U.S. Equity Markets finished Monday lower, led by the 1.22% fall in the NASDAQ 100. Markets ended the day lower but still positive for October. Overall, it was a fairly quiet day of trading. A busy week awaits with economic data, the Federal Reserve’s policy meeting, and more third quarter earnings reports. The slowing rate hike narrative seen last week has died down this week. This is due to the risk of a higher terminal rate growing following stronger consumer and corporate balance sheets. And investors’ overwhelming expectation is for a fourth-consecutive rate hike of 75-basis points tomorrow evening. Slowing inflation is finally starting to show up in economic data. As I have discussed since late last year, Federal Reserve policymakers have worried about COVID-19-related fiscal (Congress) and monetary (Fed) policy decisions overheating the economy. After all, the U.S, unleashed more than $7 trillion worth of stimulus into the pockets of households and businesses to support domestic economic output. At first, the plan worked. GDP plunged 30% in the second quarter of 2020, one of the worst economic contractions on record. But just three months later, it rebounded 35.5%, marking one of the strongest quarterly expansions ever. These changes provided the short-term high that politicians and central bankers were seeking. But they inevitably overstayed their welcome. Congress passed stimulus bills in 2021 that juiced the bank accounts of Americans, despite signs that output was well on its way to recovery. And the Fed kept interest rates too low for too long. It also added trillions of Dollars’ worth of bonds to its balance sheet in order to cap borrowing costs. This resulted in 5.7% GDP growth in 2021. That was well over double the 2.3% average in the 10 years leading up to the pandemic. Now, we have to pay the piper. Inflation growth skyrocketed to 9.1% in June. So, the Fed is hurriedly trying to bring it back down by raising interest rates. Since March, the Federal-Funds rate has jumped 3% and is expected to increase another 1.25% by the end of this year. But recent economic data is showing signs that rate hikes are working. And if that momentum keeps building, it implies the central bank could have room to slow down its aggressive rate-hike path. The change would be a tailwind for the S&P 500 Index’s long-term outlook. But don’t just take my word for it. Look at what the data is telling us. Last week was important from an economic output perspective. The U.S. Bureau of Economic Analysis (“BEA”) released its preliminary Third-Quarter data. The headline number showed output expanded by 2.6% on an annualised basis. But there was another, more important number we wanted to survey: Personal Consumption Expenditures (“PCE”). That’s the Fed’s preferred inflation gauge. What we saw was encouraging from a cost perspective. It indicated the rate of growth was finally showing signs of slowing. The first number I looked at was the non-seasonally adjusted table. This is the raw data that has not been changed to consider the effects of seasonal spending patterns. After all, shrinking household budgets do not care about whether it’s summer or winter. All they care about is the amount of money they have on hand. The real U.S. Dollar number for the Third Quarter was $3.54 trillion. That compares with $3.45 trillion in the third quarter of last year. That’s a cost growth of 2.4%. The number is far below the 16.8% growth experienced in the second quarter of 2021 and much closer to the central bank’s 2% target. I also looked at the quarter-over-quarter seasonally adjusted annualised rate (“SAAR”) for the Personal Consumption Price Index. That number grew 4.2% compared with the 7.3% growth in the second quarter and the high of 7.5% from the first quarter of this year. That is also far below the headline number of 6.2% growth for September and closer to the Fed’s 2% target. Finally, I looked at the personal savings rate. In December 2019, just prior to the pandemic, the BEA’s personal savings rate as a percentage of disposable income was 8.3%. During COVID-19, it shot as high as 33.8% in April 2020. That number has since dropped to just 3.1% today. So, if you were putting aside $1,000 per month, the number is more in