U.S. Equity Markets finished Friday mixed. Despite the mostly lower close, the VIX fell a further 4%, closing at a price of 19.09 Markets started the day at the lows. Stocks had rallied sharply on Wednesday afternoon following a speech given by Federal Reserve Chairman Jerome Powell at the Brookings Institution. While discussing the economy, inflation, and the central bank’s monetary-policy outlook, he said the Fed would likely slow the pace of interest-rate hikes moving forward, beginning with this month’s meeting of the Federal Open Market Committee. The change in tone was driven by a shift in inflation growth. Powell said recent economic indicators and forward-looking signals were pointing to price pressures easing even more as we move into next year. The comments boosted investor sentiment for risk assets like stocks. That all changed when the U.S. Bureau of Labour Statistics reported its Monthly Employment data for November. While the increase in Non-Farm Payrolls was the lowest this year, it was still higher than what Wall Street had anticipated. So, S&P Index Futures dropped prior to the market’s open. But as the day continued, and as analysts sifted through the data, optimism rose that employment trends would keep easing. This should boost the outlook for future labour supply and help ease inflation worries. Meanwhile, the Federal Reserve’s preferred inflation gauge just confirmed domestic cost growth is slowing. On Thursday, the BEA released PCE figures for October. The data showed that inflation growth eased from the month prior, increasing 6% year over year (“YOY”) compared with September’s 6.3% gain. The core number (excluding volatile food and gas prices) was also up YOY, rising 5% compared with September’s 5.2% increase. These numbers should act as a tailwind for the S&P 500 Index. Money Managers’ exposure to the stock market is low on a historical basis. What positioning they do have at the moment tends to be biased to the short side. Looking at a current chart of speculator positioning in S&P 500 futures. Those bets are unhedged, meaning there is not a specific commodity in which there is an offsetting position. So, they are one-sided wagers against the stock market. In other words, as the market moves higher, investors sitting on the sidelines or short the stock market are either missing out or falling behind on performance as the market rallies. So, at some point, they will need to put their cash back to work by either covering shorts, going long, or both, to create returns for their investors. That shift will drive the stock market even higher. I care about PCE because it’s the Fed’s preferred inflation gauge compared with the Bureau of Labour Statistics’ Consumer Price Index (“CPI”). The PCE reading measures the change in price for goods and services consumed by households, while the CPI is a reading of out-of-pocket costs. So, CPI swings tend to be wider. The central bank also cares more about the core number when considering policy decisions because it does not include gasoline or food prices. Now, you and I may say that is the most important number because that’s what affects our wallets the most. But policymakers feel there is too much flux in those readings. As I stated above, households care the most about headline PCE because it reflects their overall costs. If food and gas prices are down, they will weigh more on the headline number. After all, a drop in gas prices is better than a tax cut, just like a rise in gas prices is worse than a tax increase. Most of us have to drive every day – whether it is for work, picking up groceries, or taking the kids to school. So, since peaking in June at 7% YOY growth, the PCE has moved steadily lower. This month’s number keeps the trend intact. While that does not mean money is necessarily being put back into the pockets of individuals everywhere, it also tells us disposable income is not leaving at a quickening pace either. The last point is important. Since the lows made in May 2020, costs have been rapidly rising. The Fed has been raising interest rates to fight this. It said it wants to see a sustainable trend where cost increases are easing before it slows or pauses rate hikes. The fact that the data have remained sustainably below the June peak for four months now shows a trend has emerged. Going forward, the YOY comparisons grow more difficult. Headline PCE growth last October was 5.2%, while the core increase for the same month was 4.3%. In other words, we are going to have to see a significant price jump when the November 2022 data come out to show big inflation gains. That does not mean these data can’t move higher, but the higher they go, the harder it becomes for additional increases. And the comparisons grow more difficult in the months ahead. These results are not going to make the Fed stop raising interest rates altogether. What we really want to see are signals that the Fed believes the current rate-tightening cycle is working. Such a shift will tell policymakers they can slow down and catch their breath. The central bank can then take more time to study the economic fallout from its record pace of rate hikes. The sooner Money Managers get a sense of peak interest rates, the sooner they will become more optimistic about risk assets like stocks – which will support a longer-term rally in the S&P 500. Within the S&P 500, six of the 11 sectors finished lower. European Markets finished mixed. Similar to the U.S., markets tumbled on stronger-than-expected jobs data. However, investors piled back into equities on the decline, as they still anticipate the Fed will only raise rates by 50 basis points in December. In Asia, Markets dropped to close out the week. One of the major drivers was a rally in the Japanese Yen. Bank of Japan board member Naoki Tamura said it should review current monetary policy when the time is appropriate, referring to the pending departure of Governor Haruhiko Kuroda. Kuroda has long been a champion of easy-money policies. That has driven the Yen lower. But Tamura’s comments hinted at switching back to tightening policy once more. That caused the Yen to rally and stocks to drop on concerns that a strengthening currency would hurt potential sales abroad by domestic Japanese companies. Other Asian markets dropped as investors hedged bets ahead of U.S. payroll numbers. In addition, Money Managers want to hear more from China about a change in COVID-19 restrictions amid recent protests. Today’s Purchasing Managers’ Index data from Caixin is likely to point toward economic contraction. Elsewhere, Oil fell 1.53% while a stronger Dollar saw Gold fall 0.30%.
