U.S. Markets closed mixed as the Dow closed lower by 1.14% while the NAADAQ continued its good run closing with a small gain of 0.14%. The VIX reversed most of Friday’s fall, closing higher by 5.5%. The New York Fed Empire Survey showed a big headline contraction for January, with a reading of negative 32.9, compared with expectations for negative 9.0 and December’s negative 11.2. This is the lowest level since mid-2020 and the fifth-worst reading in history. On a positive note, prices paid continued to decline as inflation pressures keep easing. Morgan Stanley’s (MS) CIO Mike Wilson reaffirmed his pessimistic outlook for U.S. stocks, saying margins and earnings are likely going to disappoint and reset guidance lower. Goldman Sachs (GS) and Morgan Stanley reported major earnings misses as a barren merger and acquisition landscape hurt both firms. The U.S. is expected to hit a debt ceiling by Thursday as Secretary of the Treasury Janet Yellen warns congress of ramifications. Investors look forward to the rest of the holiday-shortened week, with Producer Price Index (“PPI”) figures, retail sales, and housing data on deck. The bond market is poised for steady gains this year. Since the second half of 2021, one topic has been front and centre for every investor… inflation! After all, Congress and the Federal Reserve unleashed more than $10 trillion worth of stimulus on the U.S. economy on the heels of the COVID-19-driven financial collapse. They were trying to stave off another economic depression like we saw in the 1930s. But, like any other time, the government meddles with the economy or industry, something gets broken. And this time was no different! Individuals flush with money spent it on everything. Demand outstripped the available supply. So, producers charged more because their costs were rising, and they saw the opportunity to make more money. The net effect of this was runaway inflation. So, the Fed had little choice but to raise interest rates. The idea was to kill economic demand and increase the value of the Dollar. That way, supply chains could rebuild inventories and prices could stabilise. That would help bring costs back under control. As a result, the Federal Funds Rate rose faster than it has since 1980, going from 0% to 4.5% in 2022, which is a problem for bonds. You see, fixed-income prices and interest rates have an inverse relationship… When yields are rising, prices fall, and vice versa. So, if you are a bondholder, or thinking about buying them, you don’t want to invest when you think rates will rise rapidly. Your best bet is to wait it out and get in when you think the rate-hike cycle has ended. Based on recent commentary from a key central bank policymaker, the end could be quickly approaching. As COVID-19 allowed individuals and households to work remotely, they did not need to spend as much on things like travelling to work or dining out. That resulted in them having more money to spend. We can see that at the start of the pandemic in 2020, households had record levels of disposable money. So, the introduction of even more stimulus in 2021 meant the party kept on going. The result was super-charged demand for all types of goods. Supply chains were overwhelmed, and prices shot up as a result. Last year, as rates went up in response, bondholders got destroyed. Debt investors either dumped some of their holdings or abstained from the market altogether. They decided the best bet was getting in at a later date when the central bank stops raising rates. That way, they can capture better returns from both an income and capital perspective. On a total return basis (dividends reinvested), TLT lost 31.2%, IEF dropped 15.2%, and SHY fell 3.9%. Those are noteworthy changes compared with their long-term averages. Over the last 20 years, TLT has gained 4.4% per year, IEF has increased 3.5%, and SHY has added 1.6%. In other words, the underperformance of these assets was anything but normal. But that poor performance means they are set up for a snapback rally and that opportunity lies ahead. Over the past few years, Federal Reserve Bank of St. Louis President James Bullard has been the most prescient of all the central bank policymakers. He called for loosening policy ahead of the COVID-19 pandemic and began demanding rate hikes in the summer of 2021. Last year, Bullard was the most hawkish (inclined to raise interest rates) of any member of the rate-setting Federal Open Market Committee. In the fall, he stated rates may need to go as high as 7%. But that has recently changed. Last week, the St. Louis Fed chief said interest rates may finally be reaching a level that should restrict inflation growth. He said raising the Federal-Funds target to the 5% to 5.25% level should give the central bank room to stop increasing and study the economic fallout. In fact, he said at that level, the tight labour market should be enough to stop output from experiencing any serious declines. If you are a bond investor, or intend to be, that is great news. Given Bullard’s past foresight, it’s a signal the uncertainty of how high interest rates will rise is behind us. That means anyone wanting to invest in 10-year U.S. Treasurys can lock in a yield of around 3.5%, a much better rate than 2020’s 0.5% or the S&P 500 Index’s 1.7%. So, as money managers get a better sense that the rate-hike cycle is coming to an end, do not be surprised when they grow more optimistic about fixed-income assets. As they start chasing those attractive yields, demand will overwhelm available supply. Eventually, that will drive the underlying value of those bonds higher. So, the situation should now provide investors with the opportunity to attain a steady income stream with plenty of upside potential. Within the S&P 500 Index, seven of the 11 sectors finished lower. European Markets closed mixed. The German ZEW Survey showed investor sentiment reached positive territory in January for the first time since early 2022 – before Russia invaded Ukraine, while U.K. Average Earnings were marginally higher as the tight labour market continues to serve as a headwind for easing inflation. Bond markets surged following a Bloomberg report that said the European Central Bank (“ECB”) would consider slowing rate hikes to 25 basis points following February’s meeting. In Asia, Japanese PPI grew at an annualised rate of 10.2% in December – a 42-year high as higher import costs and a weak yen continue to hinder producer margins. Elsewhere, Oil rose 1.47% while Gold closed lower by 0.56% after a late rally in the U.S. Dollar.
