U.S. Equity Markets finished Wednesday lower led by the 0.79% fall in the NASDAQ 100. Despite a volatile session, the VIX got crushed, closing lower by over 6% at a price of 21.14. Markets ended lower after early strength following a hawkish yet unsurprising Federal Reserve narrative that followed its expected 50-basis-point rate increase. This marked the first slowdown in rate hikes, as the previous four were 75-basis-point boosts. Terminal rate target expectations jumped to north of 5% again, following continued commentary that showed commitment to sticking with rate increases for longer. Fed Chair Jerome Powell reiterated that current policy is still shy of being sufficiently restrictive and downplayed the likelihood of any rate cuts next year. Investors will now turn their attention to the Bank of England and European Central Bank this afternoon, with expectations that they will follow in the Fed’s footsteps by raising interest rates by 50 basis points. We are seeing another sign the housing market is returning to pre-pandemic levels of activity. As I have been discussing all year, the Federal Reserve wants to get inflation growth back under control. One of the largest drivers of cost growth has been the explosion in home prices since the start of 2021. After all, owners’ equivalent rent is the single biggest component of the U.S. Bureau of Labour Statistics’ Consumer Price Index (“CPI”). The number is the equivalent of what you would have to pay right now to rent your own home. It has a roughly 25% weighting in the index. In other words, it has an outsized influence on the level of inflation growth. So, Fed Chairman Jerome Powell has told us the Fed wants to kill the housing market to bring cost growth back under control. House prices and interest rates tend to have an inverse relationship. When rates go up, home prices tend to fall, and vice versa. So, the central bank has raised rates at one of the fastest paces on record to ease that cost burden. In the early part of this year, the changes to interest rates appeared to have little impact on the housing market. But now, we are beginning to see signs that things are cooling off. That should mean as home prices drop, inflation will ease and the Fed can slow down or even stop raising rates altogether. The change should support a steady long-term rally in the S&P 500 Index. Equity risk is surging among recent homebuyers. According to Black Knight, recent trends show clear signs that the housing market has left the pandemic-era boom behind. For the fourth consecutive month, home prices pulled back at a national level. Black Knight’s HPI showed that October prices declined 0.43%. While this is the smallest decline since prices peaked in June, home-price annual growth continued to fall. The HPI shows that prices are now up 9.3% year over year – compared with the 12.5% gain in June. But despite the slowdown in price corrections and overall declining mortgage activity, the equity risk among homebuyers this year is already becoming significant. Said another way, prices became so inflated during the pandemic that those who purchased homes at an inflated level are now more likely to owe more on the house than what they paid for it. Of the 450,000 underwater borrowers as of September, about 60% of them originated a loan this calendar year. Even more, 5% of purchase mortgages originated in 2022 are now underwater, with an additional 20% owning an equity position of 10% or less. The instigator has been the Federal Reserve and its pace of rate hikes. Remember, 2021 saw unusually high surges in home prices as demand soared at the height of the pandemic. Fast-forward a few months and inflation started to reflect demand, forcing the Fed to raise rates at one of the fastest paces on record. The good news is that demand has fallen fast and the number of “at-risk” homebuyers is declining daily. But those who purchased homes this year may be forced to stick around for longer than average to see equity gains. This means less inventory available down the road. With the surge of new homes expected to come to market this spring, overall demand should still decline, sending prices lower. As I have said before, shelter accounts for nearly 40% of the CPI. Once the housing market fully corrects itself and expunges all the excess demand of the past two years, inflation should continue to retreat. Slowing inflation in the housing sector would signal to the Fed that overall cost growth is doing the same. This would prompt the central bank to back down on further rate hikes, boosting investor sentiment and the long-term outlook for the S&P 500. Within the S&P 500 Index, 10 of the 11 sectors finished lower. European Markets closed in the ‘’Red’’. Euro-Zone markets ended the day lower, but off session lows. Market sentiment was boosted by Tuesday’s U.S. inflation reading. Investors anticipate that the Fed’s rate policy will pivot toward a slower pace of rate hikes. Ahead of today’s big central bank rate decisions from the ECB and BoE, investors took note of U.K. inflation data which was slightly weaker than expected. Additional positive news came out of Germany as the latest IFO economic institute data showed Germany’s recession may be milder than previously thought – with easing inflation and an improving energy landscape fuelling the improvement in sentiment. In Asia, Asian markets gained Wednesday, as investors were bullish following the softer-than-expected U.S. inflation data. Chinese reopening plans and economic-activity forecasts continue to dominate investors’ speculation in the region. The latest sources say Beijing is still planning on holding its Centra Economic Work Conference today despite a rise in COVID-19 infections. The latest survey results from the Bank of Japan’s Tankan business confidence gauge showed manufacturers were slightly more positive on future conditions than expected. However, overall sentiment remains muted. South Korean Finance Minister Choo Kyung-ho said its economic policy will focus on taming inflation while creating jobs moving forward. Elsewhere, Oil rose 2.68% (up 10% this week) while Gold closed lower by 0.35%.
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 387 points yesterday and is now ahead by 1898 points for December after closing November with a gain of 4789 points, while 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 0.61% lower at a price of 3995
The Dow Jones Industrial Average closed 142 points lower for a 0.42% loss at a price of 33,966.
The NASDAQ 100 closed 0.79% lower at a price of 11,740.
The Stoxx Europe 600 Index closed 0.02% lower.
This morning, the MSCI Asia Pacific Index rose 0.3%.
This morning, the Nikkei closed 0.37% lower at a price of 28,051.
