U.S Equity Markets closed mixed following yesterday’s trading session that witnessed plenty of two-way price action. Although the Dow closed lower by 0.68% better earnings from Google and Microsoft saw the NASDAQ 100 end Wednesday with a gain of 0.64%. The Conference Board’s Index fell in April to its lowest level since last July as views about the outlook on the economy continue to deteriorate. Consumers reported that current conditions remain ‘okay’ but with the caveat that they expect the broader economy to weaken, especially in the labour market. Over the past several weeks, I discussed the turmoil engulfing the U.S. banking sector. Depositors have fled, and rising interest rates have pushed investment portfolios into the red. Without a doubt, this has wounded the banking sector. And the severity of that wound has only become clearer this week, as more banks report earnings. On Monday, First Republic Bank reported that deposits fell $72 billion in the first quarter. But the final blow could still be lurking out there. The sector is becoming increasingly worried about falling commercial-property valuations. The combination of rising interest rates and the growing post-pandemic cultural shift away from in-office work has left banks’ commercial real estate (“CRE”) portfolios vulnerable. You might be wondering why this is important: Well, that is because banks hold a staggering amount of CRE loans. For the most part, banks have been the majority owner of CRE loans since 1980. And about 80% of the bank-owned share is held by regional banks. CRE loans account for about 40% of smaller banks’ total lending. That is three times more exposure than the biggest lenders which have an exposure of roughly 13%. Just last week, State Street’s (STT) Chief Executive Officer Ron O’Hanley said that its CRE portfolio – office properties, in particular – was its top concern. This past week, Wells Fargo (WFC) reported that among its nonperforming loans (or bad debt), CRE loans had jumped more than 50% from the prior quarter, to nearly $1.5 billion. Earlier this month, Morgan Stanley (MS) analysts even went as far as to say that CRE prices could see a decline rivalling that of the 2008 financial crisis. Even if price declines don’t quite reach that magnitude, any significant drop could pose a real threat to banks over the near term. According to Morgan Stanley, about 33% of the $4.5 trillion debt in CRE loans comes due before the end of 2025. Plummeting valuations – and few expectations that demand for commercial properties, especially offices, will rise anytime soon – increases the chance of foreclosures. When debt matures at a loss (due to falling property values and depleted liquidity in the market), lenders have little to no incentive to continue investing. Ultimately, they will just cut their losses. Look, we likely won’t see a repeat of 2008 levels of banking volatility. But the sector still has a rocky road ahead of it -. especially since it is looking more likely that the economy is headed for a lengthy slowdown. The takeaway here is that the pandemic fundamentally changed certain markets. And we are still trying to flush the consequences out of the system, or in this case, adjusting to the new normal. Google (GOOGL) reported a second consecutive quarter of declining advertising revenue. However, advances in other areas such as artificial intelligence and its cloud unit helped stabilise earnings for the tech giant. Microsoft (MSFT) reported profit and revenue for the first quarter that beat estimates. The strong performance was fuelled by its cloud-computing sector that maintained strong demand. Like its peers, reported a favourable outlook led by advancements in artificial intelligence. First Republic Bank (FRC) is considering a divestiture of up to $100 billion of its assets as the lender attempts to salvage itself following the massive exodus of deposits it saw in the first quarter. European Markets closed lower. Bank of England Chief Economist Huw Pill argued that the British people and corporations need to accept that higher prices will result in a lower standard of living. Pill said that consumers are trying to maintain pre-pandemic lifestyles, which in turn is putting further pressure on prices. Britain’s antitrust watchdog vetoes Microsoft’s $69 billion takeover of Activision Blizzard (ATVI). The decision cited that it would harm competition in cloud gaming. Decisions slated for later this year from the U.S. Federal Trade Commission and the European Union are likely to affirm the UK’s ruling. Elsewhere, Oil fell 3.59% while Gold closed flat.
To mark my 2725th 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 445 points yesterday and is now ahead by 3209 points for April after closing March with a gain of 6168 points, while finishing February with a gain of 3164 points, after closing January with a gain of 4687 points, while 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 0.38% lower at a price of 4055.
The Dow Jones Industrial Average closed 228 points lower for a 0.68% loss at a price of 33,301.
The NASDAQ 100 closed 0.64% higher at a price of 12,806.
The Stoxx Europe 600 Index closed 0.86% lower.
This morning, the MSCI Asia Pacific closed 0.30% lower.
This morning, the Nikkei closed 0.15% higher at a price of 28,457.
Currencies
The Bloomberg Dollar Spot Index closed 0.6% lower.
The Euro closed 0.7% higher at $1.1035.
