U.S. Indices trended higher throughout Wednesday’s session, but Futures were knocked on reports in the Information that Microsoft (MSFT) is lowering AI software quotas as multiple sales teams failed to hit quotas for AI product sales last year, which hit MSFT and other AI names in the pre-market. However, stocks started to pare before accelerating once MSFT denied the story and equities moved higher throughout the US session. Gains were led by the Russell with the majority of sectors green, led by energy and financials, while tech and utilities closed red. T-notes saw two-way trade, largely in response to US data. T-notes hit peaks after the woeful ADP report, which saw employers shed jobs by 32k in November, versus expectations for a 10k increase in employment. However, T-notes then sold off on the better-than-expected ISM Services PMI, which also saw an uptick in unemployment and a downtick in inflation. However, the move was short-lived, and T-notes gradually moved higher into settlement with the curve bull steepening. Oil prices settled firmer as further remarks from US/Russian officials continue to suggest a lacklustre meeting on Tuesday. Natural Gas Futures hit a 35-month high on record flows to LNG export plans and forecasts for colder weather. In FX, the Dollar was sold on the Hassett trade while cyclical currencies outperformed as stocks rallied. Gold prices were choppy, but both gold and silver head into APAC trade flat. The Headline ISM Services PMI rose to 52.6 from 52.4, despite expectations for a decline to 52.1. Within the report, business activity was little changed at 54.5, while new orders fell to 52.9 from 56.2. Employment rose marginally to 48.9 from 48.2 but remained in contractionary territory while prices paid saw a drop to 65.4 from 70.0. Analysts at Pantheon Macroeconomics note that the rise in the headlines, to its highest level since February, provides little reassurance on Q4 GDP growth given its decoupling from the official data in the last three years. Regarding the employment print, Pantheon Macroeconomics writes, “Its three-month average points to gains in private services payrolls averaging 50K over the three months to November, continuing the run of sub-breakeven growth”. While for prices, it read the drop as a signal of fading momentum in tariff-related price rises. Pantheon adds that “The drop in the prices paid index brings it much closer in line with other survey measures of service sector prices, which suggest the tariffs are not having second-round effects.” The ADP survey of private payrolls saw 32k jobs lost in November, missing the +10k expectation and falling from the prior 47k, which was revised up from 42k. The data was within the analyst forecast range of -50 to +50k. The report noted that “Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment. And while November’s slowdown was broad-based, it was led by a pullback among small businesses.” On wages, the median change in annual pay for job stayers eased to 4.4% from 4.5%, while for job changers it eased to 6.3% from 6.7%. This report is one of the last employment gauges the Fed will see before the December FOMC; the November and October BLS NFP reports will be released on December 16th, after the Dec 10th FOMC meeting. Based on Fed commentary, rate views are very split. Several are favouring a cut, and several are favouring a hold; the weak data may help those who are undecided on voting for a cut in December. Money markets price a 25bps cut with an 84% probability – before the Fed, we will see the latest JOLTS data on the 9th December. Elsewhere, Oil closed higher by 0.5%.
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 was made 67 points yesterday and is now ahead by 512 points for December after ending the month of November with a gain of 4542 points, after ending October with a nice gain of 5110 points after closing September with a gain of 3774 points while 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 0.31% higher at a price of 6849.
The Dow Jones Industrial Average closed 408 points higher for a 0.86% gain at a price of 47,882.
The NASDAQ 100 closed 0.20% higher at a price of 25,606.
The Stoxx Europe 600 Index closed 0.01% higher.
This morning, the MSCI Asia Pacific closed 0.5% higher.
This morning, the Nikkei closed 2.33% higher at a price of 51,028.
Currencies
The Bloomberg Dollar Spot Index closed 0.48% lower.
The Euro closed 0.44% higher at $1.1671.
The British Pound closed 1.05% lower at $1.3347.
The Japanese Yen rose 0.46% closing at $155.12
Bonds
U.K.’s 10-Year Gilt closed 2 basis points lower at 4.45%.
