U.S. Equity Markets finished Monday higher as Friday’s losses were reversed, led by the 3.46% gain in the NASDAQ 100. Markets gained momentum following better sentiment out of the U.K., as the new Chancellor announced measures to calm markets. Bank earnings in the U.S. continue to highlight the tailwind of higher interest rates, with net interest income figures beating estimates. The New York Federal Reserve’s Empire State Manufacturing Survey for October showed a sizable decline, with the prices paid component rising after three straight monthly drops. A fourth 75-basis-point rate hike this year at the Fed’s November meeting continues to look likely. The terminal rate ended last week just under 5.00%, up from 4.67% before the September inflation reading. Investors will continue to evaluate economic signals and further earnings next week with the expectation that the Fed will continue to be aggressive. Banks are the real winners from the Federal Reserve’s interest rate hikes. Since late 2021, the Federal Reserve has told us it is worried about inflation growth. After all, the U.S. Bureau of Labour Statistics’ Consumer Price Index (“CPI”) growth has risen from a low of 0.1% in May 2020 to 8.2% this past September. So, the Fed is trying to stabilise prices by strengthening the Dollar. But in the process, it is driving up the cost of home loans. The change is a windfall for lenders who have been starved for years to make more net interest income (“NII”). NII refers to the difference banks take in for loans and then pay out on liabilities. Over the last year, the Federal-Funds rate target has jumped from a range of 0% to 0.25% to a range of 3% to 3.25%. It has been much faster than previous rate-hike cycles. And the change is putting money back onto banks’ balance sheets in a hurry. Just look at JPMorgan’s Third-Quarter results on Friday. The company reported a record NII of $17.6 billion. It also guided total NII for the year to $61.5 billion compared with its expectation for $58 billion last quarter. But there is a catch. The Fed has said it is going to raise rates another 1.5% by next March. That means banks are going to make even more money on loans. The central bank’s rate-hike plans should function as a continued tailwind for the banking sector. According to mortgage-finance provider Fannie Mae, the rate on a conventional 30-year mortgage sat around 2.7% in December 2020. At the time, the economy was trying to recover from COVID-19-related lockdowns. The Fed needed to keep monetary policy loose so banks would lend, and they needed cheap money in the system so households and businesses would want to borrow. Then in March 2021, Congress introduced another $2 trillion in fiscal stimulus. This was in addition to child tax credits, increased unemployment benefits, and moratoriums on student loans and rent payments. In other words, the system was overstimulated. The result was a 5.7% economic output in 2021 compared with the 2.3% average in the 10 years between the end of 2009 and 2019. The domestic economy was overheated. The only way to change that was through Fed policy tightening. After all, governments are not inclined to spend less. So, by the Autumn of 2021, the message became clear. The central bank needed to raise interest rates, end its bond purchase programme, and shrink its balance sheet. Mortgage rates started to rise. By the middle of 2021, they were already at 3%. By the start of 2022, that level had moved up to 3.5%. And now, with the 3% increase in the Fed-Funds target so far, the current rate on a conventional mortgage is right around 6.8%. So, I decided to look at the amount of cash being pumped onto lenders’ balance sheets, and the results were astounding, which I will go through at length tomorrow. Within the S&P 500 Index, all 11 sectors finished higher. European Markets rose. Markets finished higher as U.K. policy headlines and ongoing inflationary pressures remain on investors’ minds. The new U.K. Chancellor, Jeremy Hunt, announced plans to scrap the majority of the previously announced tax cuts to calm markets. Comments from Bank of England Governor Andrew Bailey hint that the central bank will move forward with another aggressive rate hike in November. Additionally, European Central Bank officials suggest the central bank will perform restrictive actions to the bank’s balance sheet once rates return to the neutral level – which is believed to be around 2.00%. In Asia, the markets were largely divided as investors digested U.S. inflation news from last week along with emerging developments out of the U.K.’s economic policy reversal. Chinese President Xi Jinping’s speech at the Communist Party Congress was relatively uneventful as he asserted his existing economic and pandemic policies. He also reasserted his commitment toward a forceful unification with Taiwan. Japan remains ready to act on further yen volatility, as Asian currencies continue to make marginal ground against a strong Dollar. South Korea’s central bank governor, Rhee Chang-yong, said that forward guidance remains difficult as the won weakens further. Elsewhere, Oil closed flat while Gold rose 0.40%.
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 made 70 points yesterday and is now ahead by 6322 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 2.65% higher at a price of 3677.
The Dow Jones Industrial Average closed 550 points higher for a 1.86% gain at a price of 30,185.
The NASDAQ 100 closed 3.46% higher at a price of 11,062.
The Stoxx Europe 600 Index closed 1.83% higher.