the ballpark of $90. That is a whole lot less money available for a rainy-day emergency or leisure spending. That’s a lot less demand for goods. As Fed Chairman Jerome Powell has told us throughout the rate-tightening process, the central bank is looking to hinder the economy. This is in the hopes of destroying demand for goods and bringing inflation growth back under control. Then, when it has achieved these objectives, it can pause the rate-hike cycle and watch for signs of stabilisation. Once that has happened, policymakers can lower interest rates once more. These results are not going to make the Fed change its mind tomorrow. It will most likely be moving forward with a 0.75% interest-rate hike. But the headline data may give it a reason to think harder about the direction going forward. The sooner Money managers get a sense of peak interest rates, the sooner they will become more optimistic about risk assets like stocks. They will rush to lock in attractive yields on high-quality assets, like U.S. Treasurys, before it’s too late. Then, those same Money managers will work their way down the investment food chain, looking for other investment opportunities seeking similar returns. This in turn will support a longer-term rally in the S&P 500. Within the S&P 500 Index, ten of the 11 sectors finished lower. European Markets closed mixed. Markets ended largely higher as focus turned back onto the high inflation narrative. The latest Euro-Zone flash Consumer Price Index accelerated to a record 10.7%, cementing the aggressive rate-hike path story from the European Central Bank (“ECB”). Following last week’s ECB policy decision that included some dovish signals, the tone to start this week has seen a stark reversal. ECB board member Klaas Knot downplayed that idea saying rate hikes are not even halfway done. Additionally, ECB’s President Christine Lagarde said beating inflation is its mission, mantra, and mandate. Elsewhere, Russia announced the suspension of the Ukraine grain export deal following attacks against its Black Sea fleet. This move only worsened the region’s economic outlook on the heels of a potentially escalated conflict. In Asia, Markets ended largely higher following Wall Street’s positive end to last week. Hong Kong ended down, as continued COVID-19 outbreaks and weaker economic data hit China. China’s official manufacturing Purchasing Managers’ Index sunk back into contraction territory for October, combined with a decline in new orders and employment. The People’s Bank of China Governor Yi Gang reiterated commitment to prudent monetary policy with no major pivots expected. Meanwhile, Japan’s Industrial Production fell further than expected in September, following a sharp drop in the automobile sector. Elsewhere, Oil fell 2% while a stronger Dollar saw Gold close lower by 0.55%.
To mark my 2650th 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 lost 408 points yesterday, to finish October with a record gain of 9619 points, after finishing September with a gain of 6660 points, 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 0.75% lower at a price of 3872.
The Dow Jones Industrial Average closed 128 points lower for a 0.39% loss at a price of 32,732.
The NASDAQ 100 closed 1.22% lower at a price of 11,405.
The Stoxx Europe 600 Index closed 0.37% higher.
Yesterday, the MSCI Asia Pacific Index rose 0.8%.
Yesterday, the Nikkei closed 1.87% higher at a price of 27,587.
Currencies
The Bloomberg Dollar Spot Index closed 1.1% higher.
The Euro closed 1.1% lower at $0.9881.
The British Pound closed 0.8% lower at 1.1461.
The Japanese Yen fell 1.3% closing at $148.64.
Bonds
Germany’s 10-year yield closed 16 basis points higher at 2.14%.
Britain’s 10-year yield closed 10 basis points higher at 3.51%.
US 10 Year Treasury closed 11 basis points higher at 4.05%.
Commodities
West Texas Intermediate crude closed 2% lower at $86.80 a barrel.
Gold closed 0.55% lower at $1638.10 an ounce.
This morning on the Economic Front we already have the German Import/Export Price Index at 7.00 am, followed by U.K Global Manufacturing PMI at 9.30 am. Next, we have U.S. Manufacturing PMI at 1.45 pm. Finally, at 2.00 pm we have the JOLTS Job Openings Construction Spending and ISM Manufacturing PMI at 2.00 pm.
