North American News
US major indices close lower for the 4th consecutive day
- NASDAQ index lags
The major US indices are closing the day with declines for the 4th consecutive day.
The Dow industrial average was near unchanged with 5 or so minutes to the close but ran into some late day selling pushed the index down close to 100 points. The NASDAQ index is the worst performer with a decline near 1.0%.
The S&P is between the two after trading briefly below its 200 week moving average near 3600 intraday. The low price today in the S&P reached 3588.10 before bouncing higher. That 200 week moving average level will continue to be a key barometer for the trading week. Closing the week below that level would be more bearish.
The final numbers are showing:
- Dow industrial average fell -93.85 points or -0.32% at 29202.93
- S&P index fell -27.24 points or -0.75% at 3612.43
- NASDAQ index fell -110.29 points or -1.04% at 10542.11
- Russell 2000 fell -10.22 points or -0.60% at 1691.92
Fitch: US home prices were overvalued by 12.2% for Q2 2022
- Fitch speaking on the US housing market
- US housing market cooling off from west to east
- Estimates that US home prices were overvalued by 12.2% for 2Q 2022 on a population weighted average basis
- Expects that overvaluation will moderate in 2H 2022 with declining trend in home prices
- Home price decline is likely to spread from Western to Eastern US if mortgage rates keep going up
- Expects US home prices to continue experiencing corrections due to rising mortgage rates, and worsening affordability in 2H 2022 and into 2023
Fed’s Brainard: It will take time for cumulative tightening to bring inflation down
- Fed Vice Chair Brainard speaking
- Higher interest rates are working to temper demand and bring it into better alignment with supply, which is still constrained.
- Output has decelerated so far this year by more than anticipated, suggesting that policy tightening is having some effect.
- the stock of excess savings held by households is about 25 percent lower, which may imply a more subdued pace of consumer spending going forward than had been projected.
- Monetary policy will be restrictive for some time
- It will take time for cumulative tightening to bring inflation down
- Concurrently global tightening to reinforce moderation of demand
- Fed is attentive to risks for further adverse shocks
- Fed is very aware that unexpected interest rate or currency moves could interact with financial vulnerabilities
- Fed should move forward deliberately to assess how economy, employment, inflation are adjusting; to inform path of policy rate
- See limited 2H GDP rebound, GDP growth flat this year
- Seeing tentative signs of labor market rebalancing
- Strong wage growth, high rental costs mean inflation from core services expected to ease only slightly.
Commodities
Gold bears pounce and take a massive bite out of the market
- Gold bears move in on a critical area of support following a massive decline at the start of the week.
- The US dollar and yields have been relentless due to market sentiment surrounding the Fed narrative.
The gold price, as per the start of the week’s pre-open analysis, Gold, the Chart of the Week: XAU/USD bears eye a run to key support near $1,675, US CPI eyed, has dropped significantly lower on Monday. Not only did the price take out $1,675, but it has also made a low of $1,665.77, taking on a key support area as the markets stay on the theme of a hawkish Federal Reserve.
The gold price dropped from a high of $1699.91 from the get-go this week, sliding in Asia and not looking back, pausing for only a brief hourly candle in European markets and at the open of New York forex trade at around $1,677. However, with an elevated US dollar and US yields reaching for blue skies, gold bulls had no choice but to capitulate, making way for a strong second wind from the bears during Wall Streets’ first few hours of trade.
The yield on the 10-year US Treasury bond has made a high of 3.992%, surging in the last hour in what might be the last-ditch effort to breach the psychological 4.00% level having already cleared the prior week’s highs. The next target beyond there is last month’s high of 4.019%. In turn, the US dollar has reached a high of 113.333 after climbing from a low of 112.621 as per the DXY index which is now holding above both Friday’s and last week’s highs. It is worth noting that, speculators’ net long USD index positions recovered ground for the second consecutive week following a string of hawkish Fed speak. That said, net longs remained below recent averages which leaves room for further upside in the greenback.
The Fed is driving gold
As for the driver, the Fed sentiment, analysts at TD Securities, who have been advocating an imminent drop in the gold price for many weeks explain again that ”inflation’s rising persistence suggests the Fed is unlikely to stop hiking preemptively.”
