U.S. Equity Markets reversed earlier gains to close lower across the board. The Dow led the declines with a loss of 1.81%. Markets rose initially after PPI reading for December showed a further decrease in costs, down 0.5% from the prior month. This marked the steepest decline in prices since April 2020. However, December Retail Sales came in weaker than expected as consumer spending slowed in the traditionally strong holiday season, while Homebuilder Confidence for January increased for the first time since December 2021, with officials at the National Association of Home Builders stating that December was likely the index’s trough. St. Louis Federal Reserve President James Bullard said that the central bank needs to guarantee inflation will remain on a steady path back to its target rate (2%) before it changes monetary policy. The U.S. Dollar hit a seven-month low as Fed rate-hike expectations continue to decline. Microsoft (MSFT) announced layoffs of 10,000 jobs, reducing hiring to only critical areas. Bank of America (BAC) implemented a full hiring freeze excluding “vital positions.” Manufacturing data are signalling a further slowdown in inflation as shown by yesterday’s 6.2% print in PPI. Just last week, we saw household inflation ease when the BLS released its Consumer Price Index (“CPI”) metrics for December. Prices jumped 6.5% year over year compared to the 7.1% surge in November. The reading was the lowest since October 2021, which marked the sixth consecutive month that the CPI remained below the 9.1% peak from June 2022. Inflation indicators we observed from December showed that the costs for companies to produce goods keep falling. And more recent data tell us the trend has continued into January. In other words, yesterday’s numbers are likely to diminish the need for the Fed to keep raising interest rates. That should give both retail and institutional investors the confidence they need to invest more money in risk assets like stocks. Every month, 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 combined the data from the Dallas, Kansas City, New York, and Philadelphia Feds’ surveys. 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 8.1%, Pennsylvania is 3.7%, and Missouri is 1.5%. In other words, they make up over 22% of U.S. GDP. That means trends in these Fed districts have more of an effect on what is taking place nationally. But for this conversation, we want to pay attention to one measure in particular – the Prices Paid Index. It tells us what manufacturers are shelling out for raw materials to produce goods. We can think of it relative to the PPI. That tells us there’s room for PPI to head even lower when January’s numbers are released next month. Money managers investing for eight to 12 months down the road want to see this trend. It speaks volumes to them about the potential for an economic rebound. You see, the central bank’s next monetary policy meeting will start on January 31 and last until February 1. At that time, it will decide how much more it should raise interest rates. Currently, policymakers are guiding for a rate hike of between 25 and 50 basis points, getting the Federal-Funds target rate to a range of either 4.50% to 4.75% or 4.75% to 5%. If inflation growth keeps slowing, it means prices for goods are stabilising. This tells the Fed that its rate hikes are working, which means it can stop raising them. At this rate, we may even see costs start to drop by the middle of 2023. This could give the central bank room to consider cutting rates. If we were to see a continued slowdown in inflation and the Fed potentially pausing – or even cutting – rates, households would feel less pressure to save money in anticipation of future cost increases. Instead, they would feel more confident about spending it again. Institutional investors realise the outsized economic growth experienced during 2021 due to massive amounts of stimulus is unsustainable. They want to see economic activity revert back toward the mean. That way, they can get a better idea of what the true supply and demand picture looks like. Then, as analysts and portfolio managers have a better sense of what companies’ future earnings look like, they can place fair-value multiples on stocks. This will help remove asset managers’ unease toward the market. In turn, we should see money going back to work buying up high-quality assets and rallying the S&P 500. Within the S&P 500 Index, all the 11 sectors finished lower. European Markets closed mixed after a quiet session. European Central Bank Governor François Villeroy de Galhau pushed back against the recent reports that the central bank will slow rates hikes after its next meeting. German Finance Minister Christian Lindner said that he believed the region’s largest economy would avoid a deep recession this year and maintained a positive outlook for 2023. Europe is expanding wind-power initiatives to diversify away from fossil-fuel energy sources. U.K. Chancellor Jeremy Hunt is expected to reject pressure to change tax policy ahead of the nation’s spring budget proposal. In Asia, The Bank of Japan left monetary policy unchanged following its meeting Wednesday. The central bank’s report showed a minor uptick in inflation forecasts. Japanese manufacturer sentiment (Reuters Tankan survey) fell into negative territory for the first time in two years. Taiwan’s fourth-quarter gross domestic product shrank unexpectedly and delivered the worst economic output in 13 years. A slowdown in global demand and exports was the primary driver. Elsewhere, Oil closed 1.37% lower while Gold reversed morning gains, closing lower by 0.21%
To mark my 2700th 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 23 points yesterday and is now ahead by 2618 points for January, after finishing December with a gain of 2054 points. November ended 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 1.56% lower at a price of 3928
The Dow Jones Industrial Average closed 613 points lower for a 1.81% loss at a price of 33,296.
The NASDAQ 100 closed 1.27% lower at a price of 11,410.
The Stoxx Europe 600 Index closed 0.18% higher.
