U.S. Equity Markets finished Friday higher after another volatile trading session. The NASDAQ 100 led the gains, closing higher by 1.56%. Markets ended higher following an eventful day of trading. October payroll data and the Bureau of Labour Statistics’ household survey showed contradicting messages, pointing towards further uncertainty in the labour market. In the first speech by a Federal Reserve official after this week’s rate hike, Boston Fed President Susan Collins said she expects additional increases followed by a period of restrictive rates. This week, investors look to another round of third-quarter earnings and the Consumer Price Index (“CPI”) figure for October. Employment data is sending conflicting signals. Ever since the Federal Reserve set out to cool inflation growth, Chairman Jerome Powell has had one stated goal. He is going to destroy domestic economic growth. By accomplishing that task, he feels that household income will fall and consequently demand for all types of goods will follow suit. Then, as demand destruction happens, the cost of everything begins to drop, causing inflation growth to slow or even contract. The central bank chair has focused on one primary area of the economy to study the fallout of interest-rate hikes, the labour supply. Powell has said the supply-and-demand dynamic is out of balance. He feels there are too many job openings compared with the number of available workers. But the Federal Open Market Committee (“FOMC”) appears to be making forward-looking monetary policy decisions based on backward-looking data. After all, we just received the U.S. Bureau of Labour Statistics (“BLS”) preliminary numbers for September job openings on Tuesday and we are already in November. Yet, more up-to-date data indicates the job market slowdown is accelerating. If we see that momentum continue, it should support the Fed taking its foot off the gas with regard to future interest-rate hikes. That would support a steady long-term rally in the S&P 500 Index. The ratio of job openings compared with unemployed persons has jumped from a pre-pandemic level of 1 job per available employee to almost 1.9 currently. In other words, the landscape to hire someone is increasingly competitive. That means it will cost more for companies to attract new employees, leading to wage inflation. So, Powell wants to see the Unemployment Rate rise. Because as that happens, it means more workers to occupy those available jobs. He is hoping that as positions are filled and the pool of potential employees increases, the competition to hire new workers will ease. In turn, that will mean companies must pay less to bring on new employees because there are more people available to hire. Yet recent reports show the employment environment is steadily worsening. Rate hikes are weighing on company business outlooks. As an example, check out the most recent U.S. job cut announcements data from executive outplacement firm Challenger, Gray & Christmas. Last Thursday, it reported that planned layoffs in October increased by 48.3% compared with a year ago. Challenger said that was up 13% compared with September and is the highest number of job cut announcements since February 2021. That is on top of a 67.6% rise in September and a 30.3% jump in August compared with the same period last year. It said it is beginning to see more job cut activity in the fourth quarter as companies finalise budgets and plans. Challenger also stated many companies are anticipating a downturn, and with a still-tight labour market and the Fed’s rate hikes, more cuts will be on the way as we enter 2023. But we are also seeing gradual changes in the Department of Labour’s Jobless Claims data. Thursday’s release showed another 217,000 individuals filed initial Jobless Claims in the week ending October 29. The number came in below the prior week’s upwardly revised figure of 218,000 and Wall Street’s estimate of 220,000. Now, the year-to-date weekly average is 217,000 Claims. In June, that number was 204,100. In other words, it is steadily closing the gap with the pre-pandemic level of 218,000. Challenger said the JOLTS number is likely being skewed higher by seasonal hiring trends. Payroll processor ADP made similar comments earlier last week when it reported its October employment numbers. The leisure and hospitality sector drove the bulk of the 239,000 increase by adding 210,000 jobs. ADP said those companies were hiring in anticipation of holiday demand. So, the most up-to-date numbers are telling us one story while the latent numbers the Fed is using are giving us another. That is frustrating for investment managers who are trying to invest in what the economy will look like in 10 to 12 months. Because every time they try to put their best foot forward, the central bank makes them take two back when it sets rates based on the past. But, as Challenger said, companies are starting to make plans for next year right now, based on rising rates and expectations for an economic slowdown. That means more job cut announcements are forthcoming. And, as that plays out, Powell will finally get the labour supply boost he is seeking. The sooner Money managers get a sense that we are at peak interest rates, the sooner they will become more optimistic about risk assets like stocks. They will 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, all 11 sectors finished higher. European Markets closed higher. Markets ended largely higher as services Purchasing Managers’ Index data showed output contracted at the sharpest rate in almost two years while German Factory Orders for September declined 4.0% from the prior month. Investors continued to react to the Fed’s rate decision, as it put greater pressure on the European Central Bank to match rate hikes and catch up to other central banks. In an interview with CNBC, Bank of England Chief Economist Huw Pill said that the central bank is trying to bring down inflation without causing too much economic pain. According to Reuters, G7 nations and Australia reportedly made progress on a Russian oil price cap, agreeing to set fixed prices. In Asia, Markets ended higher in a choppy trading session to end the week. They again were driven by speculation over China exiting its “zero-COVID” strategy, especially with China’s daily COVID-19 cases close to three-month highs. The Reserve Bank of Australia upgraded its inflation forecasts while downgrading its economic growth projections. The U.S. audit inspectors finishing their work early could prove to be a tailwind for certain companies such as Alibaba (BABA), Tencent (TCEHY), and others. Elsewhere, Oil rose 5% while Gold closed higher by 3.25%, helped by the 1.5% fall in the Dollar.
