U.S. Indexes, Treasuries, and Gold saw notable selling, while the U.S. Dollar soared in the wake of a very hawkish Powell at the Fed press conference. In the decision beforehand, it cut rates by 25 basis points, as expected, to 3.75-4%, albeit in a 10-2 decision. Governor Miran dissented for a 50bps reduction, as he said he would, while Schmid opted to leave rates unchanged. It also announced it will end the balance sheet contraction from December 1st; two-way action was seen in markets. However, Powell started his press conference by noting there are strongly differing views on how to proceed in December, with another cut far from assured. He added that Wednesday’s cut was another risk management move, but going ahead, it is different. Continuing to add to the hawkish rhetoric, the Chair noted there is a growing chorus of feeling they should maybe wait a cycle [regarding another cut]. As such, a hawkish reaction was seen with T-Notes tumbling, the S&P falling beneath 6900, and spot Gold testing USD 3.9000/oz to the downside. The Dollar surged to the detriment of G10 peers, with both the Swiss Franc and Sterling the laggards, as DXY rose to highs of 99.356 from earlier lows of 98.62. Money markets are now pricing in a 64% chance of a 25bps rate cut, vs. 92% in the immediate aftermath of the rate decision for the December Meeting. The crude complex was firmer and boosted after larger-than-expected EIA draws and was largely unmoved after hawkish Powell. There was a deluge of earnings, and NVDA (+3.1%) strength propped up Tech, as it topped USD 5 trillion market cap for the first time, but breadth was very narrow with the equal-weighted S&P 500 lower by ~1.1%. Ahead, there are five Mag-7 earnings before Friday, with lots of focus on the Trump/Xi meeting overnight. The Federal Reserve cut rates by 25bps, as expected, to 3.75-4.00%, albeit in a 10-2 vote. On the dovish end of the spectrum, Governor Miran voted for a 50bps reduction, as he had touted prior to the meeting, while Schmid voted to leave rates unchanged. Within the statement, given the US Government shutdown and regarding the outlook, it notes that available indicators suggest that economic activity has been expanding at a moderate pace (prev. recent indicators suggest growth of economic activity moderated in the first half of the year). Meanwhile, on the employment side of the mandate, the statement judges that downside risks to employment have risen in recent months, while on inflation it continues to note that it has moved up since earlier in the year, and maintains that inflation “remains somewhat elevated”. The Fed also announced changes to its balance sheet from December 1st. The Fed will reinvest all maturing holdings of Treasury securities, and it will reinvest all the payments from mortgage-backed securities into Treasury bills, allowing the Fed’s holdings of MBS to continue to roll off the balance sheet. The Fed has previously signalled it wants a Treasury-only balance sheet, given housing market conditions. Fed Chair Powell was hawkish in his press conference, with the main takeaway being that a December rate cut is not a foregone conclusion, and there are differing views on the Committee regarding a December rate cut. However, there was considerable support for yesterday’s decision, calling it another risk management move, but going ahead, it is a different story. He also warned that, amid a lack of official government data, “driving in the fog, you could slow down”. He was also asked about other reasons why the Fed could enter a pause, noting that the Fed has already moved 150bps from peaks, and is currently in the area where many estimates of the neutral rate are, hence some think it is time to take a step back. He also said that there is a growing chorus of feeling that maybe they should wait a cycle [to cut again]. Powell still sees policy as modestly restrictive. He noted CPI was a little softer than expected, while inflation away from tariffs is not far from the 2% goal, suggesting it may be 0.5-0.6% above target. Note, we will not see the official PCE report on Friday for September, but Powell estimates headline PCE and Core PCE both rose 2.8% (prev. headline 2.7%, core 2.9%). The Chair does not see weakness in the job market accelerating but highlighted that they have not seen the September payroll report due to