U.S. Equity Markets finished lower for the fourth consecutive session led by the 1% fall in the NASDAQ 100. Markets were choppy Monday as anticipation grows for inflation figures later this week. Earnings season also kicks off later this week with major banks reporting. Investors fear that 2023 estimates will see sizeable downward revisions. Federal Reserve Vice Chair Lael Brainard said the central bank will move deliberately to assess the impacts of its policy. September’s inflation figures later this week will serve as the main catalyst for a potential fourth 75-basis-point rate hike this year at the Fed’s November meeting. The Federal Reserve is going to blow whatever creditability they have left because they are going to overtighten monetary policy and raise interest rates too far. Last week, we received some important updates on domestic employment. The U.S. Bureau of Labour Statistics’ (“BLS”) Job Openings and Labour Turnover Survey (“JOLTS”) showed us the number of available positions dropped by almost 1 million in August – also close to a 10% drop from July. At the same time, executive outplacement firm Challenger, Gray & Christmas told us job cuts increased by 67.6% in September. That is a huge increase compared with August’s 30.3% jump and July’s 36.3% rise, and it’s the highest number since the end of 2020. The last big number was the BLS’s Non-Farm Payroll data for September. While the monthly gain was the lowest we have seen this year, a shift in some metrics caused the Unemployment rate to fall back to pre-pandemic levels. But despite signs of the economy slowing, Fed policymakers are dead set on ploughing ahead with interest-rate hikes. Their year-end objective is a Fed-Funds target of 4.25% to 4.50% and 4.50% to 4.75% by early next year. Governor Chris Waller even stated the day before the release of the September employment data that it would have no effect on the policy outcome. But those policymakers are basing their forward-looking decisions on backward-looking data. So, by the time they realise they have made a grave error, it could be too late. If the central bank continues on its current (and intended) course, the outcome could significantly harm the domestic and global economic outlook. We have been focusing on inflation throughout this year and how it will influence central-bank rate decisions. Domestic policymakers’ worries about rising prices – and the expectation for them to go even higher – are becoming more engrained in consumers’ thinking. The Fed wants households and businesses, convinced that inflation’s pace won’t slow down anytime soon, to spend less money, opting to save instead. After all, companies and individuals do not want to have an emergency arise that they can’t afford. So, by hanging on to cash, they will have the necessary resources on hand. Plus, as interest rates rise, the return on saving money becomes increasingly attractive. In other words, the incentive not to spend increases. But all of this will come at a cost, as Economic output will suffer greatly. When consumers spend less on goods, the need to manufacture items dwindles as inventories grow. As companies produce fewer items, fewer employees are needed to do the work. That shows up as job losses, with even less spending. It makes for a particularly vicious cycle – one that can compound quickly. When the central bank first started hiking rates in March, Chairman Jerome Powell said there will be moments when it needs to step back and study the effects of policy on the economy. He, along with Federal Open Market Committee voting members like Vice Chair Lael Brainard and Kansas City Fed President Esther George, said it usually takes six to eight months before rate hikes play out in the data. In other words, if we go six to eight months out from the first rate hike in March, we fall into the September-to-November time frame – or right about now. And it’s true. We are just starting to see the aftereffects in the data in the changes we are hearing and seeing in the real world. Corporate America is worried about slowing economic demand… Technology giants Alphabet (GOOGL), Meta Platforms (META), and Amazon (AMZN) have recently joined the tide of companies like JPMorgan Chase (JPM) and Goldman Sachs (GS) laying off employees. The most concerning issue with last Friday’s NFP Report was the Unemployment rate as it fell from 3.7% to 3.5%. The change was due to 300,000 people dropping from “unemployed and actively seeking work” to “unemployed and not actively seeking work.” So, they no longer count toward the Unemployment rate. (If they did, the number would have increased to 3.8% instead of falling to 3.5%.) There is another factor that these figures are not accounting for… According to the St. Louis Federal Reserve, the number of excess retirements caused by COVID-19 was 2.4 million. Those are individuals who would not have otherwise left the workforce. Now, it is estimated that 1.5 million of those people have re-entered the workplace, according to economist Nick Bunker from online employment firm ‘’Indeed’’. That leaves roughly 900,000 extra retirement individuals still not working. If we were to add that total back into the numbers, we would get an Unemployment rate of just over 4.2%… for a far different economic picture than the one currently being painted. However, the “bigger picture” problem is the central bank is not listening to itself. It has told us about the six- to eight-month time frame that it takes for policy changes to materialise. But just some simple math tells us the changes we are experiencing now are based on what happened this spring (when rates increased 0.5%) and not from the last few meetings (when rates rose 2.25%). If the Fed does not tread carefully, it is going to drive a shift in consumer mindset toward fear. That could prove more difficult to change and more devastating for the economy, as concerns about rising rates turn into shell shock because households see problems coming at them from every turn. Within the S&P 500 Index, seven of 11 sectors finished lower. European Markets closed lower. Markets opened the week lower as the Euro-Zone Sentix survey for Consumer Confidence slumped again for October, as high inflation and an unyielding energy crisis grip the region. The Bank of England announced additional measures to support its currency and ease liquidity in a bid to stabilise financial conditions. And additional Caixin business surveys for the U.K. show that the economy is likely contracting. In Asia, Markets were led lower by Chinese and Hong Kong Indexes that reopened following a weeklong vacation. The Bank of Korea is set to deliver another 50-basis-point rate hike this week as the country battles high inflation and a weak currency. The U.S. is set to expand its export restrictions on China, including a measure to severely limit the exports of semiconductor chips. And COVID-19 restrictions continue to impact the Chinese economy as nearly 2,000 new infections were reported Sunday. Elsewhere, Oil closed 2.04% lower while a stronger Dollar saw Gold fall a further 2%.
