Equity Markets closed lower on Friday, led by the 2.7% fall in the NASDAQ 100, weighed on by souring risk sentiment through the afternoon despite initial gains on the US jobs report, which failed to decisively guide towards the magnitude of the September FOMC rate cut. On the data, the headline rose 142k, beneath the expected 160k, while the figure was revised down to 89k from 114k. The Unemployment Rate expectedly fell back down to 4.2% from 4.3%, while the annual pace of hourly earnings quickened to 3.8%. Following the data, influential Fed figures Waller and Williams were on the wires, and while there were notable comments from both (more below). The Wall Street Journal’s Timiraos noted that both of them support a 25bps September rate cut. Money markets are currently pricing in a circa 28% chance of a 50bps cut in September but peaked at around 64% on Friday after Waller’s initial remarks whereby he said he will be an advocate for front-loading rate cuts if that is appropriate. Nonetheless, after the jobs data the Dollar, along with other haven currencies, rose as markets pared expectations of an aggressive Fed rate cut in September following the Fed commentary, which sent equities and commodity prices tumbling. As such, the Dollar ended the day with gains with the Japanese Yen outperforming and Antipodeans lagging. Lastly, T-notes bull steepened, with the short end benefitting the most post-NFP, as 2s/10s closed ‘’Un-inverted’’ for the first time since July 2022. For the record, all sectors closed in the red with mega-cap sectors Communication Services, Consumer Discretionary, and Technology the laggards amid notable weakness in tech space, highlighted by Nvidia (NVDA) seeing losses of roughly 3.5%, and the semiconductor ETF SOXX lower by ~4%. Looking ahead, US CPI is the key data release this week, with attention thereafter on the 16th Sept. FOMC meeting, whereby the Fed went into blackout from Friday evening. The US jobs report for August came in at 142k vs the prior revised lower 89k and beneath the expected 160k. Within the report, the unemployment rate ticked back lower to 4.2% from 4.3%, as expected, while the participation rate held at 62.7%. On the wages footing, average earnings rose 0.4% M/M (exp. 0.3%) with July’s figure revised to -0.1% from +0.2%, while the annual rate was 3.8% Y/Y (prev. 3.6%, exp. 3.7%). This job report was of paramount importance to guide markets towards the magnitude of the Federal Reserve rate cut in the September 18th meeting. However, the report has not decisively cleared that, highlighted by WSJ’s Timiraos posting on X: “There was a chance the jobs report would provide an obvious signal on the size of the first cut, and futures-market pricing would move to 90% right away for either 25bps or for 50bps. Instead, this report does not neatly resolve that and the pricing is at 50-50.” The Fed whisperer adds, “The headline figures were not bad enough to make 50 the base case but, in light of the revisions, it was not good enough to convincingly and cleanly douse speculation on a larger cut.” Among analysts there remains a split view, indicated by ING noting “lead indicators suggest further weakness lies ahead, and we believe the Fed will go for a 50bp move, but it is a close call”. On the other hand, Oxford Economics “don’t think the report was weak enough to warrant more than a 25bp rate cut at the Federal Reserve’s meeting later this month.” However, the consultancy adds, cooler labour market conditions have probably increased the odds that the Fed cuts rates more than 50bps this year by adding a rate cut at the November meeting .Fed Member Williams said he is ready to start the process of rate cuts and monetary policy can be moved to a more neutral stance depending on data. Williams noted that risks to the outlook include further weakening in the jobs market, and the unemployment rate still low despite the rise. Looking ahead, the NY Fed President said the US GDP is likely +2-2.5% for this year, and the unemployment rate is likely around 4.25% by year-end. Note, in the Fed’s June SEPs it was 4.0%, but of course, we are due new projections at the September 16th meeting. Williams added that in the longer run expects unemployment to settle around 3.75% (in Fed’s June SEPs it was 4.2%). Furthermore, the NY Fed President expects more inflation cooling, and inflation at 2.25% this year and near 2% next year. When asked about the US labour report on Friday, Williams said he would like to see the data more closely, and jobs data is consistent with a cooling economy and reiterated that the Fed continues to look at the totality of data. On rate cuts, he said the path will be driven by the data, once again highlighting data dependency. The influential Willaims added he is not prepared to say how big the first cut should be, and he does not have a personal view on 25bps or 50bps yet. Following Williams, WSJ’s Timiraos wrote “Williams’s prepared remarks don’t make