U.S. Equity Markets closed lower for the fourth consecutive trading session, led by the 0.88% decline in the Dow. Surprisingly, the VIX also closed lower by 1.30% at a price of 25.87. Markets were lower Wednesday as the August ADP National Employment report showed private payroll increases of 132,000, missing the consensus estimate of 275,000 by a wide margin. A slew of tech and social media companies have reported recent negative business activity, supporting calls for a recession. Camera and social media company Snap announced that it would cut about 20% of its workforce. And HP missed revenue for the quarter and cut future guidance as consumer tech and chipmaking companies struggle with low demand for products and higher inventory. The Euro is headed higher…The European Central Bank (“ECB”) has an inflation problem. As we have seen in recent Consumer Price Index (“CPI”) and Producer Price Index (“PPI”) data from the statistical office of the European Union, cost growth for businesses and households is at the highest level since the inception of the currency union. On Tuesday, Germany, the region’s largest economy at roughly 30% of Euro-area economic output, reported consumer costs jumped 8.8% in August compared with the 8.5% gain in July. That was the largest increase since 1973. Additionally, recent ECB data shows wages are up 3.8% in the region. Simply put, costs are rising more quickly than people can make money. This comparison means inflation is destroying the disposable income of households and businesses. So, until the situation changes, individuals will have to spend more on their needs and less on their wants. That will hurt regional economic output. The dynamic will force the ECB to aggressively raise interest rates to play catch-up with the Federal Reserve. The effect will boost the Euro and weigh on the Dollar, supporting a long-term rally in the S&P 500 Index…A central bank raises interest rates as its primary tool to reduce prices. The idea is that when the underlying currency is falling, it takes more of them tomorrow to buy the same amount of goods as today. Conversely, when the same currency rises, it takes fewer of them tomorrow to buy the same amount of goods as today. With inflation hitting the highest level since the inception of the Euro area, the ECB must take more serious action in tightening monetary policy. In July, the central bank raised interest rates for the first time in 11 years – its benchmark refinancing rate went from -0.5% to 0%. The problem is that the ECB has more or less stood idle while the Fed has been taking quick steps to control inflation. The U.S. central bank began raising rates for the first time since December 2018. In the space of a few short months, the Federal-Funds target spiked from a range of 0% to 0.25% to the current range of 2.25% to 2.50%. But it is not just the Fed’s rate hikes the Fed… Its members have also endorsed raising interest rates even further. They have guided for a target of 3.8% by the end of this year. So, institutional money managers and retail investors have sought the safety of the Dollar for its rising yield. The net effect of this change is that Dollars begin to come out of the financial system. In other words, the greenback becomes scarce, and scarcity drives up its value. Currently, the Dollar sits at around $109 The measure has averaged $101.53 in 2022 compared with $92.49 for all of 2021. That is a 9.8% year-over-year increase. And as rates in the U.S. rise more quickly than the other major global central banks, it’s likely the greenback could rally even further.
That becomes a problem for every other major central bank worldwide. The stronger the Dollar becomes, the worse inflation grows for them… The Dollar basket is made up of the Euro (57.6%), the Japanese Yen (13.6%), the British Pound (11.9%), the Canadian Dollar (9.1%), the Swedish Krona (4.2%), and the Swiss Franc (3.6%). That means the Euro is the currency hurt the most by a stronger Dollar while it benefits the most from a weaker Dollar. In other words, if the ECB wants to increase the value of the Euro to combat inflation, there is one primary course: raise interest rates and increase the yield on the Euro. By doing that, the ECB will make the currency more attractive to investors. It’s understood at this point that the Fed is going to raise interest rates. We have been reminded by policymakers repeatedly. Now, monetary policy is always subject to change, but the Fed appears to have done the bulk of the hikes. Yet, as we said at the start, the ECB has been resistant to rate increases. To this point, its policy intentions have been relatively unknown. But now, its policymakers are calling for President Christine Lagarde to get much more aggressive. Board members like Germany’s Joachim Nagel, Holland’s Klaas Knot, and Finland’s Olli Rehn are saying it must focus on fighting rising costs and not worry about a recession. In fact, Knot said he would support a 0.75% increase at the September meeting. European Markets closed lower. Markets are heavily pricing in bigger rate hikes from the European Central Bank (“ECB”) and the Bank of England at their next policy meetings. Bond markets also encountered a sell-off today as the Euro-Zone’s CPI for August came in at 9.1% – an all-time high. ECB Governing Council Member Joachim Nagel said concerns over an economic contraction in the euro area should not derail hikes to interest rates. In Asia, Concerns surrounding China’s economy continued to weigh on markets as July economic data pointed to further slowdowns. Junko Nakagawa, a board member of the Bank of Japan, acknowledged that recent Consumer Price Index (“CPI”) readings have topped the 2% target, though that would not be enough to satisfy inflation goals. Japan also saw industrial production and retail sales figures unexpectedly rise. South Korea sees a decline in industrial output and consumption in July as chipmaking demand plummets. Elsewhere, Oil fell a further 3.11% while Gold closed 0.83% lower.
To mark my 2600th issue of TraderNoble Daiy 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 626 points yesterday, to close 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 0.78% lower at a price of 3955.
The Dow Jones Industrial Average closed 280 points lower for a 0.88% loss at a price of 31,510.
The NASDAQ 100 closed 0.57% lower at a price of 12,272.
The Stoxx Europe 600 Index closed 0.9% lower.
