Yesterday’s CPI number triggered a rollercoaster ride of market emotions ranging from despair to euphoria, swinging the Dow more than 1400 points from low to high.  The big question for today is can it continue facing higher rates, rising inflation, recession, and slowing world economies?  With a busy day of potentially market-moving earnings and economic reports, will the rally continue or come to a screeching halt as quickly as it began?  The one thing we can say for sure is the wild price volatility makes for a dangerous trading environment that could whipsaw or reverse suddenly, so plan your risk carefully heading into the uncertainty of the weekend.

Asian markets surged higher overnight in reaction to the vast U.S. short-squeeze reversal.  This morning, European markets trade green across the board, hoping for a U.K. fiscal policy reversal.  As earnings results roll out with a pending retail sales report, U.S. futures point to a bullish open but be prepared for just about anything with market emotions so high.  Buckle up; it will likely be another very hectic day of price gyrations.

Economic Calendar

Earnings Calendar

The earnings ramp-up begins with several more reports that are potentially market-moving today.  Notable reports include C, JPM , MS, PNC, USB, UNH & WFC.

News & Technicals’

Kwarteng’s abrupt departure from a series of international finance meetings in Washington, D.C., comes amid a growing political backlash against the Conservative government’s proposed tax cuts.  The debt-funded measures announced on Sept. 23 and estimated to total £43 billion ($48.7 billion) sent financial markets into a tailspin.  As a result, Prime Minister Liz Truss is under immense pressure to rethink her economic policies as opinion polls show support for her government has collapsed. 

People are increasingly using their social networking “feeds” to discover compelling content as opposed to viewing the media shared by the friends that they follow.  Zuckerberg referred to TikTok as a “very effective competitor.”  Therefore, it’s important for Meta to develop AI that can recommend a range of content, including photos and text, to users besides just short videos.  Twitter said in a court filing that it’s been trying since July to obtain materials related to a federal investigation into his effort to buy the company.  “This game of ‘hide the ball’ must end,” Twitter lawyers said in the filing. 

President Joe Biden recently claimed the “pandemic is over,” but the extension of the public health emergency indicates the administration does not believe the U.S. is out of the woods yet.  The public health emergency, first declared in January 2020 by the Trump administration, has been renewed every 90 days since the pandemic began.  The powers activated by the emergency declaration have greatly impacted the U.S. healthcare system and social safety net.

Thursday was a rollercoaster ride, with the Dow futures falling as much as 600 points after the much hotter-than-expected CPI.  However, after the open, they trigger a massive short squeeze, recovering the early losses and surging up more than 800 points.  The dollar pulled back, and the bond yields eased, helping the bulls to relieve the selling pressure.  But, with the hard-to-face economic facts of slowing economies, inflation, and recession, can the rally continue?  This morning we will get several potential market-moving earnings and economic reports that could keep the rally going or bring it to a screeching halt.  There is a lot at stake, and the potential amlitude of these huge point moves makes for a very dangerous trading environment. 

Trade Wisely,

Doug

If the choppy price action of late has been frustrating, the wait is over, and let the volatility begin.  Not only do we have the CPI and Jobless Claims, but we also kick off the wild speculation and price manipulation of the 4^th quarter earnings season.  While companies may hit substantially lowered earnings estimates, the guidance forward and the commitment to stock buybacks will likely be most important for the future direction of the stock prices.  Expect the challenging price action to continue with the path forward, which is looking so uncertain at this time.   

Asian markets declined across the board as investors traded cautiously ahead of U.S. inflation data.  European markets, however, show some willing bulls as they brace for the coming numbers.  This morning looks like a repeat of yesterday’s premarket pump, pointing to a bullish open ahead of earning and economic report results.  I guess the question to be answered is, with this pump-up speculation be successful, or will it result in another disappointing pop and drop?  Buckle up; we’re about to find out!

Economic Calendar

Earnings Calendar

We’ve made it to the official kick-off day of the 4^th quarter earnings.  Notable reports include BLK, CMC, DAL, FAST, PGR, TSM & WBA.

News & Technicals’

Belgium’s central bank chief told CNBC that the European Central Bank needs to raise interest rates into positive territory when considering inflation, despite recession fears.  “My bet would be it’s going to be over 2%, and I would not be surprised if we have to go to above 3% at some point,” said Pierre Wunsch, governor of the National Bank of Belgium.  However, he said that September’s hike in the ECB’s benchmark deposit rate to 0.75% meant rates were still negative in real terms. 

Cash, one of the most hated corners of the market for years, is getting some newfound love from money managers as the Federal Reserve’s firm commitment to rate hikes roiled nearly every other asset class.  Global money market funds saw $89 billion of inflows for the week ending Oct 7, the largest weekly injection into cash since April 2020, according to Goldman Sachs’ trading desk data.  Meanwhile, the data said that mutual fund managers also hold a record amount of cash.

The Office for National Statistics estimated Wednesday the U.K. economy shrank by 0.3% in August, potentially beginning what economists expect will be a lengthy recession through the winter.  In addition, postal workers, rail workers, and public barristers have all carried out strikes recently to protest pay and conditions, as wages fail to keep up with inflation running at around 10%.  A worst-case scenario laid out by national electricity system operator the National Grid warned that households and businesses might face three-hour power outages over winter.  Asia’s biggest economic problems next year will stem from rising interest rates.  These will put increasing pressure on debt servicing in Asia and heighten capital flight from the region: IMF  The U.K. bond crisis will have limited impact on Asian markets, although “anything that creates financial market turbulence will find a way” to upset other economies: IMF.  As many Asian economies, such as Japan and Hong Kong, open up, increased human mobility will generate economic activity and stall a slowdown.

