U.S. Equity Markets finished Thursday mixed after a volatile session that saw plenty of two-way price action. Investors were still reeling with optimism from Federal Reserve Chair Jerome Powell’s dovish comments on Wednesday. With investors expecting a slowdown in the pace of rate hikes, Treasury yields sank along with the Dollar. The U.S. Bureau of Economic Analysis’ core Personal Consumption Expenditures price index for October came in softer than expected, furthering the “peak inflation” narrative. November Employment data showed that the labour market is finally showing tangible signs of weakening as layoffs surged to the highest level since January 2021. Investors are now looking again for additional economic indicators that strengthen the case for a Fed pivot ahead of this month’s policy meeting. Federal Reserve Chairman Jerome Powell surprised investors. On Wednesday, at the Brookings Institution, the central bank chief spoke about the overall economic outlook and inflation. The discussion focused on how the central bank is using monetary policy to subdue inflation growth and restore price stability. The most notable part of the discussion was his recognition of inflation pressures beginning to ease. He pointed to data showing how the Fed is succeeding in its fight to bring down house prices and boost the labour supply. Powell stated economic output has slowed due to the central bank’s rate hikes. He said Gross-Domestic-Product growth is on track to be nearly flat this year compared with the 5.7% expansion last year and the 2.3% average in the 10 years prior to the pandemic. As a result, members of the rate-setting Federal Open Market Committee (“FOMC”) feel it will soon be appropriate to slow the pace of interest-rate hikes. Powell said it could happen as soon as December. The implication is an increase of 0.5% versus the 0.75% jumps we have experienced over the previous four monetary policy meetings. The change would signal the rate-hike cycle is closer to ending. That would act as a long-term tailwind for the S&P 500 Index. Powell noted shelter inflation is the biggest driver of overall cost growth. In fact, the U.S. Bureau of Labour Statistics (“BLS”) has shelter as 32% of its overall Consumer Price Index weighting. The Fed Chair said it takes time for any changes in housing and rental inflation to show up in the main number. Yet, he said real-time metrics are showing a significant drop in price growth. In addition, he said excess retirements and illness-related deaths due to COVID-19 have hurt the available labour supply. Powell showed how these two numbers combined would make up for the roughly 3 million to 3.5 million people creating the shortfall in the workforce. Powell also said cost growth remains far too high and that it’s destroying the disposable income of American households. In addition, those being hurt the most are those who can afford it the least. So, the Fed is raising interest rates to ensure labour market strength and price stability so individuals to better budget how far they can stretch their income. He noted that the inflation-growth metrics for October surprised to the downside, which was a change from the previous two months surprising to the upside. And from a longer-term perspective, he said core inflation has spent the year hovering around the 5% level. That is where it was in December 2021, just before the current rate-hike cycle. The Fed Chair believes the inflation path moving is highly uncertain. So, he reiterated the central bank’s commitment to raising the Federal-Funds target range to a level that restricts economic growth. That way, it can push cost growth back toward its 2% target on a sustainable basis. As a result, Powell stated the FOMC’s projected Fed-Funds target needs to rise at the upcoming policy meeting in December. Back in September, policymakers forecast interest rates would peak next year around 4.6%. Thought of another way, that would mean a Fed-Funds target range of 4.50% to 4.75%. Yet, Fed members have already told us to expect a higher number than the most recent SEP projection. San Francisco Fed President Mary Daly has said she would support a target range of 4.75% to 5.25%. Chicago Fed President Charles Evans and Kansas City Fed President Esther George, among others, have echoed similar comments. Meanwhile, St. Louis Fed President James Bullard has been the outspoken hawk (inclined to raise rates), calling for a 5% to 5.25% range at a minimum. So, most central bank members expect a Fed-Funds Rate peak of somewhere between 5% and 5.25%. Considering the current target range sits at 3.75% to 4%, that means we don’t have much further to go. In addition, if we include the 0.5% rate-hike guidance for December that Powell suggested, we’ would already be in a range of 4.25% to 4.5% by the end of this year. In other words, there would only be another 0.75% worth of rate increases at the start of next year before we reach a range when the Fed at least considers pausing increases. And we could be there by March. That is far different from the steep ascent from the 0% to 0.25% range where we began in 2022. Recent data point toward economic activity and inflation growth slowing. We need to look no further than the most recent BLS Job Openings and Labour Turnover Survey or the regional Fed manufacturing surveys for evidence. Those numbers support the central bank slowing the pace of rate hikes and even stopping them altogether. But the sooner Money Managers get a sense that we are at peak interest rates, the quicker they’ll become more optimistic about risk assets like stocks. They will also rush to lock in attractive yields on high-quality assets, like U.S. Treasurys, before it is too late. Then, those same Money Managers will work their way down the investment food chain, looking for other opportunities and attractive returns. This, in turn, will support a longer-term rally in the S&P 500. Within the S&P 500 Index, seven of the 11 sectors finished lower. European Markets finished higher. Markets ended on a firm note due to a Dollar weakened by Powell’s comments yesterday. The Euro-Zone’s final manufacturing Purchasing Managers’ Index (“PMI”) came in weaker than the preliminary reading while still remaining off the yearly lows. On the other hand, the U.K.’s final PMI reading was revised higher, but a weak outlook continues to dominate headlines. Germany’s Retail Sales fell much more than expected as consumers cut back on nonessential purchases due to inflation. Meanwhile, will look for signs of the European Central Bank adopting a strategy similar to the Fed’s recent one. In Asia, Equities gained Thursday, also rallying on a weaker Dollar. Japan’s corporate capital expenditure growth was better than expected, with nonmanufacturing sectors seeing a recovery. But the country’s Consumer Confidence Index declined again, hitting the lowest level since the economy recovered from the last recession in 2019. Across the region, Purchasing Managers’ Index readings showed factory activity slowing with dropping global demand. Elsewhere, Oil rose 1% while Gold gained 3.24% on the back of the weaker Dollar.

