U.S. Equity Markets finished Wednesday lower, led by the 1.45% fall in the NASDAQ 100. Markets finished lower, as investor focus shifted from the cooler-than-expected inflation print to retail giant Target’s (TGT) earnings miss. The company also forecasts a significant decline in consumer discretionary spending for the holiday season. Housing saw an 11th straight decline in builder sentiment as the sector continues to reel from the Federal Reserve’s aggressive rate hikes. A Dallas Fed report highlighted the potential for home prices to drop as much as 20% next year due to this year’s sky-high mortgage rates. Meanwhile, investors look forward to this afternoon’s manufacturing figures from the Kansas City and Philadelphia Feds for real-time analysis of economic conditions. The breadcrumb trail is leading us straight out of the inflationary woods. On Tuesday, we received two more economic “breadcrumbs” for inflation. They came in the form of monthly data from the U.S. Bureau of Labour Statistics (“BLS”) and the Federal Reserve Bank of New York. The former released its Producer Price Index (“PPI”) figures for October, while the latter delivered its Empire State Manufacturing Survey for November. Both showed that cost growth is easing. The survey’s numbers appear to have peaked this past spring, while the PPI figures look to have done the same in June. And while a couple of those months may have felt inconsequential, the cumulative effect is becoming noticeable. The larger scope of the change is important for the Federal Reserve. It tells the rate-setting Federal Open Market Committee that its policy changes are having the intended effect on economic data. And as the momentum builds, it will give it room to dial back or even pause the pace of rate increases at some point in the near future. The change will support a steady long-term rally in the S&P 500 Index. But don’t take my word for it, look at what the data is saying. The PPI measures the input costs for manufacturers producing finished goods. When demand for those input materials increases and availability becomes scarce, prices go up. In other words, if a company has to pay more to build its products, it will typically pass those costs along to consumers to maintain profit margins. And the opposite is true when demand falls. The headline PPI number rose 8% year over year (“YOY”) compared with the expectation for an 8.3% gain and the prior month’s downwardly revised 8.4% increase. It also marked the fourth consecutive monthly decline, which is the slowest rate of growth since July of last year. It continues a steady trend lower since March’s peak of 11.7% growth. On a month-over-month (“MOM”) basis, the figures expanded 0.2% compared with the expectation for 0.4% growth and the prior month’s 0.2% increase. On a core basis, the numbers were unchanged compared with the expectation for a 0.3% gain and September’s 0.2% expansion. While the recent slide is positive, we still have room to move lower to reach the post-pandemic average of 5.9% growth and the pre-pandemic average of 1.3%. looking at the latest core PPI reading. This number encompasses all items minus the more volatile swings in energy and food prices. The Fed tends to follow this gauge to understand the underlying price trends. This number showed 6.7% growth compared with the expectation for a 7.2% jump and the prior month’s 7.1% increase. Like the headline number, the core reading still has more room to the downside before it hits the post-pandemic average of 5% and the pre-pandemic average of 1.7%. But October’s result is far below March’s 9.7% reading. The Empire State Manufacturing Survey rebounded slightly but continued to remain below trend for the year. Prices paid is important because it tells us what manufacturers are paying to produce goods. We can think of it relative to the BLS’s Producer Price Index. In the November survey, prices paid increased, meaning manufacturing costs rose. The November prices paid index had a reading of 50.5 compared with October’s 48.6 and April’s all-time high of 86.4. While this was the second straight monthly increase, it is worth noting that September experienced the lowest reading since December 2020. The overall trend still remains lower at the moment compared with the 12-month average of 68.3. Prices received is an equally important reading. This measure tells us what companies are collecting for their finished goods- in other words, what it is costing individuals to buy something. The prices received index came in at 27.2 compared with October’s reading of 22.9 and March’s