any effort to lay the groundwork for a 50 basis point cut”, and then after his Q&A added that “Williams seems fine with 25”. The WSJ writer added, when “pressed over why the Fed is not in a bigger hurry to get rates down to neutral, he said that monetary policy is “well positioned” and “on a path” that can prevent undesirable weakness in the labour market.” Meanwhile, Fed Member Waller speaking for the first time in a while, believes maintaining the economy’s forward momentum means the time has come to begin reducing policy rate at the upcoming meeting. On the dovish side, Waller said he will be an advocate for front-loading rate cuts if that is appropriate, but balanced this out by noting data in the past three days indicates the labour market is softening but not deteriorating, and this judgment is important to the upcoming policy decision. Further on data, Waller added if future data shows significant deterioration in the labour market, the Fed can act quickly and forcefully. On the economy, Waller does not believe it is in a recession or necessarily headed for one soon. Waller added that the current batch of data no longer requires patience, it requires action, and that the August jobs report and other recent data reinforce the view that there has been continued moderation in the labour market. Following the Governor’s remarks, WSJ’s Timiraos was back on the wires noting Waller’s speech does not explicitly say “25” or “50” but it leans into endorsing a 25 bps cut to start, explicitly reserving the option to go faster “as appropriate” if “new data” show more deterioration. In the Q&A section, Waller said forecasts could be wrong, and must be nimble on policy as data comes in. Last Wednesday the Bank of Canada cut rates as expected to 4.25%, marking its third consecutive 25bp rate cut. The BoC noted the cut was due to continued easing in broad inflationary pressures, repeating that excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up. Looking ahead, it maintained guidance that “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.”, noting it is carefully assessing the opposing forces of inflation. The rate cut and statement was largely as expected and providing inflation continues to ease, and the price increases in shelter and some other services do not see inflation reverse higher, the BoC look set to continue on their easing path. The market currently fully prices in 50bps of easing through year-end, implying two 25bp rate cuts in October and December. BoC Governor Macklem, in the opening remarks, warned that inflation may bump up later in the year as base effects unwind, and that there is a risk that the upward forces on inflation could be stronger than expected. In the Q&A however he did note this was not their base case. Macklem also repeated that if inflation continues to ease broadly in line with their July forecast, it is reasonable to expect further cuts in their policy rate. The Governor also acknowledged that as inflation gets closer to target, they want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2% target. He also noted that the BoC cares as much about CPI below 2%, as they do above, a nod to the fact that they will aim to not let inflation sink too far beneath 2%. Macklem acknowledged that in the meeting, there was a strong consensus for a 25bps move, but alternative scenarios were discussed, including slowing the pace of cuts and also a 50bps move. He stated that if the economy were to be weaker than expected, a cut larger than 25bps would be appropriate. Elsewhere, Oil is trading 9% lower from where I marked prices last week while Gold has traded in a narrow range, closing 0.6% lower in the same timeframe.
To mark my 3075th issue of TraderNoble Daily Commentary I am offering a special 2-Year rate of Euro 2750 for my Platinum Service which includes 1 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 1017 points last week and is now ahead by 1017 points for September having ended August with a loss of 301 points after closing July with a gain of 1918 points while June closed with a gain of 2074 points, having made 1843 points in May. The Platinum Service made 4010 points in April after ending March with a gain of 2113 points. February closed with a gain of 1606 points, after closing January with a gain of 3675 points. December saw a gain of 1890 points after finishing November with a gain of 1734 points. October ended with a gain of 3184 after closing September with a small gain of 228 points, after finishing August with a gain of 1485 points, following a small gain of 285 points gain in July, after closing June with a gain of 2683 points. May closed with a gain of 3205 points. April saw a gain of 3354 points while March closed with a gain of 6168 points. The Platinum Service made a record 9619 points last October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1900 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 1.73% lower at a price of 5409.