To mark my 2700th 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 275 points yesterday and is still ahead by 2595 points for January, after finishing December with a gain of 2054 points. November ended with a gain of 4789 points, while finishing October with a record gain of 9619 points, making 6660 points in September, 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 0.20% lower at a price of 3990
The Dow Jones Industrial Average closed 391 points lower for a 1.14% loss at a price of 33,910.
The NASDAQ 100 closed 0.14% higher at a price of 11,557.
The Stoxx Europe 600 Index closed 0.18% higher.
Yesterday, the MSCI Asia Pacific rose 0.4%.
Yesterday, the Nikkei closed 1.23% higher at a price of 26,138.
Currencies
The Bloomberg Dollar Spot Index closed 0.1% higher.
The Euro closed 0.1% lower at $1.0802.
The British Pound closed 0.6% higher at 1.2278.
The Japanese Yen rose 0.3% closing at $128.15.
Bonds
Germany’s 10-year yield closed 9 basis points lower at 2.08%.
Britain’s 10-year yield closed 3 basis points higher at 3.43%.
U.S.10 Year Treasury closed 2 basis points lower at 3.48%.
Commodities
West Texas Intermediate crude closed 1.47% higher at $81.03 a barrel.
Gold closed 0.56% lower at $1911.10 an ounce.
This morning on the economic front we have U.K. CPI and Retail Price Index at 7.00 am. Followed by Euro-Zone CPI and Construction Output at 10.00 am. Next, we have U.S. MBA Mortgage Applications at 12.00 pm. At 1.30 pm we have Retail Sales and PPI, followed by Capacity Utilisation and Industrial Production at 2.15 pm. At 3.00 pm we have Business Inventories and the NAHB Housing Market Index. Finally, we have the Beige Book at 7.00 pm and the Total Net TIC Flows at 9.00 pm.
Cash S&P 500
There is no doubt that we are approaching a key pivot point in the S&P. The Weekly 50 MA is above the market at 4048 while the VIX has dropped to the key 17/18 support level. Each time the S&P has hit its Weekly 50 MA the market has dropped hard. On top of this every time the VIX hits the key 18 support level it surges. Remember, we still have an open gap in the VIX way above current prices at 45. PPI and CPI this week should determine which way the market breaks. With the McClellan Oscillator so stretched and $NYMO above an unstainable 100 I find it very difficult to be a buyer of the S&P. My S&P plan worked well yesterday as the S&P spiked to my 4012-sell level before trading lower to my 3996 T/P level and I am now flat. Ahead of PPI this afternoon, I will again be a seller of the S&P from 4030/4048 with a tight 4061 ‘’Closing Stop’’. My only interest in buying the S&P is on a further dip lower to 3935/3953 with a 3919 ‘’Closing Stop’’.
EUR/USD
No Change. The Euro hit an afternoon high at 1.0870 before selling off over 80 points and I am still flat. Today, I will lower my buy level slightly to 1.0660/1.0730 with the same 1.0615 ‘’Closing Stop’’.
March Dollar Index
It took a while but finally the Dollar rallied to my 102.60 T/P level overnight on my latest 102.10 long position and I am now flat. Given how oversold the Dollar is trading, I will continue to be a buyer of dips. Today, my buy level will be from 101.80/102.40 with a lower 101.35 ‘’Closing Stop’’.
Cash DAX
My DAX plan worked well with the market trading higher to my 15225 sell level before selling off to my revised 15160 T/P level and I am now flat. Given how overbought the DAX is trading I will continue to be a seller of rallies. Today, my sell level will be from 15300/15380 with a higher 15455 tight ‘’Closing Stop’’.
Cash FTSE
For the third consecutive trading session, the FTSE again closed over 7850 and I am still flat. I will not chase the market higher leaving my 7700/7770 buy level unchanged with the same 7635 ‘’Closing Stop’’.
Dow Rolling Contract
Unfortunately, the Dow fell shy of my sell level by 100 points before falling over 400 points yesterday afternoon. I am still flat. I will now lower my sell level to 34280/34530 with a lower 34655 ‘’Closing Stop’’. I still do not want to be long the Dow at this time.
Cash NASDAQ 100
I am still flat as lower Bond Yields again sees the NDX outperform the other major American Indexes. Today, I will lower my buy level slightly to 11200/11350 with a wider 10995 ‘’Closing Stop’’.
March BUND
No Change. I am still flat and will continue to be a buyer on any dip lower 136.20.136.90 with the same 135.45 ‘’Closing Stop’’.
Gold Rolling Contract
No Change. Gold consolidated last week’s move higher closing last night again above $1900 at a price of 1915. I am still flat and as mentioned yesterday I am reluctant to buy Gold at these levels. Today, I will continue to be a buyer on any dip lower to 1968/1883 with a tight 1855 ‘’Closing Stop’’.
Silver Rolling Contract
Silver continues to find stiff resistance above $24. I am still long from Monday at 24.00 with the same 24.60 T/P level. I will add to this trade at 23.30 with the same no stop policy. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Recent Comments