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The S&P 500 closed 1.36% higher at a price of 3770.
The Dow Jones Industrial Average closed 401 points higher for a 1.26% gain at a price of 32,403.
The NASDAQ 100 closed 1.56% higher at a price of 10,857.
The Stoxx Europe 600 Index closed 1.81% higher.
Last Friday, the MSCI Asia Pacific Index rose 0.2%.
Last Friday, the Nikkei closed 1.68% lower at a price of 27,199.
The Bloomberg Dollar Spot Index closed 1.3% lower.
The Euro closed 2% higher at $0.9960.
The British Pound closed 1.6% higher at 1.1372.
The Japanese Yen rose 1.1% closing at $146.65.
Germany’s 10-year yield closed 5 basis points higher at 2.30%.
Britain’s 10-year yield closed 4 basis points higher at 3.54%.
US 10 Year Treasury closed 2 basis points higher at 4.16%.
West Texas Intermediate crude closed 5% higher at $91.98 a barrel.
Gold closed 3.25% higher at $1677.10 an ounce.
This morning on the Economic Front we have German Industrial Production at 7.00 am. The only other data of note is Euro-Zone Sentix Investor Confidence at 9.30 am. However, we do have speeches this evening from Fed Members Collins and Mester at 8.40 pm.
Cash S&P 500
Although my second buy level in the S&P just missed, it turned out to be a wild end to the week. The Dollar got clumped on the ‘’supposedly’’ stronger Payroll Data. We heard more empty words from Fed Officials on Friday who were out in their droves. Despite proclamations to the contrary, it is obvious that the labour market is turning given the level of mounting layoffs now with plenty more to come in the new year. The VIX closed lower by a further 3%, continuing to act independently of the ever-increasing volatility in the main Indexes. Tomorrow, we have the Mid-Term elections. Democrats will either retain control or not. Markets like gridlock so a loss of either the House or Senate may be welcome news for the markets. I did not trade the S&P on Friday, as I continue to babysit my 3797 long position with the same 3813 T/P level and no stop. The S&P has support from 3705/3725. I will move my second buy level to this area with a 3689 ‘’Closing Stop’’. If I am taken long I will have a T/P level at 3748.
Finally, we saw some strength in the Euro, helped by the 2% rally in equity markets. This move higher saw my .9878 revised T/P level triggered and I am still flat. Today, I will be a buyer on any dip lower to .9800/.9880 with a .9735 ‘’Closing Stop’’.
March Dollar Index
My latest 112.55 short Dollar position worked well with the market selling off to my 112.05 T/P level and I am still flat. The Dollar got hit hard on Friday, trading at 110.80 as I go to press. We have short-term resistance from 111.50/112.20 where I will again be a seller with a 113.05 wider ‘’Closing Stop’’.
The DAX has rallied nicely off Thursday’s 13000 back test, as the market surged over 400 points on Friday. The DAX never came close to my buy level and I am still flat. What made the DAX and FTSE rallies so impressive was that fact they came against a declining S&P. I will now raise my buy level to 13280/13360 with a higher 13195 ‘’Closing Stop’’.
The price action in the FTSE over the past week has been decisively bullish. Thankfully, we have had no sell level in the FTSE for the past two weeks as yet again anyone shorting this market has been crushed. This morning, the FTSE is trading at 7350 as I go to press. We have support from 7200/7270 where I will be a strong buyer with a 7135 ‘’Closing Stop’’.
Dow Rolling Contract
Thankfully, we held on to Wednesday’s long 32200 position as the markets rallied to my 32360 T/P level with a 32600 high print. I am still flat. The Dow’s price action has been impressive since last month’s CPI print while the NASDAQ has struggled. The Dow briefly broke above its 200 Day MA (32567) before selling off and then rallying back into the close. A break and close over 32600 will be extremely bullish and set up the year-end rally that the technicals are calling for given so many markets are oversold. Internally, the market is strong with the McClellan Oscillator closing at +156 on Friday. Unless the Dow closes below 31500, this market continues to be a buy on dips. Today, I will be a small buyer from 31850/32100 with a 31625 ‘’Closing Stop’’.
Cash NASDAQ 100
Despite closing higher by 1.5% on Friday, the NDX still lost nearly 8% last week. This move higher saw my 10830 T/P level triggered on my 10745 long position and I am still flat. Today, I will again be a buyer from 10610/10760 with the same 10545 ‘’Closing Stop’’.
My Bund plan worked well as the market sold off to my 136.50 buy level before rallying to my revised 137.08 T/P level and I am now flat. The Bund has support from 135.60/136.30 where I will again be a a buyer with the same 134.95 ‘’Closing Stop’’.
Gold Rolling Contract
Gold surged on Friday. The market never came close to m y buy range and I am still flat. I will now raise my buy range to 1640/1655 with a higher 1629 ‘’Closing Stop’’.
Silver Rolling Contract
Wow!! Silver rallied over 7% on Friday. This move higher saw my 20.60 T/P level filled on my near two- week 20.05 long position and I am now flat. Silver is severely undervalued in my opinion. Today, I will be a buyer from 19.70/20.40 with no stop.