The Dow Jones Industrial Average closed 410 points lower for a 1.01% loss at a price of 40,345.
The NASDAQ 100 closed 2.69% lower at a price of 18,421.
The Stoxx Europe 600 Index closed 1.15% lower.
This morning, the MSCI Asia Pacific closed 0.3% lower.
This morning, the Nikkei closed 0.48% lower at a price of 36,2156.
Currencies
The Bloomberg Dollar Spot Index closed 0.08% higher.
The Euro closed 0.3% lower at $1.1076.
The British Pound closed 0.4% lower at 1.3132.
The Japanese Yen rose 1.2% closing at $142.09.
Bonds
Germany’s 10-year yield closed 9 basis points lower 2.17%.
Britain’s 10-year yield closed 8 basis points lower at 3.89%.
U.S.10 Year Treasury closed 14 basis points lower at 3.68%.
Commodities
West Texas Intermediate crude closed 9% lower at $67.67 a barrel.
Gold closed 0.6% lower at $2497 an ounce.
This morning on the Economic Front we have Euro-Zone Sentix Investor Confidence at 9.30 am. This is followed by U.S. Wholesale Inventories at 3.00 pm. Finally, at 8.00 pm we have Consumer Credit Change.
Cash S&P 500
September has gotten off to a wild start with plenty of two-way volatility before the market sold off aggressively on both Thursday and Friday. Three tags of the 5660 and now major resistance level was enough to drive the S&P lower by over 250 Handles last week. However, despite this aggressive sell-off on negative divergence the S&P is far from oversold as many of the technical charts that I follow are fried to the upside. The second half of September promises to be an ugly one as buybacks start coming out from the end of next week while as we know seasonality is horrid during those two weeks. Valuations are still off the charts in a slowing economy. I have talked a lot about 200% Market Cap to GDP which was reached again at the end of August. U.S. GDP is now at $28.65 trillion while Market Cap is $55.14 trillion. Markets have gained over $29 trillion in Market Cap in the four years since the COVID lows of March 2020 when Market Cap hit $29.5 trillion. This is insane and there will be payback for this at some point. It is almost as if stocks simply have nothing to do with the economy anymore. There is no doubt that companies have greatly benefited from the post COVID excess and the resulting inflation. $12 trillion in added debt in four years does wonders after all. Just before the COVID crash market valuations were at $33 trillion, now they are at $55 trillion which is a $22 trillion increase of which $16 trillion went straight to the top 1% of the population. The big question now is what happens to earnings when unemployment rises? They start coming down. This market is as expensive as hell and is fiddling with the devil in my opinion in light of the yield curve ‘’Un-inverting’’ and the unemployment rising. I am not saying we are going to crash but I am saying that markets are on an extended runway that could make them vulnerable to a major reset. This is why I said a couple of weeks ago for Members in their 60s who are over leveraged in stocks to substantially reduce their exposure. Over $100 billion in debt was again added in just the last week. $2 trillion deficit this year and a further $2 trillion forecast next year. What would GDP be like without it? LOWER. This is not sustainable. However, despite all my concerns it is extremely difficult to be short the S&P as intervention is always around the corner. Since my last Daily Commentary I have done five trades, four of which were emailed to my Platinum Members. The latest one occurred on Friday where I am now long at an average price of 5438. I will now look to exit this position on any further move higher to 5445 as we have had an excellent start to September which I want to protect. I will add to this trade on any further move lower to 5400. The S&P has strong resistance from 5505/5525 where both the 50-Day and 20 Day Moving Averages are situated. I will be a small seller on any rally to this range with a tight 5541 ‘’Closing Stop’’. If triggered, I will have a T/P level at 5487.
