U.S. Equity Markets finished yesterday’s session lower following another volatile trading day. Higher Bond Yields saw the NASDAQ 100 lead the declines with a loss of 0.77%. This move lower saw the VIX close higher by 5,65%. August ISM Services Index came in at 56.9 – up 0.2 percentage points from July and the highest reading since April. Investors continue to digest any positive economic indicators with pessimism as the Federal Reserve continues to receive little resistance that could slow its pace of interest-rate hikes. Within the S&P 500, seven of the 11 sectors finished lower. European Markets closed higher. Markets digested headlines related to European energy crisis following Russia’s prolonged closure of Nord Stream 1. European Union Energy Ministers will meet Friday to consider proposals for easing pressure of soaring energy costs. Liz Truss won the leadership contest and will become the next U.K. Prime Minister. All eyes are on the European Central Bank’s (“ECB”) interest-rate decision Thursday, with experts split on whether the committee will raise rates by 0.50% or 0.75%. ECB rate hikes are about to get aggressive. This week, policymakers in Europe meet for their latest decision on rate hikes. And the rubber is about to meet the road. You see, inflation for both households and businesses is at the highest level since the formation of the Euro-Zone. Just last week, the statistical office of the European Union reported that the Consumer Price Index (“CPI”) growth for August reached 9.1% on a year-over-year basis. That was on top of an 8.9% gain in July, while the Producer price Index (“PPI”) statistics are even worse. They gained 37.9% year over year in July compared with the 36% rise in June. And that does not even include the 17.6% jump in natural gas prices during the month of August. So, the ECB is being backed into a corner. If the Euro continues to weaken, its buying power will drop. That means prices for everything will grow worse. The central bank must act decisively by undertaking a large rate hike if it is going to take a hard stance against inflation. The change should support a weakening Dollar, boosting the outlook for the S&P 500. In July, the ECB raised its benchmark interest rate by 0.5% to get to breakeven. This is in contrast to the Federal Reserve, who has raised rates from 0% in March to 2.5% in July. At the same time, Fed policymakers have also endorsed raising interest rates even further. They have guided for a target rate of 3.8% by the end of this year. So, institutional money managers and retail investors have sought the safety of the Dollar for its rising yield. The result of this divergence in policy direction has been a weakening Euro and a rallying Dollar. But now, ECB policymakers are changing their tune. More and more of them are calling for President Christine Lagarde to get much more aggressive on rate hikes. Board members like Germany’s Joachim Nagel, Holland’s Klaas Knot, and Finland’s Olli Rehn are saying it must focus on fighting rising costs and not worry about a recession. Knot said he would support a 0.75% increase at the meeting in September. Nagel has issued a similar message saying the central bank should worry more about fighting inflation via rate hikes than it should on causing a recession. And Rehn said if it does not take steps to strengthen the Euro, inflation growth will spiral even more out of control. Even board member Isabel Schnabel has changed her tune. The shift is notable because she long supported President Lagarde’s call that inflation was transitory. But now, she said the ECB is at risk of losing the public’s trust. She also feels it has no choice but to raise rates and can’t worry about an economic slowdown. She also cautioned against easing policy at the first sign of inflation growth slowing. This change from the ECB would come right as inflation data in the U.S. is showing signs of slowing. Recent manufacturing survey figures from the Dallas, Kansas City, New York, and Philadelphia regional Fed banks show producer costs are falling. And on Friday, we saw signs of improvement on the domestic labour front. According to the U.S. Bureau of Labour Statistics’ August employment figures, the labour force participation rate increased from 62.1% to 62.4%. The metric is now one percentage point below the February 2020 level of 63.4%. This meant more people were looking for work than a month ago. In fact, there were about 800,000 more available employees in August. At the same time, the number of unemployed people increase by 344,000 to 6 million. This pushed the Unemployment Rate up to 3.7% compared with the expectation of 3.5%. And the growth in hourly wages was 0.3% compared with the expectation of 0.4% and the prior month’s 0.5% gain. These metrics are important from a Fed policy outlook. They tell the central bank that employers are not having as difficult a time finding employees while paying less to hire them. Thought of another way, wage inflation is slowing. Fed Chairman Jerome Powell has said the central bank wants to see a sustained drop in inflation before the central bank begins to back down on its rate-hike plans. The data say we are already seeing that. And ECB policymakers are telling us they need to play catch-up quickly. So, it is not that the Fed is stopping with its rate-hike plan – rather, as we mentioned, that the ECB needs to play catch-up… This should drive the Dollar lower and support a longer-term rally in the S&P 500. In Asia, Markets gave up early gains as fears lingered over central-bank reactions to inflation and Europe’s pending energy crisis. The Reserve Bank of Australia hiked rates by 0.50%. Japanese Finance Minister Shunichi Suzuki reiterated that sharp Yen moves lower were undesirable. And Taiwan’s consumer inflation slowed down in August to 2.66%. Elsewhere, Oil closed 0.16% lower while Gold fell 0.66% on a much stronger Dollar.
To mark my 2625th issue of TraderNoble Daiy 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 65 points yesterday and is now ahead by 995 points for 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 0.41% lower at a price of 3908.
The Dow Jones Industrial Average closed 173 points lower for a 0.55% loss at a price of 31,145.
The NASDAQ 100 closed 0.72% lower at a price of 12,011.
The Stoxx Europe 600 Index closed 0.24% higher.
This morning, the MSCI Asia Pacific Index fell 0.8%.
This morning, the Nikkei closed 0.70% lower at a price of 27,431.