This Morning, the MSCI Asia Pacific fell 0.8%.
This Morning, the Nikkei closed 1.47% lower at a price of 26,396.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% higher.
The Euro closed 0.1% lower at $1.0793.
The British Pound closed 0.4% higher at 1.2343.
The Japanese Yen fell 0.7% closing at $128.79.
Bonds
Germany’s 10-year yield closed 9 basis points lower at 1.97%.
Britain’s 10-year yield closed 5 basis points higher at 3.38%.
U.S.10 Year Treasury closed 15 basis points lower at 3.33%.
Commodities
West Texas Intermediate crude closed 1.37% lower at $79.08 a barrel.
Gold closed 0.21% lower at $1905.10 an ounce.
This morning on the economic front we have Euro-Zone Current Account at 9.00 am followed by the ECB Minutes from last Month’s Meeting at 12.30 pm. In between we have a speech from ECB President Lagarde at 10.30 am. Next, we have U.S. Housing Starts, Building Permits, Philly Fed Manufacturing Index and Weekly Jobless Claims at 1.30 pm. Finally, we have a speech from Fed Member Brainard at 6.15 pm.
Cash S&P 500
Up until Tuesday the S&P saw buyers on every dip while at the same time we are seeing a lot of selling above 4010 which is no surprise as I mentioned yesterday, the Weekly 50 MA is just above here at 4048. The McClellan Oscillator again proves what a valuable indicator it is closing at +163 last night after the S&P dropped nearly 100 Handles from yesterday’s post PPI 4016 high print. With Bond Yields dropping on the weaker than expected PPI print, the NASDAQ is gaining support which again is no surprise given how much tech stocks fell last year. Yesterday’s move lower saw the S&P find support at its 50 Day Moving Average at 3923. The 15 Minute Chart is now oversold. As we have seen since October, the DAX has ignored all recession talk amid awful economic data to rally by nearly 30%. There is no doubt that liquidity and financial conditions are improving much to the aghast of the bears and under invested fund managers. Positing remains low which is supporting the bullish case. With the McClellan Oscillator again closing at an overbought +163 last night I will continue to be a seller above 4000. This will remain the case unless we brake and close over the Weekly 50 MA. I will now lower my sell level to 4015/4032 with a wider 4051 ‘’Closing Stop’’. A late sell-0ff saw the S&P trade the whole of yesterday’s buy range for a now 3942 average long position I will leave my 3927 ‘’Closing Stop’’ unchanged while lowering my T/P level to 3953. The S&P has a target price of 3860 where I will add to my existing position with no stop if triggered. If any of the above levels are hit I will be back with a new update for my Platinum Members.
EUR/USD
The Euro just missed my 1.0730 buy level before rallying 80 points after Bund Yields dropped below 2%. Subsequently, the Euro dipped into the New York close after Equity Markets fell. I will now raise my buy level to 1.0680/1.0750 with the same 1.0615 ‘’Closing Stop’’.
March Dollar Index
The Dollar got hit yesterday, trading the whole of my buy range for a now 102.10 long position. I will now lower my T/P level to 102.55 while leaving my 101.35 ‘’Closing Stop’’ unchanged.
Cash DAX
The DAX just missed my initial 15300 sell level and I am still flat. I am reluctant to chase the DAX lower, leaving my 15300/15380 sell level unchanged with the same 15455 tight ‘’Closing Stop’’.
Cash FTSE
Although, the FTSE again closed over 7850, we saw some selling overnight. This move lower saw my 7765-buy level triggered. As I want to bank some points for yesterday I have now exited this long position here for a small gain at 7788 and I am now flat. The FTSE has support from 7660/7730 where I will again be a buyer with a lower 7595 ‘’Closing Stop’’.
Dow Rolling Contract
I am still flat the Dow as the market never came close to yesterday’s sell range. With the MO closing at +163 last night, I will again lower my Dow sell level to 34150/34400 with a lower 34565 ‘’Closing Stop’’. The Dow is now oversold after falling over 1000 points in the past few days. We have support from 32800/33050 where I will be a buyer with a 32595 ‘’Closing Stop’’.
Cash NASDAQ 100
10 Year Treasury Yields at 3.38% continues to see the NDX outperform the main American Indexes. As long as the NDX holds the key 11200/11350 support level I will continue to be a buyer of dips. If I am taken long in this area I will have a T/P level at 11450 while leaving my ‘’Closing Stop’’ unchanged at 10995.
March BUND
The Bund has now rallied over 300 points this week, trading below 2% at 1.97% There is no doubt that the Bund is now pricing in a lot of positive news. The Bund has resistance from 141.10/141.90 where I will be a small seller with a 142.55 tight ‘’Closing Stop’’.
Gold Rolling Contract
Gold had a brief sell-off to a low at 1896 before rallying after the Dollar weakened on the back of the much weaker PPI print. I will now raise my buy level to 1880/1895 with a higher 1869 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. I am still long at 24.00 with the same 24.60 T/P level. I will continue to add to this trade at 23.30 with the same no stop policy. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
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