Cash S&P 500
Despite rising Bond Yields and a higher Dollar, the S&P is still trading 70 Handles higher from where I marked prices last Friday morning. There was an interesting tweet from Morgan Stanley who said: ‘’’Last Year when Money Supply (M2) was growing by 27.6% YOY, it was crystal clear that 2.6% inflation was likely to explode higher. Fast forward to today… M2 is now growing at just 2.5% YOY.. the seeds have been sown for a sharp fall next year.. look out below. Bottom line is inflation has peaked and is likely to fall faster than most expect which could provide some relief for the S&P 500 which has legs to 4050/4150’’’. This ties in to my view that inflation will get crushed next year leading to a peak in rates as the rate cycle high should be over either this week or early in 2023. Seasonality suggests that we have already seen the low for this year at 3489. I am still flat the S&P as the market fell shy of my 3855 initial buy level with a 3862 low print before rallying into the close. With the MO closing last night at -249 I will not chase the S&P higher, leaving my 3855/3875 buy level unchanged with the same 3719 ‘’Closing Stop’. The S&P has resistance from 3910/3930 where I will be a small seller with a 3941 ‘’Closing Stop’’.
EUR/USD
The Euro sold off to my .9905 buy level yesterday afternoon. I am still long and I will add to this position at .9825 with a now lower .9755 ‘’Closing Stop’’. I will also lower my T/P level to .9970.
March Dollar Index
The Dollar has rallied over 2.5% since Friday. This move higher saw my 111.40 sell level triggered. I will add to this position at 112.00 while leaving 112.45 ‘’Closing Stop’’ unchanged. I will now raise my T/PN level to 110.80 and if any of the above levels are executed, I will come back with an updated email for my Platinum Members.
Cash DAX
I am still flat as the DAX traded in a narrow range yesterday as it continues to consolidate Friday’s massive gains. The DAX has support from 12060/12140. I will raise my buy level to this area with a higher 12985 ‘’Closing Stop’’.
Cash FTSE
Lower Gilt Yields continue to support the UK Equity Markets. I am still flat as the FTSE continues to trade over 100 points higher from where I marked prices last Friday. I will now raise my buy level to 6970/7040 with a higher 6895 ‘’Closing Stop’’.
Dow Rolling Contract
My Dow plan did not work well on Friday. After the market rallied to my 32350 average short position, I was stopped out near the close at 32810 and I am still flat. With the McClellan Oscillator closing at +290 on Friday, it is no surprise that we saw a small sell-off yesterday. The 14-Day RSI hit a high above 71 on Friday, adding to its overbought condition. The Dow ended October with its best Monthly gain since 1987. Ahead of tomorrow’s Fed Meeting I am not expecting a big move in the Dow as the market goes on hold ahead of its expected 75-basis point hike. This I believe will be the last hike for many months as lower inflation will finally show up in the headline numbers over the coming months. The Dow has short-term support from 32150/32400 where I will be a small buyer with a 31985 ‘’Closing Stop’’. We have resistance from 33050/33300 where I will be an aggressive seller with a 33505 ‘’Closing Stop’’.
Cash NASDAQ 100
Despite the aggressive sell-off in tech stocks, the NDX is trading a lot higher from where I marked prices last Friday morning. There is no doubt that Elon Musk has paid way too much for Twitter. It is a massive money losing business with the interest payments alone being close to a billion dollars a year. He will have to generate income quickly and cut costs meaning thousands will probably loose their jobs sadly. Against that buybacks begin tomorrow, which will support any further sell-off as we are not in the seasonally strong time of the year. I am still flat the NDX as the market never came close to Friday’s buy range. I will now raise my buy level to 11230/11360 with a higher 11095 ‘’Closing Stop’’. Ahead of the FOMC tomorrow, I do not want to be short the NDX at this time.
December BUND
The Bund reversed all of Thursday’s gain over the past two days as the Bund Yield rallied 16 Basis Points. My Bund plan did work well with the market trading lower to my 138.70 buy level before rallying 70 points, enabling me to cover this position at my revised 139.22 T/P level and I am now flat. Last night, the bund closed lower at 138.40. We have short-term support from 137.20/137.90 where I will again be a buyer with a 136.55 ‘’Closing Stop’’.
Gold Rolling Contract
Gold has traded in a narrow range since last Friday. We had a small sell-off tom my 1639 buy level. I am still long and I will add to this position at 1625 with a now lower 1611 ‘’Closing Stop’’. I will now lower my T/P level to 1647 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
Silver Rolling Contract
No Change. I am still long at 20.05 the same 20.60 T/P level.
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