U.S. Equity Markets continued Friday’s sell-off, led by the NASDAQ 100s 1% loss. This move lower saw the VIX close higher by 2.5% at a price of 26.21. The VIX has now broken above its key 50 and 200 Day Moving Averages. It needs a break and close below 24 to negate this move higher. Equity Markets closed lower Monday as investors digested Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Economic Symposium – which provided little future guidance. Minneapolis Fed President Neel Kashkari said that he was happy to see the reaction to Powell’s comments, asserting markets now better reflect the central bank’s policy intentions. The Dallas Fed Manufacturing Index for August showed an improvement from July but is still in negative territory. Fed Chairman Jerome Powell left the rate-hike-speculation door wide open… Speculators had built up large bets against the S&P 500 and U.S. Treasury bonds while increasing longs in the U.S. Dollar ahead of the event. Those investors were anticipating Powell would deliver increasingly hawkish (inclined to raise interest rates) commentary. The result would be rising yields that would boost the Dollar while weighing on bond prices and stocks. Powell reiterated the same commentary we have been hearing. The central bank will focus on bringing down inflation growth, and investors should expect interest rates to head to the 4% level. So, he did not deliver any incremental commentary around the central bank’s interest-rate outlook leaning toward even more rate hikes than previously forecast. But, at the same time, he didn’t say anything that would convince the naysayers about when the central bank would back down on the pace of interest-rate increases. And the next policy announcement is not until September 20. So, in the process, Powell left the door open for speculation as to the direction of monetary policy. The lack of concrete interest rates guidance may cause near-term uncertainty for the S&P 500…But some of the forward-looking indicators point toward policy changes already having their intended effect. Powell said the rate-hike outcome for the September Federal Open Market Committee (“FOMC”) meeting is still undecided. He noted that after the July meeting, he had said there could be a need for another unusually large rate hike if inflation growth did not cool. But since then, the numbers have shown the dynamic has eased. So, the decision will be based on the incoming numbers for August. Powell said the lower inflation readings for July are welcome, but the FOMC wants to see a sustained move lower. As a result, the central bank is set on moving its policy stance to a level that weighs on cost growth and pushes it lower. The current 2.5% interest rate sits at the neutral level (neither hurts nor helps the economy). However, Powell noted a neutral interest rate is not a stopping point. (That is a level where rates are seen as stopping inflation from growing more.) Instead, monetary policy needs to become more restrictive to drive price growth below the Fed’s objective. Yet, the central bank won’t keep conducting large rate hikes forever. Powell said as rates move higher, it will eventually slow the pace of hikes. He said the base case expectation is for rates to reach roughly 4% through the end of next year – another 1.5% above current levels. Powell said bringing the supply-and-demand picture back into balance will require a very direct approach and a sustained period of below-trend economic growth. The change will result in a softer labour market while, in his own words, also creating some “pain for households and businesses.” But the option of higher inflation is far worse. We must remember there is a lag effect between policy changes and a shift in economic activity. The central bank has said it’s typically a six- to eight-month delay. The incoming data implies demand is already falling back toward pre-pandemic levels… yet we likely still have further to go. However, we are getting back toward levels of sustainability. Longer term, the change will help ease upward pressures on inflation. That will give the Fed room to slow the pace of an interest rate increase and even pause rate increases down the road. That should support a longer-term rally in the S&P 500. Within the S&P 500, nine of the 11 sectors finished lower. European Markets closed lower. Equities dipped on Fed Chair Jerome Powell’s hawkish tone in his speech Friday, putting further pressure on the euro and the European Central Bank (“ECB”) rate-setting policy. The ECB followed in the footsteps of the Fed with the growing consensus for a 0.75% rate hike next month. ECB Chief Economist Philip Lane said that the level of the terminal interest rate outweighs the importance of how fast the bank raises rates. In Asia, Risks of interest-rate hikes remaining aggressive and staying elevated for longer rose after multiple central banks’ comments were hawkish over the weekend. China’s Gross-Domestic-Product growth expectations continue to weaken with consensus now at 3.5% growth for the year, down from 3.9%. The Yuan fell to a new two-year low as the People’s Bank of China set a higher-than-expected reference rate. Elsewhere, Oil rose 4.04% while Gold closed flat.
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For anyone following my Platinum Service it made 150 points yesterday and is now ahead by 1106 points for August, 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 0.67% lower at a price of 4030.
The Dow Jones Industrial Average closed 184 points lower for a 0.57% loss at a price of 32,098.
The NASDAQ 100 closed 0.96% lower at a price of 12,484.
The Stoxx Europe 600 Index closed 2.1% lower.