EUR/USD
My Euro plan worked well as the market traded lower to my 1.1040 buy level before rallying to my revised 1.1085 T/P level and I am now flat. The Euro has strong support from 1.0950/1.1020 where I will again be a buyer with the same 1.0895 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 1.1070. I no longer want to be short the Euro at this time.
Dollar Index
The Dollar has traded in a narrow range since I last marked prices and I am still flat. Today, I will continue to be a buyer on any further dip lower to 99.90/100.60 with the same 99.25 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 101.20.
Cash DAX
My fears that the DAX would fall finally happened last week with the DAX trading 600 points lower from where I last marked prices. Bund Yields are telling you that Germany is probably already in recession meaning that the DAX has a lot further to fall. However, it is extremely difficult to be short this market as any sell-off is met by aggressive buying. I am going to stay flat the DAX for now as I am afraid to be short and certainly have no interest in buying this expensive market at this time. If this view changes, I will be back with a new update for my Platinum Members.
Cash FTSE
Unfortunately, the FTSE just missed my initial 8430 sell level by a few points before selling off to trade the whole of my buy range for a 8250 average long position. I do not like the price action of the UK Equity market, and I emailed my Platinum Members to exit any long position at my revised 8277 T/P level and I am now flat. This morning, the FTSE is trading lower at a price of 8230. The FTSE has strong support from 8010/8070 where I will again be a buyer with a lower 7945 wider ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 8130.
Dow Rolling Contract
The Dow bottomed at its 200 Day Moving Average on Friday (40200) and this level will attract further buying on any future tag. The Dow has lagged the other major Indexes in the decline so far as investors gravitate to big cap blue-chips as a perceived safe haven. The 2s/10s U.S. Treasury Yield Curve officially ‘’Un-inverted’’ on Friday which is a worry for the Dow as this move has presaged every recession over the past 50 years. There is no set time span between un-inversion and the start of the recession but the economy follows the stock market and the stock market has now turned down. The Dow has short-term resistance at the 40700 area which is the 20 Day Moving Average. I will be a small seller on any further rally to 40800/41050 with a tight 41205 ‘’Closing Stop’’. If I am taken short, I will have a T/P level at 40620.
Cash NASDAQ 100
The NDX ended last week with a loss of 5% on a week that saw plenty of two-way price action. All eyes will be on Apple’s iPhone 16 launch at 6.00 pm this evening. Having exited my 19310 average long position shortly after I posted on August 29, I am now long the NDX at an average price of 18515 following Friday’s aggressive sell-off. I will now lower my T/P level on this position to 18580 as I want to try and be flat ahead of Apple. I will have a ‘’Closing Stop’’ at 18295 on this trade and if any of the above levels are hit, I will be back with a new update for my Platinum Members.
December BUND
Bund Yields are trading 10 basis points lower from where I last marked prices. My September buy level never got tested and I am still flat as I move into the December Contract which is trading at 135.10 this morning. The December Contract has support from 132.80/133.50 where I will be a small buyer with a 132.15 tight ‘’Closing Stop’’. Even though the yield on the Bund is too low in my opinion I still do not want to be short the Bund ahead of the FOMC Meeting next week. If this view changes I will be back with a new update for my Platinum Members. If I am taken long, I will have a T/P level at 134.05.
Gold Rolling Contract
Gold has traded in a narrow range over the past 10 days, and I am still flat. As we are now in the seasonally weak September timeframe, I have no interest in chasing the price of Gold higher. Therefore, I will now lower my Gold buy level to 2437/2452 with a lower 2423 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 2466.
Silver Rolling Contract
My Silver plan worked well as the market traded the whole of my buy range for a 28.35 average long position before rallying to my revised 29.05 T/P level and I am now flat. This morning, Silver is trading lower at 28.00. Silver has support from 26.50/27.30 where I will be a strong buyer with a 25.35 wider ‘’Closing Stop’’. I am not sure if Silver will trade to my buy range but given the weak seasonality, I will not chase the price of Silver higher from here. If this view changes, I will be back with a new update for my Platinum Members. If I am taken long, I will have a T/P level at 28.40.
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