Germany’s 10-Year Bund Yield closed 1 basis points lower at 2.73%
U.S.10 Year Treasury closed 1 basis points lower at 4.07%.
Commodities
West Texas Intermediate crude closed 0.55% higher at $58.96 a barrel.
Gold closed 0.1% higher at $4211.10 an ounce.
This morning on the Economic Front we have German, Euro-Zone and U.K. Construction PMI at 8.30 am, 9.00 am and 9.30 am respectively, followed by Euro-Zone Retail Sales at 10.00 am. Next, we have U.S. Weekly Jobless Claims at 1.30 pm. At 3.00 pm we have Durable Goods Orders and Factory Orders. Finally, we have a speech from Fed Member Bowman at 5.00 pm.
Cash S&P 500
The S&P 500 closed 0.3% higher on Wednesday. Yesterday was a volatility-dispersion day, with the S&P 500 dispersion index rising. Not by much, but enough to highlight the dynamic of the Index rising while implied correlations fell. We also saw index-level volatility decline, with the VIX down on the day, even as the VIX S&P 500 Constituent Index moved higher. On the surface, it looked like a healthy rotation, with the MAG-7 lagging and the S&P 500 equal-weight index outperforming. But in reality, it was a day of MAG-7 underperformance and market participants trying to figure out how to nudge the overall index higher, amid bullish option flows beneath the surface. Despite the weak ADP report, the 10-year Treasury rate fell only about three basis points and remains above 4%. It is an interesting dynamic because rates have essentially been holding around 4% on the 10-year, which appears to be functioning as a floor. This likely comes down to the fact that the overall yield curve is still not steep enough. The spread between the 10-year and the 3-month Treasury bill is only about 34 basis points, and historically, this spread peaks around 350 basis points. So, even if the Fed eventually cuts rates back to the neutral level near 3%, the 10-year would have little incentive to fall further—because the spread would still only be around 1%. In theory, if the 10-year were to trade at a historically normal premium of 300 to 350 basis points above the 3-month Treasury, then the 10-year yield should be closer to 6% than 4%. This likely explains why long-end rates are not falling as many expect. The market seems to be acknowledging that the yield curve is too flat, and that the Fed is unlikely to cut deeply enough to create the kind of spread widening needed to normalise the curve. In a sense, the market is signalling that the curve needs to steepen further, and that process may begin as we get closer to the Fed’s ultimate policy destination and the market gains greater clarity. It is interesting because, at the same time, we are seeing interest-rate spreads between the U.S. 10-year and the Japanese 10-year contract to their tightest level since March 2022, yet the Japanese yen has weakened to 155. The divergence between the spread and the currency is now one of the widest we have seen in some time, and it points to one of two — or potentially three — possibilities. First, the yen may need to strengthen materially against the dollar, potentially even falling below 140. Second, the FX market may be indicating that the spread is unlikely to contract any further — meaning U.S. rates may need to rise again, widening the differential. And third, Japan’s rates would have to collapse. But with the BOJ preparing to hike rates because Japan still has an inflation problem and fiscal stimulus increasing, it seems unlikely that Japanese rates are about to fall sharply. That effectively narrows the scenario set to just two outcomes: either the yen strengthens significantly or U.S. rates move higher. Given that the U.S. Treasury yield curve is also signalling that it is too narrow and needs to steepen further—most likely through higher long-end rates—it seems more likely than not that the divergence between the interest-rate differential and the Japanese yen reflects expectations for U.S. rates to rise. In other words, the FX market may be betting that U.S. yields still have further to climb, which would help reconcile why the yen has weakened even as the rate spread has compressed. Despite the S&P rising in the last week of trading in November, investors withdrew nearly $4.6 billion from U.S. Equity Funds which was the first weekly outflow in six weeks. What is also important is the weekly chart of the S&P. The chart shows eerie similarities between now and the weeks leading up to the January 4 2022 top, which led to a 27.6% plunge and bear market. In fact that last few days of trading in December 2021, the S&P hit new all-time highs which was marginally surpassed intraday on January 4, 2022. However, resistance from prior highs and the upper level of the trading channel was too strong at the time, which pulled the S&P lower and into an eventual nine-month bear market. Currently we are seeing a similar set-up as in late 2021-early 2022. However, this time that S&P actually broke out above the upper trendline in October/November then swiftly reversed lower, resulting in the November correction. Was last week’s rally the start of a brief rally rise to retest prior highs at 6920? If so, will the resistance prove to be too strong for now, just as it did in January 2022. This is the main reason why I am now selling rallies. Yesterday, the S&P hit my sell range for a now 6860 short position. I will add to this trade at 6885 with no stop. I will now raise my T/P level to 6842. If any of the above levels are hit, I will be back with a new update for my Platinum Members. Meanwhile, I will continue to be an aggressive buyer from 6710/6740 with the same 6687 ‘Closing Stop’. If I am taken long, I will have a T/P level at 6779.
