U.S. equity markets finished Wednesday higher led by the 4.58% rally in the NASDAQ 100. This across the board rally saw the VIX fall 6%. Markets finished much higher Wednesday, with much of the momentum from Federal Reserve Chairman Jerome Powell’s comments at the Brookings Institution last evening. He reiterated that inflation is too high and noted higher interest rates are in the current playbook. Powell, however, did give his blessing on slowing the pace of rate hikes starting with a 50-basis-point increase in December – a decline from the four consecutive preceding 75-basis-point rate hikes. Payroll-processing firm ADP’s private payroll data for November showed wage growth easing. Meanwhile, the October Job Openings and Labour Turnover Survey showed the number of job openings ticked down, which suggests that the labour market is still holding on despite the Fed’s efforts. Manufacturing costs are rapidly dropping. This should filter through to the prices charged for goods, helping ease domestic inflation growth. Since the first interest-rate hike in March, the Federal Reserve has had a singular and stated objective – to kill economic output and bring balance back into the supply and demand picture. COVID-19-related government stimulus threw the entire equation out of whack. Folks had newfound money burning a hole in their pockets. They may not have been able to travel or dine out, but they spent that money on other things, like patio furniture, iPhones, and even home renovations. While at first that was a tailwind for economic activity, it soon became a problem. Inventories were not ready for overwhelming demand. As soon as the supply of items like raw materials began to dwindle, prices shot up. Suddenly, inflation was everywhere. The Fed saw one way to fix the problem, by raising interest rates. As Chairman Jerome Powell has said, the central bank cannot decide on fiscal policy, but it can take steps to offset it. In April 2020, the domestic savings rate as a percentage of disposable income jumped to 33.8% – the highest level on record going back to 1959. Today, that number is down to 3.1%, below the pre-pandemic level of around 9%. However, the central bank has seen few signs of those rate hikes materialising – until recently. Manufacturing data is finally telling us that economic activity is slowing. This should help cool inflation, giving the Fed room to ease up on its rate-hike path. I have discussed this subject plenty in recent months, but I cannot stress it enough. The slight drop in inflation growth that began earlier this year is becoming much more pronounced. But don’t take my word for it – look at what the data is showing us. Every month, the regional Federal Reserve banks gauge business activity within their districts. Their research teams send surveys to manufacturing executives in their areas, asking them about current business and what the state of activity might be six months down the road. I have focused on four key surveys. I combined the data from the Dallas, Kansas City, New York, and Philadelphia Feds’ surveys. All of their numbers go back to at least June of 2004. These figures are important when we consider the scope of each of those regions as it relates to the national economy. According to the U.S. Bureau of Economic Analysis, Texas accounts for 9.4% of domestic economic output, New York makes up 7.7%, Pennsylvania is 3.7%, and Missouri is 1.5%. In other words, they make up over 22% of U.S. gross domestic product. That means trends in those Fed districts have more of an effect on what is taking place nationally. The surveys tell us that economic activity in general is contracting. But we want to watch the overall direction of prices as it relates to cost growth for producers and consumers of goods. After all, the path of cost growth shows us the potential for outsized Fed rate hikes of 0.75% or a more gradual 0.25%. And those trends point to slowing inflation. Prices paid is important because it tells us what manufacturers are paying to produce their goods. So, we can compare it with the U.S. Bureau of Labour Statistics’ Producer Price Index (“PPI”). Prices received is equally important. This measure tells us what companies are collecting for their finished goods – or basically, what it’s costing individuals to buy something. We can compare it with the U.S. Bureau of Labour Statistics’ Consumer Price Index (“CPI”). The November reading points toward further weakness in the CPI. The readings for prices paid and received tend to peak before or right around the same time as the PPI and CPI, respectively. Like the national savings average, they are returning back toward pre-pandemic levels. As I said at the start, the Fed wants to kill economic demand to try and bring cost growth back under control. Ultimately, the central bank wants to get inflation back below its 2% target on a sustainable basis. And until now, that has proven to be an elusive task. But like the economic output data seen in these surveys, signs are starting to materialise that the Fed’s plans are working. When the central bank has achieved its objectives, it can pause this rate-hike cycle and watch for signs of stabilisation. Once that has happened, policymakers can lower interest rates once more. The survey results support the Fed moving forward with a 0.50% interest rate hike when it makes its next policy announcement in December. And the steady shift in these numbers gives the central bank a reason to think harder about the direction of monetary policy going forward. The sooner Money Managers get a sense that we are at peak interest rates, the quicker they will become more optimistic about risk assets like stocks. Within the S&P 500 Index, all the 11 sectors finished higher. European Markets closed higher. Markets ended firmer as Euro-Zone inflation eased to 10.0% in November, marking the first decline in 17 months. A sizable decline in energy prices was the biggest factor in cooling inflation. However, core inflation remained steady at 5.0%, solidifying analysts’ consensus that the European Central Bank will continue its expected rate hike path with a 50-basis-point increase at its next meeting. On a positive note, the Financial Times reported that Europe’s business leaders have become more optimistic about the economic outlook, seeing the potential for a milder recession. Meanwhile, the latest Lloyds Bank Business Barometer report painted a very pessimistic picture for the U.K. economy, with economic confidence at its lowest level since February 2021. In Asia, Equities ended largely mixed – despite a surge from Hong Kong markets – on weak economic data and dovish central-bank policy remarks. China’s factory activity reading contracted in November at its fastest pace since April. Japan and South Korea’s industrial production data also came in weaker than expected, as global growth deceleration continues to have an outsized effect on the regional markets. Additionally, New Zealand business confidence deteriorated further, while Taiwan saw its exports orders sink. Elsewhere, Oil rose 2.89% while Gold closed higher by 1.08%
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 83 points yesterday, closing November with a gain of 4789 points, 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 2.87% higher at a price of 4071
The Dow Jones Industrial Average closed 737 points higher for a 2.18% gain at a price of 34,589.