This morning, the MSCI Asia Pacific Index fell 0.8%.
This morning, the Nikkei closed 1.53% lower at a price of 27,661.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% lower.
The Euro closed 0.2% higher at $1.0041.
The British Pound closed 0.8% lower at 1.1585.
The Japanese Yen fell 0.5% closing at $139.28.
Bonds
Germany’s 10-year yield closed 9 basis points higher at 1.58%.
Britain’s 10-year yield closed 7 basis points higher at 2.80%.
US 10 Year Treasury closed 10 basis points higher at 3.10%.
Commodities
West Texas Intermediate crude closed 3.11% lower at $89.02 a barrel.
Gold closed 0.83% lower at $1711.10 an ounce.
This morning on the Economic Front we already had the release of German Retail Sales which surprisingly rose 1.9% versus 0.00% expected. Next, we have German, U.K. and Euro-Zone Global Manufacturing PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed at 10.00 am by Euro-Zone Unemployment. At 1.30 pm we have U.S. Weekly Jobless Claims and Non-Farm Productivity. Finally, we have Global Manufacturing PMI at 2.45 pm and ISM Manufacturing PMI at 3.00 pm.
Cash S&P 500
The S&P has now fallen over 9% in the past two weeks. This is an enormous move as a brutal chop trading session saw a late flush as the S&P closed on the lows. Although the S&P fell over 80 Handles from its afternoon high, my trading plan worked well as the S&P traded the whole of my buy range for a 3982 average buy level before rallying to my revised 4001 T/P level. Subsequently, I emailed my Platinum Members to buy the S&P again at 3978 before rallying to my 3992 T/P level and I am now flat. With the McClellan Oscillator closing at its lowest reading for 2022 at a -292 print, history tells us that the S&P is ripe for a move higher. My own view is we are in a seasonally strong period until next week before hitting the dodgy September/October bearish time frame. The intra-day $NYMO reading also dumped to its lowest reading of 2022. The S&P has strong support from 3905/3925 where I will be an aggressive buyer with a 3879 wider ‘’Closing Stop’’. If I am taken long I will have a T/P level at 3970.
EUR/USD
I have written at length above why I believe the Euro is on the verge of a major move higher. Yesterday, the Euro traded lower to my .9980 buy level before rallying to my 1.0040 T/P level. This morning the Euro is trading lower at 1.0015. I have bought the market here with no stop. I will add to this position at .9965. I will have a T/P level at 1.0110 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
March Dollar Index
No Change. The Dollar is trading slightly higher at 108.90 this morning on the back of the weaker Pound and Yen with both currencies trading at multi-year lows. My overall view on the Dollar has not changed: The last time the Dollar was this overvalued, at the end of 2016, we quickly saw a 10% decline in the Dollar over the following 12 Months. I am expecting a similar outcome, I just do not know what the catalyst will be. Based on a longer-term outlook, the risk/reward is skewed to the downside. In my view, a key source of prior support has disappeared (strong economic growth) and another is fully discounted and may be on the verge of reversing which of course is a divergence in Central Bank rate hike expectations. I am still short the Dollar at an average rate of 107.50. Given how overbought the Dollar is trading I will have no stop on this position, fully believing that we are close to a reversal in the Greenback. I will continue to leave my T/P level unchanged at 106.80.
Cash DAX
My DAX plan worked well with the market trading lower to my 12870 buy level before rallying to my revised 12930 T/P level and I am now flat. This morning, I will again be a buyer of the DAX on any further move lower to 12570/12650 with a tight 12495 ‘’Closing Stop’’.
Cash FTSE
Wrong!! Overnight, I was stopped out of my 7320 average long FTSE position at a price of 7249 and I am now flat. Given how weak Sterling is trading I have no interest in being short the FTSE Market. We have short-term support from 7130/7190 where I will again be a buyer with a 7075 stop. If I am taken long I will have a T/P level at 7280.
Dow Rolling Contract
The Dow led yesterday’s aggressive sell-off with the market trading lower to my 31690 buy level before thankfully rallying to my revised 31815 T/P level and I am still flat. This morning the Dow is trading much lower at 31400. Both the S&P and Dow are trading below their respective Daily Bollinger Bands which is another buy signal once they re-enter the BB. We have short-term support from 31100/31350 where I will be an aggressive buyer with a 30945 ‘’Closing Stop’’.
Cash NASDAQ 100
My NASDAQ plan worked well as the market traded lower to my 12350-buy level before rallying to my revised 12450 T/P. Subsequently, I emailed my Platinum Members to buy the NDX again at 12300 before we rallied to my 12390 T/P level and I am now flat. This morning, the NDX is trading lower at 12150. We have support from 11920/12100 where I will be an aggressive buyer with a 11795 ‘’Closing Stop’’.
September BUND
The late points made on Gold and the NDX enabled me to exit my 149.80 long Bund position yesterday afternoon at a price of 148.02 as emailed to my Platinum Members and I am now flat. The Bund is getting slammed this morning, trading at 147.30 as I go to press. The Bund has support from 146.50/147.10 where I will be a small buyer with a 145.85 stop. If I am taken long I will have a T/P level at 148.00.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1711 buy level before rallying to my 1722 revised T/P level and I am now flat. Gold has further support from 1685/1700 where I will be a buyer with a wider 1669 stop.
Silver Rolling Contract
No Change. I am still long and wrong for now at 18.80 with the same 19.25 T/P level. Given how oversold Silver is trading I will continue to hold this position with no stop.
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