all-time high of 56.1. While at first glance the increase may raise an eyebrow or two, we must remember October’s reading was the lowest level since January 2021. And this month’s number is still well below the 12-month average of 39.9. As I have said, both measures are leading indicators of the direction of inflation. And as we can see, the readings for prices paid and received have a tendency to peak before or right around the same time as the PPI and CPI. So, the rapid decline we are seeing in producer price growth could begin to materialise in a slowdown for consumer price growth as well. U.S. manufacturing costs were at their weakest point in April 2020 when they slid by 1.5%. Since then, as the economy rebounded from COVID-19 shutdowns, prices shot straight up. But now, with inflation driving interest rates higher and slowing demand, cost growth is starting to ease once more. And the YOY PPI comparisons only grow more difficult from here. Fed Chairman Jerome Powell has told us the central bank wants to see a prolonged slide in inflation growth before easing up on interest-rate hikes. In other words, one or two months is not going to do the trick. But these numbers, and the current trend, certainly lean in the direction of a sustainable drop. We have seen a similar story play out in the CPI and want to see it continue when the BLS releases the next round of results in a month. However, before any policy changes happen, policymakers have said they would first like to see interest rates reach the 4.5% to 4.75% level. So, a sustained move lower in inflation growth should reassure the central bank that its rate hikes are working. That should give the Fed room to slow the pace of rate hikes moving forward. Once the central bank does that, it will support a steady, long-term rally in the S&P 500. Within the S&P 500 Index, nine of the 11 sectors finished lower. European Markets closed in the red. Markets ended lower as nations remain on edge after Poland’s missile strike. The geopolitical uncertainty dampened any gains from carryover momentum on the lower U.S. inflation metrics. Also, the U.K.’s inflation data came in much higher than expected, driven by surging energy and food prices. The European Central Bank’s (“ECB”) Financial Stability Review highlighted the deterioration in economic and financial conditions has increased risks to financial stability in the region. And ECB officials continue to moderate hawkish comments, as Robert Holzmann, a well-known advocate of higher rate hikes, said the bank must be mindful of being too aggressive. In Asia, Markets ended a volatile trading session with mixed results across the region amid rising geopolitical tensions from a deadly missile strike in NATO-member Poland yesterday. China’s new home prices fell again in October, which marked the fastest decline in seven years. Following another negative economic release, spokeswoman Meng Wei from the National Development and Reform Commission – China’s top economic planner – told reporters it will prioritize stabilising the economy. And Japanese machinery orders unexpectedly dropped in September, with manufacturing weaknesses driving the fall. Elsewhere, Oil closed 1.90% lower while Gold closed flat.
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For anyone following my Platinum Service it has made 735 points so far this week and is now ahead by 2959 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 0.83% lower at a price of 3958.
The Dow Jones Industrial Average closed 39 points lower for a 0.12% loss at a price of 33,553.
The NASDAQ 100 closed 1.45% lower at a price of 11,699.
The Stoxx Europe 600 Index closed 0.99% lower.
Yesterday, the MSCI Asia Pacific Index rose 0.2%.
Yesterday, the Nikkei closed 0.14% higher at a price of 28.028.
Currencies
The Bloomberg Dollar Spot Index closed 0.5% lower.
The Euro closed 0.4% higher at $1.0395.
The British Pound closed 0.5% higher at 1.1914.
The Japanese Yen rose 0.8% closing at $139.50.
Bonds
Germany’s 10-year yield closed 3 basis points lower at 1.98%.
Britain’s 10-year yield closed 13 basis points lower at 3.15%.
U.S.10 Year Treasury closed 14 basis points lower at 3.70%.
Commodities
West Texas Intermediate crude closed 1.90% lower at $85.10 a barrel.
Gold closed 0.01% higher at $1773.10 an ounce.
This morning on the Economic Front we have Euro-Zone CPI and Construction Output at 10.00 am. This is followed at 1.30 pm by U.S. Weekly Jobless Claims, Philly Fed Manufacturing Survey, Building Permits and Housing Starts. Finally, we have the Kansas Fed Manufacturing Activity Index at 4.00 pm.