the government shutdown, but state-level claims data is not suggesting a significant deterioration. On the balance sheet, the Fed said the December 1st date for ending the balance sheet contraction gives the market a little time to adapt, and that it is clear they are only slightly above an ample level of reserves. Powell also noted they do want to move the balance sheet to shorter-duration, but have not decided on an endpoint, and they want the balance sheet duration to fall very gradually. The Bank of Canada cut rates by 25bps, as expected, taking rates to 2.25%, matching the bottom end of the BoC’s neutral rate estimate. The BoC maintained the view of their neutral rate despite the rate cut, suggesting that any further rate cuts would be accommodative. The BoC described current interest rates as “about the right level”, implying there is little room left for more easing, or at least the BoC will observe effects of recent easing before acting again, depending on how the economy evolves. The statement said that if the outlook changes, they are prepared to respond. It also noted that the structural damage caused by the trade conflict reduces the capacity of the economy and adds costs, noting this limits the role that monetary policy can play to boost demand while maintaining low inflation, suggesting there is not much more monetary policy can do. Both these additions to the statement suggest a clear holding bias from the BoC. Within the MPR, the BoC returned to a base case scenario. It sees Q4 25 growth (Y/Y) at 0.5%, down from the 1.9% seen in the January MPR (before the BoC switched to a scenario-based approach) and compares to the July MPR of 0.7%. Headline CPI in Q4 25 is seen at 2.0% (down from 2.4% in January, up from 1.9% in July). Core CPI is seen at 2.9% (up from 2.1% in January and down from 3.1% in July). Analysts at RBC note that their base case assumes no further rate reductions, and they expect a ramp-up in fiscal stimulus to do a lot of the heavy lifting in the policy response to address tariff-related issues in the economy. Elsewhere, Oil closed flat while Gold closed a further 0.6% lower.
To mark my 3275th 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 150 points yesterday and is now ahead by 4107 points for October after closing September with a gain of 3774 points after ending August with a gain of 3362 points after closing July with a gain of 3753 points after closing June with a gain of 3530 points, having closed May with a gain of 3606 points, after closing April with a gain of 7685 points after closing March with a gain of 2254 points while closing February with a gain of 4180 points. January ended with a gain of 2768 points while 1997 points were gained in December. October ended with a gain of 2179 points, after closing September with a gain of 4402 points, following a loss of 301 points in August. July gained 1908 points while June saw a gain of 2074 points. The Platinum Service made a record 9619 points in October 2022. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 2300 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 0.01% lower at a price of 6890.
The Dow Jones Industrial Average closed 74 points lower for a 0.16% loss at a price of 47,632.
The NASDAQ 100 closed 0.41% higher at a price of 26,119.
The Stoxx Europe 600 Index closed 0.02% lower.
Yesterday, the MSCI Asia Pacific closed 0.5% higher.
Yesterday, the Nikkei closed 2.17% higher at a price of 51,307.
Currencies
The Bloomberg Dollar Spot Index closed 0.49% higher.
The Euro closed 0.42% lower at $1.1598.
The British Pound closed 0.62% lower at $1.3186.
The Japanese Yen fell 0.42% closing at $152.61
Bonds
U.K.’s 10-Year Gilt closed 1 basis points lower at 4.39%.
Germany’s 10-Year Bund Yield closed 1 basis points higher at 2.63%
U.S.10 Year Treasury closed 8 basis points higher at 4.08%.
Commodities
West Texas Intermediate crude closed 0.35% higher at $60.36 a barrel.
Gold closed 0.58% lower at $3929.10 an ounce.
This morning on the Economic Front we have German Unemployment at 8.55 am, followed by Euro-Zone Consumer Confidence at 10.00 am. Next, we have U.S. New Home Sales at 11.0 am and GDP at 12.30 pm. At 1.00 pm we have German CPI. This is followed by the ECB Rate Decision at 1.15 pm and the Lagarde Press Conference at 1.45 pm. Finally, we have a speech from Fed Member Logan at 5.20 pm.
