U.S. Equity Markets finished Tuesday higher following another volatile trading session that saw plenty of two-way price action. The S&P led the gains, closing higher by 1.14% Markets continued Monday’s momentum thanks to the consensus belief that historically low sentiment and technical positioning are the causes for the rally. Bank of America’s latest Global Fund Manager Survey showed cash levels at 21-year highs and global growth expectations near record lows. According to the National Association of Homebuilders/Wells Fargo Housing Market Index, Homebuilder Sentiment fell sharply in October, down for a 10th-straight month. And according to the technology news website ‘’The Information’’, Apple is cutting its iPhone 14 production just weeks after its release – an indication that consumer discretionary spending remains muted. Bank balance sheets are about to get an influx of cash. Yesterday, I discussed the rapid rise in mortgage rates due to the Federal Reserve’s rate-hike plans. Over the past year, the central bank has been dead set on bringing inflation growth back down. To do so, it has increased interest rates by 300 basis points and is now prepared to raise them by another 150 basis points by early 2023. As a result, the Federal-Funds target rate has jumped from a range of 0% to 0.25% to a new range of 3% to 3.25% – a much faster pace than previous rate-hike cycles. This has sent mortgage rates higher. By the middle of 2021, as the Fed began talking about tightening monetary policy, the interest rate on a home loan was right around 3%. By the start of 2022, it was up to 3.5%. And now, with the 3% increase in the Federal-Funds target so far, the current rate on a conventional mortgage is right around 6.8%. This is putting money back onto banks’ balance sheets in a hurry. You see, the rapid pace of rate increases is a windfall for lenders who have been starved for years, looking to make more net interest income (“NII”). NII is the difference between what banks earn from their lending activities and what they then pay out on liabilities. The amount of cash being pumped onto lenders’ balance sheets is astounding. 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. The central bank’s rate-hike plans should function as a continued tailwind for the banking sector. I looked at the U.S. Census Bureau’s average sales price for a new single-family home compared with the prevailing mortgage rate. In the second quarter of 2020, the average price for a single-family home was around $322,000 with the mortgage rate at 3.07%. For 2021’s second quarter, the sales price had jumped to $382,000 and the mortgage rate was down to 2.8%. Based on third-quarter data so far, the average house goes for around $451,000 and mortgage rates are at 6.9%. From the second quarter of 2021 to the same quarter this year, the total interest paid on the median home-sale price jumped from $183,349 to $479,681. Over the lifetime of the loan, that is a return on investment (“ROI”) increase of 61%. From the third quarter of 2021 to the third quarter of 2022, the interest over the life of the loan jumped from $211,940 to $621,163, which is an ROI increase of 86%. Banks are pulling in a ton of cash, with most of it being upfront interest payments compared with paying down the principal. And as of the third quarter of 2021, it would take homeowners seven years before they would start paying more toward the principal than interest. In the third quarter of this year, that jumped to 20 years. In other words, because the total amount of interest on loans has increased and it takes longer to pay that portion down, much more of homeowners’ early mortgage payments are going to profits. That is important because several years from now, rates are going to drop once more. When that happens, there is going to be a refinancing wave and the process will start over at a lower rate. This means banks will receive a new wave of basically margin-only payments for a few more years. This will then improve the balance sheets of regional lenders. Even if they make fewer loans, they should be much more profitable and take in more money in the process. At the same time, they should not have to attract as many deposits that will require higher rates of interest. 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. Currencies retreated in the U.K. following the Bank of England’s denial that it was planning to delay the start of Quantitative Tightening. Germany’s ZEW Economic Sentiment Index edged up, but underlying weakness remains as the Current Conditions Index declined again. The survey also showed that the likelihood of a declining GDP over the next six months has risen significantly. Meanwhile, the Bundesbank’s President Joachim Nagel warned against the European Central Bank ending its rate-tightening cycle too soon. In Asia, the markets gained as risk sentiment improved following a series of policy reversals out of the U.K. and strong bank earnings from the U.S. Scheduled Chinese gross domestic product (“GDP”) and activity data were delayed again. Minutes from the Reserve Bank of Australia prompted debate about the magnitude of future rate hikes. New Zealand inflation came in hotter than expected and remains at three-decade highs. The Bank of Japan will likely revise upward its inflation forecast next year while lowering the GDP outlook. Despite declines in the Dollar, the Yen has made little ground. Elsewhere, Oil fell 2.59% while Gold again closed lower by 0.44%.
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 425 points yesterday and is now ahead by 6747 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 1.14% higher at a price of 3719.