Currencies
The Bloomberg Dollar Spot Index closed 0.6% higher.
The Euro closed 0.2% higher at $0.9907.
The British Pound closed 0.2% higher at 1.1481.
The Japanese Yen fell 2% closing at $143.33.
Bonds
Germany’s 10-year yield closed 6 basis points higher at 1.62%.
Britain’s 10-year yield closed 11 basis points higher at 3.05%.
US 10 Year Treasury closed 15 basis points higher at 3.35%.
Commodities
West Texas Intermediate crude closed 0.16% lower at $85.84 a barrel.
Gold closed 0.66% lower at $1699.90 an ounce.
This morning on the Economic Front we already had the release of German Industrial Output which fell 0.3% versus -0.5% expected. At 10.00 am we have Euro-Zone GDP and Employment Change. At the same time, we have the Bank of England Monetary Policy Report Hearings where BOE Members Mann, Pill, Tenreyro and Governor Bailey are all due to speak. Next, we have U.S. MBA Mortgage Applications at 12.00 pm and the Trade Balance at 1.30 pm. At 3.00 pm we have the Bank of Canada Rate Decision. Finally, Fed Member Brainard speaks at 3.35 pm followed by the release of the Beige Book at 7.00 pm.
Cash S&P 500
The S&P had a wide 80 Handle Range yesterday on the first real trading session for September as traders return to their desks after the summer vacation. Although the S&P may hit my 3820 Head & Shoulders target price, I just cannot bring myself to short the market following a 440 Handle sell-off in the S&P over the past three weeks. The McClellan Oscillator closed at its lowest level in many years with a -322 print while the $NYMO closed at -99 having hit an intra-day low of -105. This is the lowest reading for 2022 and history tells us when these two key signals are so oversold that we generally have a subsequent 5/10% rally in the markets. This tells me that Bears are under the gun to force breaks to new lows. The big questions is what if they cannot with readings so oversold already. If the S&P does trade lower to 3820 I will be an aggressive buyer with no stop. The 3820 area is also where the 150 Weekly MA comes in and this was the support level that we bounced off in June. Yesterday, the S&P traded the whole of my buy range for a now 3919 average long position. I will leave my 3899 ‘’Closing Stop’’ unchanged while lowering my T/P level to 3926.
EUR/USD
No Change. I am still long from last week at .9990 with the same 1.0030 T/P level. I continue to hold this position with No Stop.
March Dollar Index
The Monthly RSI for the Dollar Index is at an unstainable 78.9. This shows how overvalued the Dollar is currently trading as it continues to press a major trendline with no sustained break as yet. The Dollar made new highs yesterday on further negative divergence on the Weekly Charts. This morning the Dollar has surged on the back of the 2% fall in the Yen with $Yen now trading at its highest level since 1998 at 144.05. 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. I am convinced we will see a reversal in the Dollar and I will add to my existing short position on any further move higher to 110.80. If this price is triggered, I will come back with a new update for my Platinum Members.
Cash DAX
The fact the DAX cannot trade lower is nagging me. It is also one of the main reasons why I cannot be short equity markets at this time. Last week’s break higher was very clean. Then we had the Gazprom news on Friday, followed by confirmation on Monday that Europe will have no more gas unless the sanctions come off. We now have an economic war between Russia and the West, as Putin thinks he has leverage over Europe with a massive energy crisis, challenging Europe to the brink. Already we see intervention programmes announced from Germany and the Northern Countries to help the vulnerable deal with massively rising energy bills. U.K.’s new Prime Minister Liz Truss just announced yesterday to pursue a £130bn pound package as well. This I consider as stimulus which ironically is somewhat counter to the mission of Central Banks to slow demand which implies higher rates for longer. Tomorrow the ECB is expected to raise rates by 75 basis points while sentiment is on the floor in Germany. The DAX has had every excuse to make new lows but has not so far. The trendline is holding just like in the S&P and maybe just maybe September is going to see a bull month despite all the doom and gloom. I am still flat the DAX as the market never came close to yesterday’s buy range. This morning, I will raise my buy level in the DAX to 12640/12720 with a closing 12495 wider stop.
Cash FTSE
Overnight the FTSE finally traded lower to my 7230 buy level. I will add to this position on any further move lower to 7170 with a lower 7125 stop. I will now lower my T/P level to 7290. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Dow Rolling Contract
The Dow traded the whole of my buy range for a now 31200 average long position. To reduce my exposure, I will now lower my T/P level to 32270 while leaving my 30895 ‘’Closing Stop’’ unchanged.
Cash NASDAQ 100
After the NDX traded the whole of my buy range for a 12030 average long position I covered this position at my revised 12050 T/P level and I am still flat. Treasury Yields rising 15 basis points really weighed on tech stocks yesterday. The NDX has further support from 11800/11950 where I will again be a strong buyer with a lower 11695 ‘’Closing Stop’’.
December BUND
The Bund had a wild 250 point range yesterday. Thankfully we saw a rally initially, as the market hit my 145.45 T/P level on my latest 145.00 long position and I am now flat. This morning, the BUND is trading lower at 144.50. We have support from 143.10/143.90 where I will again be an aggressive buyer with a 142.45 ‘’Closing Stop’’.
Gold Rolling Contract
The stronger Dollar saw Gold fall overnight to my 1693 buy level. I am still long with the same 1705 T/P level. I will add to this position at 1678 while leaving my 1669 ‘’Closing Stop’’ unchanged.
Silver Rolling Contract
No Change. I am still long and wrong for now 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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