Cash S&P 500
So far this week the price action has been a massive chop fest as the pain trade includes both shorts and short positions still short from October or those traders trying to fade rallies like we saw this week with the market having two large sell-offs on both Tuesday and Wednesday. Tuesday’s move higher saw the S&P hit a new recovery high at 4041 before falling 90 Handles on the Russian missile attack in Poland. This moved worked well as the S&P hit my 4035 sell level before selling off to my too tight 4007 T/P level and I am still flat. Positioning is still moderate despite the large up move in the S&P over the past few weeks. The risk for bears is that bulls finally capitulate and are forced to buy the market into the seasonally strong next 8 weeks. If CPI and PPI are weak in December then there will be no stopping bulls ramping the S&P into year-end. This will have nothing to do with fundamentals just positioning. I am still looking to put on a more macro short position from 4070/4150. I know this range is wide but I hope to tighten this sell level over the coming weeks. The break lower in the Dollar and Bond Yields have helped greatly to feed the S&P higher. However, caution is warranted as the Dollar is now severely oversold. The fundamental back drop for 2023 looks awful especially given the number of job losses announced by tech companies over the past two weeks. I still believe that the recent 3492 S&P low will be tested at some stage early next year. The S&P has resistance from 4010/4035 where I will be a small seller with a 4051 ‘’Closing Stop’’. We have short-term support from 3905/3925 where I will be a strong buyer with a 3879 ‘’ Closing Stop’’.
EUR/USD
Selling the rallies in the Euro this week has worked well. After the Euro hit my 1.0400 sell level on Tuesday, the market sold off to my 1.0330 T/P level. Subsequently, I emailed my Platinum Members to sell the Euro again yesterday at 1.0420 before the market again sold off to my 1.0360 T/P level and I am now flat. The Euro has further resistance from 1.0430/1.0500 where I will again be a seller with a 1.0565 ‘’Closing Stop’’.
March Dollar Index
The Dollar has traded in a narrow range this week, although at a lower level from where I marked prices last Friday morning. This move lower saw the whole of my buy range triggered for a now 106.70 average long position. I will leave my 105.75 ‘’Closing Stop’’ unchanged, while lowering my T/P level to 107.20.
Cash DAX
The DAX has been relatively calm since Friday, struggling to break higher which is no surprise with the 14-Day RSI approaching 80. I will now raise my buy level to 13920/14020 with a higher 13835 ‘’Closing Stop’’.
Cash FTSE
Frustratingly, the FTSE just missed my 7450 sell level on two occasions before selling off 150 points and I am still flat. The FTSE has support from 7190/7250. I will be a buyer in this range with a 7135 ‘’Closing Stop’’. I will now lower my sell level to 7395/7475 with a 7535 ‘’Closing Stop’’.
Dow Rolling Contract
The idea of selling rallies in the Dow worked well with the market hitting my 33950 initial sell level before falling 600 points on the Russian missile strike. Other than that the Dow has traded in a narrow range all week as the market waits for more inflation data before taking the Dow to the next level. The Dow has outperformed the rest of the market all-year down 9.9% compared to the 30% fall in technology. I covered my short position at 33810 and I am still flat. The Dow has support from 32900/33150. I will move my buy level to this area with a higher 32695 ‘’Closing Stop’’. I do not want to be short the Dow at this time.
Cash NASDAQ 100
The NDX rallied further on Monday, hitting a high above 12100 before falling 400 points in the last two days. I am still flat and given how far the NDX has fallen this year I have no interest in being short despite the negative price action over the past 48 hours. I will now raise my buy level to 11450/11600 with a tight 11345 ‘’Closing Stop’’.
December BUND
My Bund plan worked well as the idea of buying the dip again paid dividends as it has for most of the past few months. The Bund hit my 138.75 buy level before rallying to my 139.40 T/P level and I am now flat. I had a further buy level at 138.50 but unfortunately the Bund missed this level by 20 points before rallying back above 140. The Bund has support from 139.00/139.80. I will move my buy level to this area with a higher 137.95 ‘’Closing Stop’’.
Gold Rolling Contract
I am still flat. Gold has traded in a narrow range over the past few days. I have no interest in chasing the market higher, leaving 1717/1732 buy level unchanged with the same 1699 wider ‘’Closing Stop’’.
Silver Rolling Contract
My Silver plan worked well as the market traded lower to my 21.30 buy level before rallying to my 21.95 T/P level. Subsequently, I emailed my Platinum Members to buy Silver again at 21.40 yesterday before the market rallied a second time to my 21.95 T/P level and I am now flat. Silver has support from 20.50/21.20 where I will be an aggressive buyer with no stop. If triggered, I will have a T/P level at 21.90.
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