The Dow Jones Industrial Average closed 337 points higher for a 1.12% gain at a price of 30,523.
The NASDAQ 100 closed 0.77% higher at a price of 11,147.
The Stoxx Europe 600 Index closed 0.34% higher.
This morning, the MSCI Asia Pacific Index rose 0.8%.
This morning, the Nikkei closed 0.46% higher at a price of 27,281.
Currencies
The Bloomberg Dollar Spot Index closed 0.4% higher.
The Euro closed 0.1% higher at $0.9842.
The British Pound closed 0.7% lower at 1.1340.
The Japanese Yen fell 0.6% closing at $149.10.
Bonds
Germany’s 10-year yield closed 5 basis points higher at 2.32%.
Britain’s 10-year yield closed 2 basis points lower at 3.94%.
US 10 Year Treasury closed 5 basis points higher at 4.03%.
Commodities
West Texas Intermediate crude closed 2.59% lower at $83.10 a barrel.
Gold closed 0.44% lower at $1643.10 an ounce.
This morning on the Economic Front we already had the release of U.K CPI which rose 10.1% versus 10.0% expected. Next, we have Euro-Zone Inflation and Construction Output at 10.00 am. At 12.00 pm we have U.S. MBA Mortgage Applications followed by Building Permits and Housing Starts at 1.30 pm. Finally, we have the Beige Book at 7.00 pm.
Cash S&P 500
The S&P witnessed plenty of two-way price action. Having hit a high at 3765, the S&P fell 80 Handles, closing Monday’s gap as expected on the back of the announcement that Apple was cutting production. However, having tagged the 3686 support level, the S&P rallied into the close. This move continued overnight on the back of better than expected results from Netflix, that saw the S&P re-test yesterday’s highs before again selling off this morning on the release of the higher than expected U.K. CPI. My S&P plan worked well as the market hit my 3695 buy level before rallying to my revised 3713 T/P level and I am now flat. The S&P is again short-term overbought but given the sentiment and positioning backdrop I will not be a seller. The S&P has support from 3688/3708 where I will again be a strong buyer with a 3673 ‘’Closing Stop’’.
EUR/USD
I am still flat the Euro. I will now raise my buy level to .9740/.9810 while leaving my .9675 ‘’Closing Stop’’ unchanged.
March Dollar Index
No Change. I am still short at 108.90 with the same higher 111.20 exit level. Unfortunately, the Dollar just missed my exit level before rallying again overnight. If this level is triggered, I will be back with a new update for my Platinum Members.
Cash DAX
I am still flat the DAX as the market again fell shy of my buy range. I am reluctant to chase the DAX higher given the extent of the rally since last week. Today, my buy level will be from 12590/12690 with a higher 12495 ‘’Closing stop’’.
Cash FTSE
My FTSE plan worked well with the market hitting my 6920 buy level before rallying to an overnight high at 6995. This move higher enabled me to cover this position at 6965 and I am now flat. The FTSE has support from 6825/6905 where I will be a strong buyer with a tight 6775 Fixed Stop.
Dow Rolling Contract
Frustratingly the Dow missed my initial 29250 buy level by 45 points before turning around to hit a high at 30775 overnight. Given how overbought the Dow is trading short-term I am reluctant to chase the market higher. Today, my buy level will be from 30060/30320 while leaving my 29895 ‘’Closing Stop’’ unchanged.
Cash NASDAQ 100
The NDX plan could not have worked better with both my sell range and buy range triggered yesterday in what turned out to be a wild trading session for tech stocks given the news from Apple. After the market hit my 11370 sell level I covered this position at 11320 before buying the NDX hit my 11090 buy level with a 11035 low print. Unfortunately, I covered this long position too early at 11145 and I am now flat. Overnight, the NDX hit a high at 11325 before selling off to sit at 11200 as I go to press. The NDX has strong support from 10970/11120 where I will again be a buyer with a higher 10845 ‘’Closing Stop’’. The NDX has resistance from 11400/11550 where I will be a small seller with a 11675 stop.
December BUND
Shortly, after I posted yesterday morning the Bund traded lower to my 136.20 buy level before having a nice rally to my 137.05 T/P level and I am now flat. This morning, the Bund is opening weaker on the back of the higher UK CPI data. We have support from 135.25/136.05 where I will again be an aggressive buyer with a lower 134.45 ‘’Closing Stop’’.
Gold Rolling Contract
I am still flat. As I am still long Silver, I will now lower my Gold buy level to 1617/1632 with a 1605 ‘’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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