This morning, the MSCI Asia Pacific Index rose 0.6%.
This morning, the Nikkei closed 1.17% higher at a price of 28,206.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% lower.
The Euro closed 0.3% higher at $0.9996.
The British Pound closed 0.2% lower at 1.1705.
The Japanese Yen fell 0.8% closing at $138.51.
Bonds
Germany’s 10-year yield closed 9 basis points higher at 1.48%.
Britain’s 10-year yield closed 3 basis points lower at 2.60%.
US 10 Year Treasury closed 5 basis points higher at 3.08%.
Commodities
West Texas Intermediate crude closed 4.04% higher at $96.58 a barrel.
Gold closed 0.01% higher at $1737.10 an ounce.
This morning on the Economic Front we have U.K Mortgage Approvals, Consumer Credit and Money Supply at 9.30 am, followed by CPI at 10.00 am, Also, at 10.00 am we have Euro-Zone Economic Sentiment Indicator and Consumer Confidence, Next, we have German CPI at 1.00 pm, followed by U.S. Housing Price Index at 3.00 pm. Finally, we have Consumer Confidence and JOLTS Job Openings at 3.00 pm, ahead of a speech from Fed Member Williams at 4.00 pm.
Cash S&P 500
The S&P just missed my 4010 buy level before getting the expected oversold intra-day bounce. However, that bounce failed as we again rolled over into the close. The S&P remains below the Head & Shoulder Neckline that I mentioned yesterday, giving an eventual target of 3820. The 50-Day MA has still not been tested (4003) and we may well need to see a test of this key support before we have a more meaningful bounce. This would tie in with a McClellan Oscillator reading near -250 which of course is a strong buy signal. Last night, the MO closed at -190 so one more down day should see this reading hit -250. Seasonally, this is a strong period into the first week of September while next Monday the American Markets are closed for Labour Day. Markets are clearly still in shock over the Fed and it will take time for the consequences to fully sink in. I am still flat the S&P, leaving my 3990/4010 buy range unchanged where I will be an aggressive buyer with the same 3973 stop. If I am taken long I will have a T/P level at 4035.
EUR/USD
The Euro is having difficulty in breaking the now key 0.9900 support level. Yesterday was the fourth time we have tested this support before seeing a 100+ point rally. I am still long the Euro at .9980. I will now lower my T/P level to 100.30. I will continue to have no stop on this position 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. The Dollar is trading slightly weaker at 108.60 this morning. My overall view on the Dollar has not changed: The last time the Dollar was this overvalued, at the end of 2016, we quickly saw a 10% decline in the Dollar over the following 12 Months. I am expecting a similar outcome, I just do not know what the catalyst will be. Based on a longer-term outlook, the risk/reward is skewed to the downside. In my view, a key source of prior support has disappeared (strong economic growth) and another is fully discounted and may be on the verge of reversing which of course is a divergence in Central Bank rate hike expectations. I am still short the Dollar at an average rate of 107.50. Given how overbought the Dollar is trading I will have no stop on this position, fully believing that we are close to a reversal in the Greenback. I will continue to leave my T/P level unchanged at 106.80.
Cash DAX
I am still flat the DAX as the market just fell shy of yesterday’s buy range. I will now raise my buy level to 12780/12750 with a higher 12695 stop.
Cash FTSE
The FTSE re-opened after yesterday’s bank holiday and is trading unchanged from Friday’s close. The FTSE has support from 7305/7365 where I will be a strong buyer with a 7249 stop. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
No Change. The Dow has support from 31780/31980 where I will be a strong buyer with the same 31585 stop. If I am taken long I will have a T/P level at 32180.
Cash NASDAQ 100
I am still flat the NDX s the market just missed my initial 12400 buy level before having a 150 intra-day rally. This rally rolled over into the close as the NDX led yesterday’s decline with a loss of 1%. The NDX has now fallen over 1300 points for a 10% decline in the last two weeks closing right on its 50 DAY MA at 12484 last night. I will not chase the market higher leaving my 12200/12400 buy level unchanged with the same 11995 wider Stop.
September BUND
No Change. I am still long the Bund from Friday at 149.80 with the same 148.55 ‘’Closing Stop’’. I will now lower my T/P level to 150.15.
Gold Rolling Contract
My long 1728 Gold position worked well with the market rallying to my 1743 T/P level and I am now flat. Gold has support from 1710/1722 where I will again be a buyer with the same 1699 stop.
Silver Rolling Contract
No Change. I am still long at 18.80 with the same 19.25 T/P level. Given how oversold Silver is trading I will continue to hold this position with no stop.
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