”A prolonged period of restrictive rates suggests traders should ignore gold’s siren calls, as a sustained downtrend will likely prevail, while quantitative tightening continues to drive real rates higher. Indeed, a constant flow of hawkish Fedspeak has seen the upside momentum in gold ease in recent days.” The analysts also cite important inflation data this week and remind their readers that ”there are plenty of catalysts which could see the focus shift back toward hawkish interest rate policy.”
In terms of Fed speakers, we have heard from both Chicago Fed President Charles Evans and, in more recent trade, Federal Reserve Vice Chair Lael Brainard. Evans said that the Fed needs to “carefully and judiciously” navigate to a “reasonably restrictive” policy rate, as reported by Reuters, while Brainard argued that US monetary policy has begun to be felt in an economy that may be slowing faster than expected. Both officals however, explained that “monetary policy will be restrictive for some time to ensure that inflation moves back to target over time,” Brainard said. “Target rate needs to rise a bit above 4.5% by early next year and remain there as Fed takes stock,” Evans argued.
Fed fund futures are now pricing in a 92% chance of a 75-basis-point hike at the next Fed meeting. Higher interest rates increase the opportunity cost of holding zero-yield bullion.
As for the rest of the week, we have the Fed minutes, US Consumer Price Index and Retail Sales. With regards to the two key events, firstly, the minutes, the analysts at TD Securities explained that ” the September dot plot revealed a higher-than-expected Fed Funds terminal rate of 4.625%, with a fairly even dot distribution around this level. The question is how much of this was reflected in the deliberations at the Sep meeting. The tone of these deliberations likely was more hawkish given core CPI inflation trends, upsetting the current dovish pivot markets narrative.”
Secondly, for CPI, the analysts said, ”core prices likely stayed strong in September, with the series registering another large 0.5% MoM gain. Shelter inflation likely remained strong, though we look for used vehicle prices to retreat sharply. Importantly, gas prices likely brought additional relief for the headline series again, declining by about 5% MoM. Our m/m forecasts imply 8.2%/6.6% YoY for total/core prices.”
WTI crude oil futures settle at $91.13
- Down $1.51
The price of WTI crude oil futures are settling the day up $1.51 or 1.63% at $91.13. The market continues to digests the 2 million BPD cut last week by OPEC+. The high price reached $93.62. The low price has just extended to a new low for the day at $90.63 in after-hours trading. The high price today took out the high price from last week at $93.13.
EU News
European indices close the session with mixed results
- The modest changes in the major indices
The major European indices are closing the day with mixed results:
- German DAX unchanged
- France’s CAC -0.45%
- UK’s FTSE 100 -0145%
- Spain’s Ibex -0.31%
- Italy’s FTSE MIB +0.25%
German source:Rejects the report saying Germany supports EU bond issuance for energy loans
- Runs counter to earlier report
A German source on Reuters is now saying that:
- Germany does not back joint EU dect for energy loans to ease the energy crisis.
Bloomberg reported earlier that there was a push toward that idea which sent yields higher.
Other News
JPM Dimon: US recession likely 6-9 months from now
- Stocks could go down another 20%
JPMorgans Jamie Dimon during an interview on CNBC in Europe says:
- There is likely to be a recession in 6-9 months.
- The crack that would tip the scales would likely be in the credit markets
- Markets could become disorderly soon
- Says if you need money, go raise it.
- Could see S&P easily go down another 20% but depends on soft landing/hard landing
- The next move could be more painful
- Negative rates when it all said and done will be viewed as a complete failure.
- Fed should have started to tighten sooner
- Currently the US economy is still doing well
- Companies are still doing well.
- What the problems are include rates going up more than expected. QT is an issue. The war is a big issue.
- We are going to have volatile markets
- The Fed is catching up
Cryptocurrency News
Ethereum Classic price is down twice as much as Bitcoin and hints at a countertrend bounce
- Ethereum Classic price is down 12% in the month of October.
- ETC price falls on low volume and has breached extremely oversold conditions on the Relative Strength Index.
- Invalidation of the bullish thesis depends on $25 holding as support.
Ethereum Classic price is more oversold now than it has been for most of the summer. A pullback could occur in the coming days.
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