U.S. Equity Markets finished Tuesday higher ked by the 2.10% gain in the NASDAQ 100, as short positions again got slammed. Markets extended weekly gains with some support from lower yields and a weaker dollar. U.S. Treasury Secretary Janet Yellen fuelled speculation of bond buying to improve liquidity and cap gains on yields. The October Consumer Confidence Index and Richmond Fed Index both missed expectations as pricing pressures reversed recent relief. Home price growth cooled in both the Case-Shiller and Federal Housing Finance Agency indexes for August. After the close we saw earnings from Alphabet (GOOGL) and Microsoft (MSFT). The reaction so far is negative, given the short-term severely overbought conditions across the board. More signs of a domestic economic slowdown are emerging. The Fed has been waiting on tangible results from economic data points that prove its rate hikes are working. With every passing month that those data points fail to convince the Fed, there is a growing risk that we are only one more aggressive rate hike away from igniting a deep economic downturn. Fed Chairman Jerome Powell has already told us the central bank is dead set on bringing down inflation growth to its 2% target. For inflation to ease, economic growth must slow. In turn, demand for goods will fall further. Powell has recently acknowledged that incoming data points are beginning to suggest we are close, but he feels it’s still too early to arrive at a conclusion. However, once the Fed is convinced of its policies’ effectiveness, it can begin to think about slowing or stopping interest-rate hikes. The change should boost investors’ outlook for risk assets like stocks and spur a sustained rally in the S&P 500 Index. On Monday, the S&P Global preliminary U.S. Composite PMI for October may have just hinted that the economy is finally feeling the Fed’s rate hikes
Flash U.S. Composite PMI for October fell to 47.3 (September: 49.5)
Flash U.S. Services PMI for October fell to 46.6 (September: 49.3)
Flash U.S. Manufacturing PMI for October fell to 49.9 (September: 52.0)
The index – which surveys over 800 private-sector companies in the manufacturing and service sectors – provides us with a real-time update on the overall economic landscape. The number 50 is key as it’s the dividing line between expansion (above) and contraction (below) within the private sector. The flash composite new orders index slid to 49.0 from a final reading of 50.9 in September. October’s reading showed U.S. business activity contracted for a fourth straight month. Those surveyed reported weaker client demand as the primary driver. This is a significant development because the data tends to be a leading economic indicator. In other words, if the private sector is purchasing fewer goods, overall domestic activity is likely to slow shortly after. That is because suppliers place fewer orders for goods when they believe that consumers won’t buy them. Chris Williamson, the chief business economist of S&P Global Market Intelligence, described the October data as an indication that the economic downturn has gathered significant momentum. But keep in mind that the Fed is focused on the long term. It is not just looking for one or two months of slowing data. It will maintain high rates until it sees a sustainable and significant decline in inflation, and until supply and demand come back into balance, the Fed will keep hiking rates to engineer a faster alignment. The takeaway is that economic data is starting to point toward slowing growth. But investors are looking for more signs that a rate-policy pivot is close. While this all may weigh on the near-term outlook for the stock market, it won’t last forever. But as I have said, rate hikes take time to manifest in economic indicators. The delicate decision-making is now left to the central bank to answer the question of how long they are willing to gamble that more rate hikes are the answer. That is why we want to keep our focus on the horizon. There is impetus building for a rally, but we are just not there yet. Slowing inflation would signal to the Fed that its rate-hike policy is working, allowing the central bank to back down on additional aggressive rate hikes. That change in monetary policy outlook should boost investor sentiment toward risk assets like stocks and boost the long-term outlook for the S&P 500. Within the S&P 500, 10 of the 11 sectors finished higher. European Markets closed higher. Markets extended their gains despite little change in the narrative among investors. Investors are eyeing the growing likelihood of the Federal Reserve pivoting, while historically low sentiment supports equity gains. Meanwhile, Sterling and Gilts rally as Rishi Sunak begins forming the new U.K. government. The latest Ifo Business Climate Index for Germany showed a steadying – albeit still low – figure. The European Central Bank’s (“ECB”) latest bank lending survey showed a significant tightening in credit standards for households and firms while investors look toward the ECB’s policy decision tomorrow afternoon. In Asia, Markets continue to deal with bearish sentiment among investors as China’s Zero-COVID policy, private sector weakness, and increasing tensions over Taiwan underpin the country’s economic struggles. Incoming China Premier Li Qiang is expected to boost stimulus to revive economy. Japan’s two-year yield approaches positive territory, putting the era of negative-yielding debt close to an end. New Zealand’s central bank is hopeful that inflation has peaked even though it was higher than expected in the third quarter. Elsewhere, Oil closed 0.40% higher while Gold again traded in a narrow range closing higher by 0.21%
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 lost 123 points yesterday and is now ahead by 9137 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 1.63% higher at a price of 3859.