Cash S&P 500
The Federal Reserve did the expected and trimmed the Funds Rate again by -25 basis points to a 3.75%-4.0% band and announced an end to QT as of December 1st. There were two dissents, which is very rare — and even rarer, Kansas City Fed President Schmid voted for no move, and Governor Miran predictably pushed for a -50-basis-point cut. Investors may well be disappointed, even with few surprises, by the lack of any support for the market view of five more rate cuts ahead or even in December, which had been nearly fully priced in; and also by the fact that there was a dissent for no rate relief (unlike Schmid’s dissent, Miran’s was totally expected). Based on the Bank of Canada, benchmarked against what is priced in, the risk is that the Fed Chairman fails to deliver a dovish policy message and this is exactly what happened in his press conference. You all know my view on how extended this market is. Despite both Meta and Microsoft getting crushed post earnings, Google is stronger leaving little movement in Futures prices as I go to post. Even so, the Fed’s actions will bring the balance sheet to a steady state. Additionally, Powell took a December rate cut off the table for now, saying no decisions have been made. The announcement helped push interest rates and the Dollar index higher, but with the BOJ and ECB both meeting on Thursday, we will have to wait to see how those events impact the Dollar. Thursday and Friday are settlement dates, and funding pressures are likely to rise, which probably means greater use of the standing repo facility as well. Surprisingly, the SRF was still used today, with just over $10 billion running through it. Let’s not forget that Friday is not only a settlement date but also a month-end, which means the greatest funding pressures are likely to occur then. In terms of the stock market, the S&P 500 finished the day flat, while the RSP equal-weighted index fell by more than 1.1%. As a result, the S&P 500 Dispersion Index closed above 40, its highest level since April. With earnings from Apple and Amazon after the close tonight, we should start to see this Dispersion Index begin to decline as implied volatility levels fall and the volatility dispersion trade unwinds. That should lead to implied correlations rising as the trade unwinds, and the spread between the Dispersion Index and the Implied Correlation Index beginning to narrow, which could result in the stock market reversing its recent rally. I am still short the S&P at an average rate of 6865 with the same 6840 T/P level and no stop for now. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
EUR/USD
I am still flat as the Euro again traded in a narrow range on Tuesday. Today, I will lower my sell level to 1.1660/1.1730 with a lower 1.1805 ‘Closing Stop’. If I am taken short, I will have a T/P level at 1.1595
Dollar Index
It took a while but finally the Dollar rallied to my 99.10 T/P level on my latest 87.70 long position and I am now flat. Today, I will again be a buyer on any dip lower to 98.00/98.80 with the 97.25 ‘Closing Stop’. If I am taken long, I will have a T/P level at 99.30.
Russell 2000
My latest 2520 average short position worked well as the market sold off to my 2480 T/P level and I am now flat. Today, I will again be a seller from 2515/2575 with a higher 2615 ‘Closing Stop’. If I am taken short, I will have a T/P level at 2470.
FTSE 100
I am still short the FTSE at an average rate of 9745 with the same 9690 T/P level and 9825 ‘Closing Stop’. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Dow Rolling Contract
The Dow had a classic downside Key Day Reversal. Having hit a new all-time high at 48045, the market subsequently fell 600 points into the close. Today, I will be a small seller from 47900/48150 with a 48405 ‘Closing Stop’. If I am taken short, I will have a T/P level at 47600. I still do not want to be long the Dow at this time.
Cash NASDAQ 100
My NDX plan worked well as the market rallied to my second sell level at 26150 for a 26050 average short position before selling off to my revised 25970 T/P level and I am now flat. Today, I will again be a seller on any further rally 26190/26390 with a higher 26505 ‘Closing Stop’. If I am taken short, I will have a T/P level at 25990. If this view changes, I will be back with a new update for my Platinum Members.
December BUND
I am still long from last Friday at a price of 130.00. I will continue to look to add to this position at 129.30 while leaving my 128.55 ‘Closing Stop’ unchanged. I will now lower my T/P level to 130.30. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Gold Rolling Contract
I am still flat. Ahead of the weekend I will now lower my buy level to 3830/3860 with a 3795 wider ‘Closing Stop’. If I am taken long, I will have a T/P level at 3995. If this view changes, I will be back with a new update for my Platinum Members.
Silver Rolling Contract
I am still long at an average rate of 49.20 with the same 47.15 ‘Closing Stop’. I will now lower my T/P level to 49.30. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
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