This morning, the MSCI Asia Pacific Index rose 1.1%.
This morning, the Nikkei closed 1.49% higher at a price of 27,175.
Currencies
The Bloomberg Dollar Spot Index closed 0.9% lower.
The Euro closed 0.9% higher at $0.9830.
The British Pound closed 1.7% higher at 1.1403.
The Japanese Yen fell 0.4% closing at $148.81.
Bonds
Germany’s 10-year yield closed 7 basis points lower at 2.27%.
Britain’s 10-year yield closed 41 basis points lower at 3.96%.
US 10 Year Treasury closed 4 basis points lower at 3.98%.
Commodities
West Texas Intermediate crude closed 0.06% lower at $85.31 a barrel.
Gold closed 0.40% higher at $1651.10 an ounce.
This morning on the Economic Front we have the German and Euro-Zone ZEW Survey at 10.00 am. This is followed by a U.K. 10-Year Gilt Auction at 10.30 and by U.S. Industrial Production and Capacity Utilisation at 2.15 pm. Finally, we have the NAHB Housing Market Index at 3.00 pm and the Net Long-Term Tic flows for August at 9.00 pm.
Cash S&P 500
The S&P surged yesterday, not giving short positions any chance to cover their positions. In the process the S&P has left a massive gap from Friday’s Chicago close of 3583 to yesterday’s 3640 low print. This rally has continued overnight with the S&P now trading at 3740 as I go to press. If this level holds into the Cash Open this afternoon, it will be another 60 Handle Gap. Even though charts are still oversold it is very difficult to chase a market higher with two large open gaps as we saw from last week when the S&P completely filled last week’s pre CPI ‘’Open Gaps’’ by the end of the week. It is no surprise that we have seen such a large rally given the fact that retail traders bought $19.9 billion worth of Puts to open last week while they only bought $6.5 billion of Calls to open. Yet again retail traders have got slammed as buying Puts after such an enormous sell-off this year is selling into the hole. This is the first time in history that Puts were three times Calls. To me this rally looks similar to the massive rally that occurred at the June 3635 low print, resulting in the S&P rallying to an early August high at 4325 before seeing this move higher completely reverse to last Thursday’s 3490 low print. Today, I will be a strong buyer on any dip lower to 3680/3700 with a tight 3655 ‘’Closing Stop’’. Even though the S&P is short-term overbought, I do not want to be a seller of the market at this time.
EUR/USD
Unfortunately, The Euro just missed my .9700 buy level by 15 points before rallying to sit at .9850 as I go to press. The world needs a weaker Dollar and in my opinion it is only a matter of time before this happens. Today, I will raise my buy level to .9730/.9800 with a higher .9675 ‘’Closing Stop’’.
March Dollar Index
No Change. I am still short at 108.90 with the same higher 111.20 exit level. If this level is triggered, I will be back with a new update for my Platinum Members.
Cash DAX
Incredible move in the DAX with the market now trading 400 points higher at 12810 from where I marked prices 24 hours ago. Thankfully, we had no sell level in this market given this massive rally. We have short-term support from 12550/12650 where I will be a small buyer with a higher 12455 ‘’Closing stop’’.
Cash FTSE
The U-Turn on tax cuts from the new Chancellor Jeremy Hunt saw a nice rally in both Sterling and the FTSE , with the FTSE now testing 7000 as I go to press. I am still flat and this morning, I will now raise my buy level to 6850/6920 with a tight 6795 Fixed Stop.
Dow Rolling Contract
The Dow has now rallied 900 points off yesterday morning’s 29800 low print as short positions have been slammed following a now almost 2000-point rally since last Thursday’s post CPI low print. Although, we missed yesterday’s impressive rally, at least we had no calls to go short. The Dow has short-term support from 30000/30250 where I will be a strong buyer with a 29895 ‘’Closing Stop’’.
Cash NASDAQ 100
The two-way volatility in the NDX has been insane over the past number of weeks with a 3% move in either direction now the norm. I am still flat as the market never came close to yesterday’s buy level. The NDX is now short term overbought after rallying 600 points since Friday’s close. The NDX has resistance from 11350/11450 where I will be a small seller with a 11555 stop. The NDX has support from 10900/11100 where I will be a strong buyer with a 10795 ‘’Closing Stop’’.
December BUND
My latest 136 60 long Bund position worked well as the market rallied to my 137.30 T/P level and I am now flat. The Bund has support from 135.60/136.30 where I will again be a buyer with a wider 134.95 ‘’Closing Stop’’.
Gold Rolling Contract
No Change. I will still look to buy Gold on any dip lower to 1623/1638 with the same wider 1609 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. I am still long at 20.05 the same 20.60 T/P level.
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