To mark my 2675th 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 365 points yesterday, on the first trading session for December after closing November 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 0.09% lower at a price of 4076

The Dow Jones Industrial Average closed 194 points lower for a 0.56% loss at a price of 34,395.

The NASDAQ 100 closed 0.1% higher at a price of 12,041.

The Stoxx Europe 600 Index closed 0.76% higher.

Yesterday, the MSCI Asia Pacific Index rose 1.2%.

Yesterday, the Nikkei closed 0.92% higher at a price of 28,226.

Currencies 

The Bloomberg Dollar Spot Index closed 0.9% lower.

The Euro closed 1% higher at $1.0524.

The British Pound closed 1.3% higher at 122.38.

The Japanese Yen rose 2.1% closing at $135.25.

Bonds

Germany’s 10-year yield closed 7 basis points lower at 1.82%.

Britain’s 10-year yield closed 3 basis points lower at 3.10%.

U.S.10 Year Treasury closed 10 basis points lower at 3.52%.

Commodities

West Texas Intermediate crude closed 1% higher at $82.00 a barrel.

Gold closed 3.23% higher at $1802.10 an ounce.

This morning on the Economic Front we have German Import Prices at 7.00 am. This is followed by Euro-Zone PPI at 10.00 am. Next, we have U.S. Non-Farm Payrolls including the Unemployment Rate and Average Earnings. Finally, we have a speech from Fed Member Williams at 3.15 pm.

Cash S&P 500

My S&P plan worked well as the S&P met resistance at my 4100 sell level before testing my buy level at the 4050, 200-Day Moving Average. I was able to cover my short position at 4084 and my long position at 4066 and I am now flat. All eyes will be on NFP at 1.30 pm. We are now in a phase where bad news is interpreted as good news despite the overbought nature of the market. I just cannot be a long-term buyer at current prices given the overvalued stock market after rallying 15% in the past six weeks. The VIX fell a further 3.60%, closing at 19.84, for its lowest close since August 20. Three weeks later the VIX spiked to a high of 35 as the S&P fell over 15%. The S&P has resistance from 4110/4130 where I will again be a seller with a 4141 ‘’Closing Stop’’. We have short-term support from 3933/3948 where I will again be a buyer with a 3919 ‘’Fixed Stop’’.

EUR/USD

The Euro traded the whole of my sell range for a now 1.0500 average short position. The Euro is overbought as shown by the 14-Day RSI which closed above 69 last night. I will now raise my T/P level to 1.0455 while leaving my 1.0595 ‘’Closing Stop’’ unchanged.

March Dollar Index

The Dollar traded lower to my second buy level at 105.00 for a now 105.35 average long position. I will leave my 104.45 ‘’Closing Stop’’ unchanged while lowering my T/P level to 105.80. If any of the above levels are hit I will be back with a new update for my Platinum Members.

Cash DAX

The much weaker than expected German Retail Sales hit the DAX yesterday. I am still flat as I continue to be a seller from 14670/14770 with the same wider 14905 ‘’Closing Stop’’.

Cash FTSE

Thankfully, the FTSE had a late sell-off into the close, hitting my 7540 T/P level on Wednesday’s 7565 average short position and I am now flat. The FTSE again underperformed which is no surprise given the fact the Sterling rose a further 2% against the U.S. Dollar. The FTSE has resistance from 7630/7700 where I will again be a seller with a higher 7755 ‘’Closing Stop’.

Dow Rolling Contract

My latest 34310 average short position worked well as just after the American Indexes opened the Dow traded lower to my 34240 T/P level and I am still flat. As I have mentioned over the past two weeks the Dow is severely overbought. We have resistance from 34620/34870 where I will again be a seller with a tight 35015 ‘’Closing Stop’’.

Cash NASDAQ 100

Frustratingly, the NDX missed my 11900 initial buy level by 20 points before rallying to sit at 12030 as I go to press. I will now raise my buy level to 11800/11950 a 11695 ‘’Closing Stop’’. I still do not want to be short the NDX at this time.

December BUND

The Bund continued this week’s aggressive rally and I am still flat. I will now raise my buy level to 140.40/141.20 with a higher 139.65 ‘’Closing Stop’’.

Gold Rolling Contract

Gold finally caught a decent bid this week. I am still flat refusing to chase the market higher. Gold has support from 1767/1782. I will move my buy level to this area with a higher 1753 ‘’Closing Stop’’.

Silver Rolling Contract

Silver rallied hard yesterday, and I am still flat. We have short-term support from 21.40/22.20 where I will be an aggressive buyer with no stop. If triggered, I will have a T/P level at 23.10.