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 45 points on Friday and is now ahead by 410 points 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 0.12% lower at a price of 4071
The Dow Jones Industrial Average closed 34 points higher for a 0.10% gain at a price of 34,429.
The NASDAQ 100 closed 0.40% lower at a price of 11,994.
The Stoxx Europe 600 Index closed 0.15% lower.
Last Friday, the MSCI Asia Pacific Index fell 1.2%.
Last Friday, the Nikkei closed 1.59% lower at a price of 27,777.
Currencies
The Bloomberg Dollar Spot Index closed 0.3% lower.
The Euro closed 0.1% higher at $1.0541.
The British Pound closed 0.4% higher at 122.90.
The Japanese Yen rose 0.5% closing at $134.62.
Bonds
Germany’s 10-year yield closed 3 basis points higher at 1.85%.
Britain’s 10-year yield closed 5 basis points higher at 3.15%.
U.S.10 Year Treasury closed 11 basis points lower at 3.49%.
Commodities
West Texas Intermediate crude closed 1.53% lower at $80.45 a barrel.
Gold closed 0.30% lower at $1792.10 an ounce.
This morning on the Economic Front we have German. Euro-Zone and U.K. Services PMI at 8.55 am, 9.00 am and 9.30 am respectively. This is followed by Euro-Zone Retail Sales and Sentix Investor Confidence at 10.00 am. Next, we have U.S. Services PMI at 2.45 pm. Finally, we have ISM Services PMI and Factory Orders at 3.00 pm.
Cash S&P 500
Despite the better than expected headline NFP data, beneath the surface it was a weak number. The workweek contracted 0.3% which is the sharpest decline in five months to 34.4 hours. The contraction in hours-worked is equivalent to a 380K job loss. Year-to-date, the number of hours worked have declined at a 1.25% annual rate, a negative rate last seen in the Summer of 2009 when it was not clear that the Global Financial Crisis had fully run its course. The S&P dropped to a low of 4001 on the NFP release before large buying saw the S&P close over its 200 Day Moving Average for the first time in five months on a weekly basis. Bears had every chance to drive the market lower, however the subsequent reversal in Bond Yields and the Dollar was a nice tailwind for the S&P. I am still flat as the market never came close to my cheeky 3948 buy level. I will now raise my buy level to 4010/4030 with a tight 3989 ‘’Closing Stop’’. Given how overbought the S&P is trading, I will now lower my sell level to 4103/4120 with a lower 4135 ‘’Closing Stop’’.
EUR/USD
My short 1.0500 average Euro position worked well as the market dropped to my 1.0455 T/P level on the stronger than expected NFP release. Subsequently, the Euro rallied before the New York close to my second sell level at 1.0540. I am still short. I will add to this position at 1.0600. I will have a T/P level at 1.0485 while my stop will be at a ‘’Closing’’ price of 1.0655. If any of the above levels are hit I will be back with a new update for my Platinum Members.
March Dollar Index
Unfortunately, the Dollar fell shy of my 105.80 T/P level on my latest 105.35 long position before stopping me out on the New York close at 104.45 and I am still flat. The Dollar is severely oversold. November was the weakest month for the Dollar since 2009, having fallen over 7%. Today, I will again be a buyer on any further dip to 103.50/104.20 with a 102.85 ‘’Closing Stop’’
Cash DAX
No Change. I continue to be a seller from 14670/14770 with the same wider 14905 ‘’Closing Stop’’.
Cash FTSE
The boring sideways action in the FTSE continued on Friday. I am still flat as I continue to look to sell the market on any further rally to 7630/7700 with the same 7755 ‘’Closing Stop’.
Dow Rolling Contract
I am still flat the Dow as I had no buy level in Friday’s commentary. This was a mistake as the Dow managed to rally over 500 points off its post NFP low. It is extremely difficult to be short as buyers are there for every dip, not giving bears a chance. One word of caution is the close below 20 in the VIX. The VIX is now close to its August lows at 19, before exploding to the upside. Today, I will continue to be a strong seller on any further rally to 34600/34850 with the same the same tight 35005 ‘’Closing Stop’’.
Cash NASDAQ 100
My NDX plan missed worked well as the market traded the whole of my buy range for a 11875 average long position, before rallying over 100 points from this area into the close. Unfortunately, I covered this position to early at my revised 11905 T/P level and I am now flat. Today, I will again be an aggressive buyer from 11720/11890 with a lower 11595 ‘’Closing Stop’’. I still do not want to be short the NDX at this time.
December BUND
The Bund continued last week’s aggressive rally and I am still flat. I will now raise my buy level to 140.90/141.70 with a higher 140.15 ‘’Closing Stop’’.
Gold Rolling Contract
My Gold plan worked well as the market traded lower to my 1780 buy level before rallying $17 into the close. As I wanted to bank some points for Friday’s session, I covered this long position at my revised 1786 T/P level and I am now flat. Gold has support from 1765/1780. I will again be a buyer in this range with the same 1753 ‘’Closing Stop’’.
Silver Rolling Contract
Frustrating. Silver made a low of 22.24, missing my initial 22.20 buy level before rallying over 100 points into the close. Today, I will raise my buy level to 22.00/22.80 with no stop. If triggered, I will have a T/P level at 23.60.
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