The British Pound closed 0.4% higher at 1.2465.
The Japanese Yen fell 0.1% closing at $133.75.
Bonds
Germany’s 10-year yield closed 2 basis points higher at 2.41%.
Britain’s 10-year yield closed 2 basis points higher at 3.72%.
U.S.10 Year Treasury closed 6 basis points higher at 3.45%.
Commodities
West Texas Intermediate crude closed 3.59% lower at $75.30 a barrel.
Gold closed 0.1% higher at $1990.10 an ounce.
This morning on the Economic Front we have Euro-Zone Economic Sentiment Indicator at 10.00 am. This is followed at 1.30 pm by U.S. Weekly Jobless Claims, GDP and Personal Income/Spending. At 3.00 pm we have Pending Home Sales. Finally, we have the Kansas City Fed Manufacturing Activity Index at 4.00 pm and a seven-year Treasury Auction at 6.00 pm.
Cash S&P 500
My S&P plan worked well yesterday. The market hit my 4066-buy level, before rallying to my revised 4082 T/P level. Subsequently, I emailed my Platinum Members to buy the S&P again at a price of 4060 before rallying this morning to my 4071 T/P level and I am now flat. Despite the 120 Handle sell-off in the S&P over the last few days the S&P is still trading above its key 50-Day Moving Average which comes in this morning at a price of 4033. Unless the S&P breaks this key support, I will continue to be a buyer of dips. The McClellan Oscillator closed negative -145 last night so certainly it is not the time to put on large short positions. Overall, I am still convinced that last week’s 4173 high print is significant but as we approach month-end tomorrow I am looking for the S&P to stabilise especially if we can have a successful test of the 50 Day MA first. There is no doubt that recession risks are increasing. The Transports have joined the Head & Shoulders Club while the Atlanta Fed Q1 GDP forecast model is dropping like a stone. A recession may come sooner than we think. The S&P has strong support from 4035/4050 where I will be an aggressive buyer with a 4019 wider Closing Stop’’. I still do not want to be short the S&P at this time.
EUR/USD
Shortly after I posted yesterday morning the Euro rallied to my 1.1030 T/P level on Tuesday’s 1.0980 latest long position. I am now flat. Today, I will again be a buyer of the Euro on any dip lower to 1.0950/1.1010 with a 1.0895 ‘’Closing Stop’’. The price action is telling me not to be long the Euro at this time.
June Dollar Index
The rally in the Euro saw the Dollar again hit my 101.10 buy level. I am still long and will continue to add to this position at 100.50. I will leave my 99.95 ‘’Closing Stop’’ unchanged while lowering my T/P level to 101.60. 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 as the DAX never came close to yesterday’s buy range. Given how overbought the DAX is I will again lower my sell level to 15870/15950 with a lower 16015 ‘’Closing Stop’’. I still do not want to be long the DAX at this time.
Cash FTSE
After the FTSE hit my initial 7830 buy level, we had a small rally enabling me to cover this position at my revised 7850 T/P level and I am now flat. The FTSE has support below from 7700/7780 where I will be a buyer with a 7655 tight ‘’Closing Stop’’.
Dow Rolling Contract
I was lucky with my Dow call yesterday. After the market hit my 33400 buy level I emailed my Platinum Members to exit any long position at my revised 33550 T/P level and I am now flat. Subsequently, the Dow fell 300 points after my T/P level was triggered. The 50 Day MA should act as support. Ahead of month-end I will be a strong buyer from 32900/33150 with a tight 32795 ‘’Closing Stop’’.
Cash NASDAQ 100
Frustratingly the NDX missed yesterday’s 12780 buy level by five points before having a nice 1000-point rally after Face book Shares rose 10% on its earnings release. Today I will raise my buy level slightly to 12650/12800 while leaving my 12495 ‘’Closing Stop’’ unchanged. Given how oversold the NDX is trading I do not want to be short the market at this time.
June BUND
This morning the Bund has traded lower to my 134.40 buy level. I am still long with a now lower 134.90 T/P level. I will add to this position at 133.60 while leaving my 133.05 ‘’Closing Stop’’ unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Gold Rolling Contract
Gold continues to struggle as any move above 2000 is met by strong selling. Just. like everyone else I am reluctant to go short Gold despite the negative price action. Today I will continue to be a buyer on any dip lower to 1960/1975 with the same 1949 ‘’Closing Stop’’. If I am taken long, I will have a T/P level at 1988.
Silver Rolling Contract
No Change. I am still long at a price of 24.90 with the same 25.60 T/P level. I will add to this position at 24.10 while leaving my 23.35 ‘’Closing Stop’’ unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
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