North American News
US stocks close sharply lower. Higher rates hurt investor sentiment
- Morgan Stanley’s Mike Wilson shifts out of his tactical countertrend rally. “…risk-reward of playing more upside is quite poor”
The major US indices are closing sharply lower to start the new trading week. Better than expected ISM -non manufacturing index, sent yields moving to the upside, the USD higher and stocks to the downside.
Morgan Stanley’s Mike Wilson who called for a “tactical rally” to the 4100-4150 area, bailed on the rally idea today after the index reached a high of $4100.51 last week (Thursday).
In his note to customers on Monday said:
- “As predicted, falling interest rates at the back end have led to modest, further gains for this bear market rally. However, with last week’s price action, the S&P 500 is now right into our original tactical target range of 4000-4150.”
He added:
- “While the index has modestly exceeded its 200-day moving average and the breadth continues to expand, the downtrend from the beginning of the year remains in place.”
He warned that:
- “This makes the risk-reward of playing for more upside quite poor at this point, and we are now sellers again.”
Although he does not rule out a final run up to 4150, he looks to the level as the “absolute upside” the index can reach. He looks for a break of 3938, which is where the 150 day MA is found, to give bears downside confirmation.
Looking at the closing levels, the S&P is closing just below the 4000 level at 3998.83
The final numbers are showing:
- Dow industrial average fell -482.80 points or -1.40% at 33947.10
- S&P index fell -72.88 points or -1.79% at 3998.83
- NASDAQ index fell -221.55 points or -1.93% at 11239.95
- Russell 2000 fell -52.61 points or -2.78% at 1840.22
ISM November US services 56.5 vs 53.3 expected
- US service sector survey
Details:
- Prices paid 70.0 vs. 70.7 last month
- Employment 51.5 vs. 49.1 last month
- New orders 56.0 vs. 56.5 last month
- Supplier deliveries 53.6 vs. 56.2 last month
- Inventories 47.9 vs. 46.4 last month
- Backlog of orders 51.8 vs. 52.2 last month
- New export orders 38.4 vs. 47.7 last month
- Imports 59.5 vs. 50.4 last month
US S&P Global final November services PMI 46.2 vs 46.1 prelim
- The final look at November services from S&P Global
- Prelim was 46.1
- Prior was 47.8
- Composite index 46.4 vs 46.3 prelim (48.2 prior)
- Subdued client demand led to a strong decline in backlogs of work
Commodities
Gold tumbles from 3 ½ months high, below $1800
- Robust United States Nonfarm Payrolls data to keep the Federal Reserve tightening policy.
- US Treasury bond yields remain elevated, weighing on Gold prices.
- China’s eases testing measures as Beijing shifts to new “optimized and adjusted measures.”
- Gold Price Forecast: To consolidate around $1770-$1800, as oscillators aim downwards.
Gold price retraces after hitting a multi-month high at $1810, spurred by high US Treasury yields and a risk-off impulse. Factors like the latest employment report in the United States (US) cementing the tightness of the labor market caused a jump in US bond yields. China’s easing Covid-19 restrictions kept the yellow metal from appreciating. At the time of writing, the XAU/USD is trading at $1776., down 1.30%.
Gold capped by a solid US employment report
US stocks are set to open lower, as depicted by equity futures. Last week’s employment report, November’s Nonfarm Payrolls (NFP) jumped 263K, above 200K estimates, while the Unemployment Rate, at 3.7%, remained unchanged. Average Hourly Earnings rose by 5.1%, vs. 4.9% forecasts, which would keep the US Federal Reserve (Fed) liftin rates, even if it means at 50 bps increases. In his Wednesday speech, Fed Chairman Jerome Powell said, “the principal wage measures that we look at, I would say that you’re one and half or two percent above that (which is consistent with two percent inflation over time).”
US yields rise on Monday, stalling Gold’s rally
Aside from this, the US 10-year Treasury bond yield is rising nine bps, from 3.502% to 3.597%, while US Real Yields, which reflect the interest of the nominal yield minus inflation expectations, remain at 1.16% as of Friday, a headwind for Gold. XAU/USD remains heavy, falling more than 1%, as Wall Street opened.