EUR/USD
No Change: I am still flat. The Euro has resistance from 1.1690/1.1760 where I will be a small seller with a 1.1815 ‘Closing Stop’. Meanwhile, I will continue to be a buyer on any dip lower to 1.1440/1.1510 with the same 1.1375 ‘Closing Stop’. If I am taken short, I will have a T/P level at 1.1615. If I am taken long, I will have a T/P level at 1.1570.
Dollar Index
I am still long the Dollar from Monday at a price of 99.20. I will continue to look to add to this position on any further move lower to 98.40 while leaving my 97.95 ‘Closing Stop’ unchanged. I will now lower my T/P level to 99.50. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Russell 2000
Late in Wednesday’s session the Russell hit my sell range for a now 2505 short position. I will add to this position at 2565 with the same 2605 ‘Closing Stop’. The Russell is short-term overbought having risen 8.7% in the past 10 days which is an insane move. I will leave my 2460 T/P level unchanged for now. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
FTSE 100
I am still flat the FTSE as the market has continued to trade in a narrow range. Today, I will raise my buy level to 9550/9630 with a higher 9485 ‘Closing Stop’. If I am taken long, I will have a T/P level at 9680. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
I was lucky with my Dow call yesterday. After the market hit my 47730-sell level the market quickly dropped 100 points. I emailed my Platinum Members to say I was not happy with a Dow short given what was going on in the other markets and covered this position at my revised 47663 T/P level and I am now flat. This morning, the Dow is trading higher at 47920. We have short-term resistance from 48300/48600 where I will again be a seller with a higher 48805 ‘Closing Stop’. If I am taken short, I will have a T/P level at 48010. If this view changes I will be back with a new update for my Platinum Members.
Cash NASDAQ 100
Frustratingly, the NDX just missed yesterday’s 25360 T/P level. I am still short at 25510 with a now higher 25430 T/P level. I will continue to look to add to this position at 25700 while leaving my 25805 ‘Closing Stop’ unchanged. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
December BUND
The Bund traded in a narrow range again yesterday following Monday’s aggressive sell-off. I am still long the Bund at an average rate of 129.50 with the same 128.35 ‘Closing Stop’. I will now lower my T/P level to 129.60 and look to reassess as I have had this position for way too long. Meanwhile, I will leave my 128.35 ‘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
I do not like the price action in Gold and is the main reason that I have not been chasing the market higher. Gold has short-term support from 4060/4090. I will now lower my buy level to this range with a lower 4035 ‘Closing Stop’. If I am taken long, I will have a T/P level at 4114.
Silver Rolling Contract
No Change: Silver surged a further 5% on Monday, closing at yet another new all-time high. I am still flat. I am going to stay flat, preferring to observe the market price action before committing to a new trade. If this view changes, I will be back with a new update for my Platinum Members.
Recent Comments