The NASDAQ 100 closed 4.58% lower at a price of 12,030.
The Stoxx Europe 600 Index closed 0.78% lower.
Yesterday, the MSCI Asia Pacific Index rose 0.5%.
Yesterday, the Nikkei closed 0.21% lower at a price of 27,968.
Currencies
The Bloomberg Dollar Spot Index closed 0.5% lower.
The Euro closed 0.6% higher at $1.0405.
The British Pound closed 0.8% higher at 120.48.
The Japanese Yen rose 0.5% closing at $138.08.
Bonds
Germany’s 10-year yield closed 3 basis points lower at 1.89%.
Britain’s 10-year yield closed 4 basis points higher at 3.13%.
U.S.10 Year Treasury closed 12 basis points lower at 3.62%.
Commodities
West Texas Intermediate crude closed 2.89% higher at $80.30 a barrel.
Gold closed 1.08% higher at $1768.10 an ounce.
This morning on the Economic Front we have German, Euro-Zone and U.K Global Manufacturing PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed by Euro-Zone Unemployment at 10.00 am and U.S. Weekly Jobless Claims and Personal Income/Spending at 1.30 pm. At 2.45 pm we have Global Manufacturing PMI. Finally, at 3.00 pm we have ISM Manufacturing and Construction Spending.
Cash S&P 500
Yet another Bear Massacre as the S&P briefly touched Tuesday’s lows before surging 140 Handles on Fed Chair Powell signalling the slowing of rate hikes. The Bears were creamed as the S&P managed to close over its 200 Day Moving Average (4050) thus joining the Dow in closing above this key resistance point. However, signal charts are screaming overbought again leaving the potential for some weakness into mid-December before the Santa rally takes hold into January. The signal charts art looking very like August ahead of the September aggressive sell-off. We have PCE data at 1.30 pm ahead of Non-Farm Payrolls tomorrow – so plenty of volatility ahead. Thankfully, we had no sell level in the S&P and are still flat as frustratingly my 3928 buy level was 10 Handles too low. The S&P has resistance from 4099/4118 where I will be a small seller with a 4132 ‘’Closing Stop’’. I will now raise my buy level to 4035/4052 where I will be a small buyer with a tight 4019 fixed stop.
EUR/USD
Late in yesterday’s session the Euro rallied to my 1.0425 sell level. As I had enough risk on board I covered this position at 1.0406 and I am still flat. With the Euro overbought I am happy to sell rallies especially as I am expecting a more meaningful pull back in equity markets. The Euro has resistance from 1.0470/1.0530 where I will be a seller with a 1.0595 ‘’Closing Stop’’.
March Dollar Index
The Dollar traded lower to my 105.70 buy level. I am still long with a now lower 106.20 T/P level. I will add to this position at 105.00 with the same 104.45 ‘’Closing Stop’’.
Cash DAX
Just before the New York close, the DAX hit my sell level at 14540. As I wanted to be flat overnight I covered this position at 14561 for a small loss as emailed to my Platinum Members. Today, I will be a small seller on any further rally to 14670/14770 with a wider 14905 ‘’Closing Stop’’.
Cash FTSE
The FTSE again traded in a narrow range. Late in the session the FTSE rallied to my second sell level at 7600 for a now 7565 average short position. I will leave my 7655 ‘’Closing Stop’’ unchanged while raising my T/P level to 7540.
Dow Rolling Contract
The Dow rallied over 1000 points off its afternoon low. This move higher saw the whole of yesterday’s sell range triggered for a now 34310 average short position. I will leave my 34595 ‘’Closing Stop’’ unchanged while raising my T/P level to 34240. With the 14-Day RSI closing at 69, we may be a couple of days early from getting a more sustainable short position on board.
Cash NASDAQ 100
The NDX closed nearly 5% higher yesterday. In hindsight I should have let this long position run instead of exiting too early at 11760 and I am now flat. As I go to press the NDX is trading higher at 12050. I will now look to buy the NDX again from 11750/11900 with a 11595 ‘’Closing Stop’’. I still do not want to be short the NDX at this time.
December BUND
The Bund continued Tuesday’s rally and I am still flat. I will now raise my buy level to 139.60/140.30 with a higher 138.95 ‘’Closing Stop’’.
Gold Rolling Contract
Although Gold is trading higher at 1768 I still do not like the price action. I am still flat. I will only raise my buy level to 1733/1747 with a higher 1719 ‘’Closing Stop’’.
Silver Rolling Contract
Silver rallied hard yesterday, and I am still flat. We have short-term support from 20.90/21.70 where I will be an aggressive buyer with no stop. If triggered, I will have a T/P level at 22.30.
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