China’s progresses towards easing Covid-19 restrictions
Over the weekend, Chinese authorities are beginning to relax testing requirements across major cities, as Beijing shifts from Covid-19 zero-tolerance measures, amid elevated reports of the virus contagion. Chinese Vice Premier Sun Chunlan said last week that the country’s pandemic control had entered a new phase. Confronted with evolving challenges and tasks, the government will take small, consistent steps to optimize Covid measures.
Gold Price Forecast: XAU/USD Technical Outlook
The XAU/USD daily chart suggests Gold is still upward biased but could consolidate soon. Oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC) portray negative divergence with price action, which exacerbated the fall beneath $1800. Nevertheless, if XAU/USD price remains above the Exponential Moving Averages (EMAs), that could keep the non-yielding metal uptrend intact.
Hence, the XAU/USD first resistance would be the psychological $1800. Break above will expose December’s 5 high of $1810, followed by the June 17 high of $1857.20, followed by June’s 13 daily high at $1879.45. On the other hand, the XAU/USD first support would be $1778.68, followed by December’s low at $1767.70 and the 200-day EMA at $1759.92.
Crude oil continues it downward tumble. High to low today, the price fell -6.9%
- Crude oil settles at $76.93 today. Down -$3.05 or -3.81%
The price of WTI crude oil moved down to a new session low of $76.79. The high price was up nearly 6 dollars from the low at $82.70. The fall comes despite more relaxed covid policies in China, and the full European embargo of Russian oil and the price cap at $60 all went into effect today.
Working in favor of the downside is a higher dollar which has a negative impact on the price of commodities including oil. There may have also been a surge in Russian oil into the market ahead of embargo.
EU News
Eurozone October retail sales -1.8% vs -1.7% m/m expected
- Latest data released by Eurostat – 5 December 2022
- Prior +0.4%; revised to +0.8%
- Retail sales -2.7% vs -2.6% y/y expected
- Prior -0.6%; revised to 0.0%
German finance minister says no more joint EU debt
- Lindner says the sovereignty fund cannot be used to incur new joint European debt
- Debt reduction must be the focus of debate in the stability and growth pact
It’s only a matter of time until we’re writing daily about the next sovereign eurozone debt crisis. Power prices have begun to rise again as the cold weather sets in.
ECB’s Makhlouf says anticipates that 50 bps rate hike is “where we will end up”
- Makhlouf comments on how he thinks the December meeting will pan out
- Haven’t reached the stage that we are confident inflation is under ccontrol
- Anticipates that there will be further rates hikes next year
Other News
The Fed debate might pause at 5% but it won’t end
- Will the next move after 5% be lower or higher?
The Fed has been peddling a wonderful narrative:
Rates will rise somewhere in the 4.75-5.25% range and then flatten out, perhaps for all of 2023. Despite that, the economy will cruise to a soft landing with a recession largely avoided. Then inflation will slowly come down to target in 2024 and rates will decline back into the 3% range.
History shows that such outcomes are rare.
However in terms of trading, next year will be about a harder landing, stubborn inflation or both.
Cryptocurrency News
XRP bulls in spotlight as SEC v. Ripple court filing hints at early closure
- XRP holders are focused on the outcome of the US Securities and Exchange Commission’s lawsuit against Ripple.
- Defense lawyer James K. Filan expects the judge in SEC v. Ripple case to deliver one big written ruling soon.
- XRP price could breakout after week-long consolidation as buyers target the $0.41 level.
XRP price could make or break based on the outcome of Ripple Labs case with the US Securities and Exchange Commission (SEC). In the latest twist and turn in the courtroom drama, Ripple (XRP), which is a cross-border payment settlement firm and one of the largest public holders of XRP itself, filed a redacted reply in response to the SEC’s motion against a summary judgment. XRP price outlook remains bullish, the next target for the altcoin is the $0.41 level.
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