To mark my 2625th 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 175 points yesterday and is now ahead by 1835 points for October, after finishing September with an incredible 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 3612.
The Dow Jones Industrial Average closed 93 points lower for a 0.32% loss at a price of 29,202.
The NASDAQ 100 closed 1.02% lower at a price of 10,926.
The Stoxx Europe 600 Index closed 0.40% lower.
This morning, the MSCI Asia Pacific Index fell 1.2%.
This morning, the Nikkei closed 2.64% lower at a price of 26,401.
Currencies
The Bloomberg Dollar Spot Index closed 0.4% higher.
The Euro closed 0.4% lower at $0.9702.
The British Pound closed 0.7% lower at 1.1040.
The Japanese Yen fell 0.3% closing at $145.70.
Bonds
Germany’s 10-year yield closed 12 basis points higher at 2.32%.
Britain’s 10-year yield closed 24 basis points higher at 4.47%.
US 10 Year Treasury closed 10 basis points higher at 3.99%.
Commodities
West Texas Intermediate crude closed 2.02% lower at $91.51 a barrel.
Gold closed 2% lower at $1666.10 an ounce.
This morning on the Economic Front we already had the release of U.K. Unemployment which came in at 3.5% versus 3.6% expected. The only other data of note is U.S. NFIB Business Optimism Index at 11.00 am. However, we have central bankers, Lane, Harker and Mester speaking at 2.45 pm, 4.30 pm and 5.00 pm respectively.
Cash S&P 500
Extended bear markets are brutal on psychology and mentally exhausting. It grinds traders in both directions. This is now the most extended bear market since the 2008 Global Financial Crisis with the macro environment as complex as any of us have ever seen. Not only do we have 40-year highs in inflation with much of this inflation driven by an unprecedented pandemic in our lifetimes leading to unprecedented liquidity, policy errors from central banks and now a complex war that is uncomfortably raising the risk of a geopolitical escalation as even the threat of nuclear weapons being used. This bear market over the past seven months has been ugly and nobody will ring a bell when it is over. One of the key challenges is the macro backdrop is awful, but the technical continue to keep me on the buyside, leading to a larger bear market rally that then may set a chance to get short again. This week is all about CPI which will released on Thursday. I mentioned yesterday that 10-year Treasuries had closed higher for 10 consecutive weeks and already this morning the 10-year is 10 basis points higher at 4%. With 125% debt to GDP this move is not sustainable and we need a catalyst to reverse both the rising bond yields and rising Dollar. Food costs have dropped for a sixth month in September so maybe we will finally get this key element to be reflected in Thursday’s CPI report. If we do not, then new lows are on the cards. The Monthly 50 MA comes in at 3493/3530 with this support holding on a first test in 2008 before eventually breaking lower. I will be an aggressive buyer on any dip to this area with no stop. Yesterday, my S&P plan worked well as after the market hit my 3608 buy level we rallied to my revised 3625 T/P level and I am still flat. Today, the S&P has support from 3555/3575 where I will also be a buyer with a 3539 ‘’Closing Stop’’. Given the background I just cannot be a seller at current prices still believing that we are on the cusp of a massive rally in the S&P given the backdrop, including sentiment levels at all-time lows.
EUR/USD
The Euro sold off to my .9700 buy level. I am still long and I will add to this position at .9640 with the same .9585 ‘’Closing Stop’’. I will have a T/P level at .9770 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
March Dollar Index
No Change. I am still short at 108.90 with a now higher 110.85 exit level. If this level is triggered, I will be back with a new update for my Platinum Members.
Cash DAX
Despite the backdrop the DAX held in reasonably well yesterday which is probably no surprise after falling over 1000 points in the last few days. I am still flat and today I will arise my buy level to 12000/12100 while leaving my 11895 ‘’Closing Stop’’ unchanged.
Cash FTSE
This morning the FTSE has hit yesterday’s buy range and a I am now long here at 6885. I will add to this position at 6815 with the same 6775 stop. I will have a T/P level at 6950 on this position.
Dow Rolling Contract
After the S&P broke the 3600 level, the Dow accelerated lower to my 20120 buy level before rallying 300 points on comments from Fed Member Brainard. Unfortunately, I covered this position too early at 29100 and I am still flat. This morning the Dow is opening lower at 28950. We have further support from 28650/28900 where I will again be a buyer with a lower 28395 ‘’Closing Stop’’.
Cash NASDAQ 100
Yesterday, saw new lows for the NDX with the market now trading 33% lower on the year. This is a huge move as one support level after another gets broken. The NDX had a late rally but closed below my stop level. I exited Friday’s 11280 long position at 10985 and I am still flat. This morning the NDX is again selling off, trading at 10820 as I go to press. Last night’s close was right on the Monthly 50 MA. This level should offer support in a severely oversold market. Today, I will be a buyer from 10650/10800 with a wider 10495 ‘’Closing Stop’’.
December BUND
Wrong! I was stopped out of my 138.25 long position at 136.95 and I am still flat. If bond yields keep rising then it will not be long until the ECB will be in trouble given the level of bonds that they own with a negative interest rate. The Bund has further support from 134.80/135.80 where I will again be a buyer with a 133.95 ‘’Closing Stop’’.
Gold Rolling Contract
The stronger Dollar saw Gold trade lower to my 1670 buy level. I am still long and I will add to this position at 1655 with an now lower 1643 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. I am still long Silver at an average rate of 20.05 with the same no stop strategy. I will now lower my T/P level to 20.60.
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