The Dow Jones Industrial Average closed 337 points higher for a 1.07% gain at a price of 31,836.
The NASDAQ 100 closed 2.10% higher at a price of 11,669.
The Stoxx Europe 600 Index closed 1.44% higher.
This morning, the MSCI Asia Pacific Index rose 0.8%.
This morning, the Nikkei closed 0.67% higher at a price of 27,431.
Currencies
The Bloomberg Dollar Spot Index closed 1.2% lower.
The Euro closed 0.8% higher at $0.9960.
The British Pound closed 1.50% higher at 1.1450.
The Japanese Yen rose 0.9% closing at $148.10.
Bonds
Germany’s 10-year yield closed 11 basis points lower at 2.21%.
Britain’s 10-year yield closed 14 basis points lower at 3.63%.
US 10 Year Treasury closed 10 basis points lower at 4.10%.
Commodities
West Texas Intermediate crude closed 0.40% higher at $87.01 a barrel.
Gold closed 0.21% higher at $1653.10 an ounce.
This morning on the Economic Front we have Euro-Zone Money Supply at 9.00 am. This is followed by U.S. MBA Mortgage Applications at 12.00 pm. Next, we have Wholesale Inventories and Trade Balance at 1.30 pm. Finally, at 3.00 pm we have New Home Sales and the Bank of Canada Rate Decision.
Cash S&P 500
The huge reversal in Bond Yields and the Dollar saw the S&P come close to testing its 50Day MA (3868). Yesterday’s follow through gains for the S&P was encouraging. The S&P has now rallied over 370 Handles off its post CPI low. The market closed severely overbought and has sold off overnight on the back of the weaker earnings from Google and Microsoft, trading at 3820 as I go to press. I do not expect an aggressive sell-off with the character of the market changing to being a strong buyer on dips. Yesterday, after the S&P hit my 3780 buy level we rallied to my 3793 revised T/P level, before trading the whole of my sell range for a 3826 average short position. As I did not want to be short overnight I covered this position before the 9.15 pm close at 3840 and I am still flat. Today, I will be a buyer on any further dip lower to 3789/3809 with a wider 3772 ‘’Closing Stop’’. I will be a small seller from 3875/3892 with a tight 3905 ‘’Closing Stop’’.
EUR/USD
The Euro just missed my .9840 buy level with a .9849 low print before rallying over 100 points. I am still flat. I will now raise my buy level to .9850/.9920 with a higher .9775 ‘’Closing Stop. .
March Dollar Index
Finally, after holding this 108.90 short position for the last six weeks, the Dollar sold off to my 111.58 exit level and I am now flat. This is the longest position that I have ever held on my service and I am glad to have exited ahead of month-end. The Dollar has short-term resistance from 111.50/112.30 where I will again be a seller with a 113.05 stop. If I am taken short I will have a T/P level at 110.90.
Cash DAX
My DAX plan worked well with the market trading lower to my 12790-buy level before rallying 300 points. This move higher saw my 12890 T/P level triggered and I am now flat. Thankfully, we had no sell level in the DAX given yesterday’s aggressive rally. The DAX has support from 12840/12930 where I will again be a buyer with a 12765 ‘’Closing Stop’’.
Cash FTSE
My FTSE plan worked well as the market traded lower to my 6950-buy level before rallying to my 7005 T/P level and I am now flat. The price action continues to tell me to be a buyer of dips. Today, my buy level will be from 6900/6970 with a tight 6835 ‘’Closing Stop’’.
Dow Rolling Contract
The Dow just missed yesterday’s buy range before surging as expected after testing its 50-Day MA. I will now raise my buy level to 31300/31550 with a 31145 tight ‘’Closing Stop’’.
Cash NASDAQ 100
Frustratingly, the NDX again missed my 11350-buy level by a small margin before leading yesterday’s rally higher. However, post earnings, the NDX is trading 200 points lower. This move lower looks overdone. I will now raise my buy level to 11290/11430 with a higher 11185 ‘’Closing Stop’’.
December BUND
The Bund never came close to yesterday’s buy level, following the aggressive move higher in U.K Gilts and I am still flat. Given the fact that the Bund has rallied almost 350 points this week I am reluctant to chase the market higher. At the same time I do not want to be short. The Bund has support from 136.70/137.50 where I will be a small buyer with a 135.95 ‘’Closing Stop’’.
Gold Rolling Contract
No Change. I will now raise my buy level to 1627/1642 with a higher 1615 ‘’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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