Currencies
The Bloomberg Dollar Spot Index closed 0.5% lower.
The Euro closed 0.4% higher at $1.0681.
The British Pound closed 0.6% higher at 1.2428.
The Japanese Yen rose 0.2% closing at $135.45.
Bonds
Germany’s 10-year yield closed 8 basis points higher at 1.98%.
Britain’s 10-year yield closed 2 basis points higher at 3.31%.
U.S.10 Year Treasury closed 1 basis points lower at 3.49%.
Commodities
West Texas Intermediate crude closed 2.68% higher at $77.17 a barrel.
Gold closed 0.35% lower at $1801.10 an ounce.
This morning on the Economic Front we already had the release of German Wholesale Prices which fell 0.9% versus -0.6% expected. At 12.00 pm we have the Bank of England Rate Decision. Followed by the ECB Rate Decision at 1.15 pm. Next, we have U.S. Weekly Jobless Claims, Retail Sales, New York Empire State Manufacturing Index and the Philly Fed Manufacturing Survey at 1.30 pm. This is followed by the Lagarde Press Conference at 1.45 pm and Industrial Production at 2.15 pm. Finally, at 3.00 pm we have Business Inventories.
Cash S&P 500
The S&P continues to meet strong resistance at its 200 Day Moving Average. This is a worry for the bulls. However, with strong seasonality starting next week it is difficult to be short for any length of time. Every dip is being aggressively bought as we saw yesterday after the S&P hit a low at 3963 before rallying nearly 70 Handles in 30 minutes, before selling off into the close. My S&P plan did work well yesterday but not for me. After the S&P traded the whole of my buy range for a 3978 average long position I had too much exposure as I was limit long both the Dow and NDX at the same time. I exited this long position at my revised 3988 T/P level and I am still flat. Hopefully you were able to gain more points given the ferocity of the rally back to 4030. Despite Powell trying to be aggressive in his press conference I am still convinced that yesterday will be the last rate hike in this cycle. A recession is coming in 2023. The Bond Markets are telling you this and so is the Dollar. The S&P has support from 3950/3965 where I will again be a buyer with a 3937 ‘’Closing Stop’’. The S&P has strong support at my 3850/3870 Target Level where I will be an aggressive buyer with no T/P level or Stop if triggered. I still have no interest in being short the S&P at this time.
EUR/USD
I am still flat. The Euro is severely overbought. The 14-Day RSI closed at 71.35 last night. Unfortunately, the Euro missed my initial 1.0700 sell level by five points before falling to sit at 1.0645 this morning. Ahead of the ECB Meeting I will now raise my sell level to 1.0730/1.0800 with a higher 1.0855 ‘’Closing Stop’’. I am looking for the Euro to test its 200 Day MA (1.0350) before moving higher into January. I will continue to be an aggressive buyer from 1.0370/1.0440 with the same 1.0295 ‘’Closing Stop’’.
March Dollar Index
No Change. I am still long from Tuesday at 103.70 with the same 104.25 T/P level. I will leave my 102.95 ‘’Closing Stop’’ unchanged. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Cash DAX
I am still flat the DAX as the market continues to trade in a narrow range ahead of this afternoon’s next ECB rate hike. I still do not like the price action given that we are still overbought following November’s massive move higher. Ahead of the ECB Meeting, I will now lower my buy level to 14140/14220 with a wider 14035 ‘’Closing Stop’’.
Cash FTSE
No Change. The FTSE missed yesterday’s sell level by 15 points before having another 80-point fall and I am still flat. I will now lower my sell level to 7510/7590 with a lower 7645 ‘’Closing Stop’. The FTSE has support from 7340/7410 where I will continue to be a buyer with the same 7285 ‘’Closing Stop’’.
Dow Rolling Contract
My Dow plan worked well with the market trading the whole of my buy range for a 33810 average buy level. Subsequently the Dow rallied back above 34100 before selling off into the close. This move higher saw my revised 33940 T/P level executed and I am still flat. Ahead of the December Futures and Options expiry tomorrow, I will continue to be a buyer of dips as the December Expiration tends to be the most bullish of the year. The Dow is selling off as I go to press. We have support from 33520/33770 where I will again be a buyer with a 33395 ‘’Closing Stop’’. I still do not want to be short the Dow at this time.
Cash NASDAQ 100
My NDX plan worked well with the market trading the whole of my buy range for a 11695 average long position before rallying to my revised 11780 T/P level and I am now flat. With Bond Yields refusing to rise I am happy to be a buyer of the NDX on dips, especially as the market is still down almost 30% for the year, Today, my buy level will be from 11500/11650 with a lower 11255 ‘’Closing Stop’’.
March BUND
My Bund plan worked well with the market trading lower to my 139.95 buy level before rallying to my revised 140. 37 T/P level and I am now flat. Today, I will again be a buyer from 138.60/139.40 with a lower 137.95 ‘’Closing Stop’’.
Gold Rolling Contract
This morning, Gold hit my initial 1790 buy level. As I am now long Silver, I have exited my Gold position here at 1793 as emailed to my Platinum Members and I am now flat. Gold has further support from 1763/1778 where I will again be a buyer with a lower 1751 ‘’Closing Stop’’.
Silver Rolling Contract
Silver did break the key resistance level at 24.00 following the Fed Rate hike before sellers returned. This move, saw Silver hit my 23.20 buy level this morning. I will add to this position at 22.40 with no stop. I will now lower my T/P level to 23.70 on this position.
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