise rates at a quick pace and bridge the large rate gap between that of its U.S. counterpart. While continued rate increases in the face of slowing economic growth may seem counterintuitive, we must consider the inflation outcome. Bringing inflation growth back down to a target provides price stability. As that happens, households can better budget their income and spending patterns. That allows disposable income to recover and the purchase of goods to increase. Put simply, the sooner the ECB gets interest rates to a level where it weighs on inflation, the quicker its economy can recover. The Fed appears to be close to opting for a slowdown in rate hikes. Wednesday’s Meeting Minutes showed the majority of policymakers anticipate this outcome soon. Meanwhile, a continuation of hawkish ECB policy (one inclined to raise rates) would further extend the Euro’s recovery against the Dollar – and prevent further price increases on imported goods and services in Europe, lowering inflation. The bottom line is that the ECB needs to play catch-up to the Fed. Otherwise, the region could be vaulted into a generationally bad era of stagflation – an economic cycle characterised by high inflation and low economic growth. Until we see a Fed pivot and continuation of aggressive ECB rate policy, any outright optimism for a European recovery and rally in the S&P 500 is just speculation. Nevertheless, investors will be ready to invest in a higher return potential as soon as the Fed and ECB policy paths reverse. This outcome will provide a boost to the Euro and S&P 500. Elsewhere, Oil closed 0.3% higher while Gold closed flat.
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 75 points on Friday and is now ahead by 4038 points for November, after 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 0.03% lower at a price of 4026.
The Dow Jones Industrial Average closed 152 points higher for a 0.45% gain at a price of 34,347.
The NASDAQ 100 closed 0.70% lower at a price of 11,756.
The Stoxx Europe 600 Index closed 0.025% lower.
Last Friday, the MSCI Asia Pacific Index fell 0.4%.
Last Friday, the Nikkei closed 0.35% lower at a price of 28,283.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% higher.
The Euro closed 0.1% lower at $1.0390.
The British Pound closed 0.2% lower at 120.89.
The Japanese Yen fell 0.4% closing at $139.14.
Bonds
Germany’s 10-year yield closed 13 basis points higher at 1.97%.
Britain’s 10-year yield closed 8 basis points higher at 3.11%.
U.S.10 Year Treasury closed 1 basis points lower at 3.68%.
Commodities
West Texas Intermediate crude closed 0.3% higher at $78.02 a barrel.
Gold closed 0.01% lower at $1754.10 an ounce.
This morning on the Economic Front we have Euro-Zone Money Supply at 9.00 am. The only other item of note is the Dallas Fed Manufacturing Business Index at 3.30 pm and a speech from Fed Member Williams at 5.00 pm.
Cash S&P 500
The S&P traded in a narrow range on Friday, closing unchanged, despite the new recovery high for the Dow. The S&P did close higher for the week but rallies from here may prove more difficult given the back drop to Technology Stocks and a 14-Day RSI for the Dow at 71. The 200 Day Moving Average for the S&P (4059) still looms higher. There is every chance that this level gets tested before we see a more meaningful pull back. Today, I will continue to be a seller from 4048/4065 with the same 4081 ”Closing Stop”. I will now raise my buy level to 3967/3987 with a higher 3949 ‘’Closing Stop’’.
EUR/USD
Thankfully the Euro sold off to my 1.0355 T/P level on my 1.0400 average short position and I am now flat. The Euro had a small rally into the close but is selling off as I go to post trading at 1.0365 as I go to post. The Euro has resistance from 1.0420/1.0490 where I will again be a seller with a 1.0555 tight ‘’Closing Stop’’.
March Dollar Index
The sell-off in the Euro saw the Dollar hit my tight 106.30 T/P level on Thursday’s 106.00 average long position and I am now flat. The Dollar is severely oversold, having fallen over 800 points in the last few weeks. The Dollar has support from 104.80/105.50 where I will be a strong buyer with a 104.25 ”Closing Stop”.
Cash DAX
The DAX continues to meander near recent highs and I am still flat. Given how overbought the DAX is currently, I will continue to be a seller from 14630/14730 with the same 14805 ‘’Closing Stop’’. My only interest in buying the DAX is still on a dip lower to 13970/14070 with a higher 13895 ‘’Closing Stop’’.
Cash FTSE
The boring action in the FTSE continues. The FTSE again missed my 7510 sell level before trading lower into the London close. Today, I will still be a seller from 7530/7600 with a 7655 tight ‘’Closing Stop’’. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
No Change. I am still flat the Dow. The Dow had a strong close in Friday’s abbreviated session. We have resistance from 34480/34730 where I will be a seller with a 34855 higher ‘’Closing Stop’’. With the 14 Day RSI at 71, I do not want to be long the Dow at this time.
Cash NASDAQ 100
In contrast the Dow on Friday, the NDX was heavy, selling off to my 11750 initial buy level just before the close. I am still long. I will add to this position at 11600 while leaving my 11495 ‘’Closing Stop’’ unchanged. I will now lower my T/P level to 11820 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
December BUND
The Bund reversed some of Thursday’s large gains, hitting my 140.70 buy level. I will add to this position at 139.80 while leaving my 138.95 ‘’Closing Stop’’ unchanged. I will now lower my T/P level to 141.20
Gold Rolling Contract
I am still flat. I do not like the price action. As a result, I will not chase the market higher, leaving my 1710/1722 buy level unchanged with the same 1699 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. I will continue to be a buyer of dips with no stop. My buy level will remain at 20.20/20.90. If triggered, I will have a T/P level at 21.50.
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