The wait is over, so let the volatility begin.  After the disappointing PPI number, the dollar rose, the bond yields surged, and the FOMC minutes say the hawkishness is not yet over!  That made for a choppy Wednesday as traders pondered the CPI, Jobless Claims, and what earnings reports might reveal.  Once again, the overnight futures are working to pump up a bullish open but will it be just another pop and drop to punish those rushing in hoping to pick the bottom?  We sure could use a rally with the indexes in a short-term oversold condition, but it may not be a tough sell if inflation remains resilient.  As earnings number ramp up, expect wild speculation and price volatility to do the same.  I think the company’s guidance and stock buyback levels will be more important this season than hitting the substantially lowered estimates.  So be careful jumping in too soon and wait for the conference call before making your decision.  Likely challenging times lie ahead, so plan your risk carefully.

Trade Wisley,

Doug

The bulls tried to get upside price action going, but all at once, the bears returned with a vengeance producing a nasty whipsaw to punish the dip buyers.  As a result, the QQQ closed at a new 2022 low, while the other indexes managed to hold Monday’s low.  Before the bell today, we will get the Producer price report and then deal with the FOMC minutes this afternoon.  In addition, we will have to keep a close on rising bond yields and fluctuating currency after the BOE deadline warning to pension plans.  Finally, no matter the market reaction, keep in mind the CPI numbers come out before the bell Thursday, so plan your risk carefully!

Asian markets traded mixed as the Yen continued to weaken to 146 to 1 against the dollar.  European market trade mixed in a choppy session, waiting for U.S. inflation data.  However, the U.S. futures push for a bullish open ahead of the PPI number.  How the market reacts after the number is anyone’s guess.  Perhaps the futures premarket pump will signal a relief rally, or perhaps they are just trying to put lipstick on a pig.

Economic Calendar

Earnings Calendar

With the official kickoff of 4^th quarter earnings beginning tomorrow, we have another light day of reports.  Notable reports include PEP & DCT.

News & Technicals’

Tobias Adrian, director of monetary and capital markets at the International Monetary Fund, told CNBC Jamie Diamon’s call that U.S. stocks could tumble another 20% was “certainly possible.”  He said sentiment had so far held up relatively well, but a shift in this could spark a further downturn.  Adrian also warned financial stability risks are very elevated, with the global economy in a “very, very stressed moment.”  Sridhar Ramaswamy, who led Google’s advertising business from 2013 to 2018, has launched a Web3 company called nxyz.  Nxyz trawls blockchains and their associated applications for data on things like NFTs and crypto wallets and then streams it to developers in real time.  The company raised $40 million in a funding round led by crypto-focused venture fund Paradigm, with additional backing from Coinbase, Sequoia, and Greylock. 

The U.S. Department of Commerce introduced sweeping rules to prevent China from obtaining or manufacturing key chips and components for supercomputers.  Analysts said that this is likely to hobble China’s domestic chip industry.  In addition, Washington’s export rules could touch other parts of the supply chain that use American technology, highlighting the wide-ranging nature of the latest restrictions. 

Unbelievable

“I don’t think there will be a recession.  If it is, it’ll be a very slight recession.  That is, we’ll move down slightly,” Biden told CNN’s Jake Tapper in a Tuesday interview.  On Monday, JPMorgan Chase CEO Jamie Dimon told CNBC there would likely be a recession in six to nine months.  In September, the U.S. central bank raised benchmark interest rates by three-quarters of a percentage point —the Fed’s third consecutive hike.  Treasury Secretary Janet Yellen said the U.S. is doing well amid global economic uncertainty.  Yellen said the U.S. economy has slowed after a strong recovery, but job reports indicate a resilient economy.  The Treasury Secretary reiterated that lowering inflation is a priority of the Biden administration.

Yesterday proved to be another choppy day as the bulls finally pushed off the lows only to have the bears produce a nasty whipsaw, driving indexes down in a quick move.  The QQQ made a fresh 2022 low after the BOE set a deadline for pension plans to make adjustments as central bank interventions end.  Today we face the latest reading on Producer Prices, more Fed speak, and we will get the minutes of the last FOMC meeting.  I think the market is looking for any hope to relieve the short-term oversold condition of the indexes.  Still, traders must remain aware of the currency liquidity issues and bond yield gyrations.  As you make trading decisions, remember we get the CPI number before the bell on Thursday and begin the 4^th quarter earnings with the big bank reports.  Plan for a heavy dose of price volatility.

Trade Wisely,

Doug

Though the semiconductor sector attracted the majority of the bearish activity on Monday, the overall market experienced a chop fest as we waited for the uncertainty of inflation numbers and the earnings season kick-off.  Unfortunately, we see bond yields surging higher this morning with little else in the earnings or economic calendars to inspire as we again wait.  Watch for sensitivity to the news cycle as geopolitical tensions grow, and earnings warnings are seemingly on the rise.

While we slept, Asian markets mostly declined, with Taiwan stocks down 4% as TSMC plunged 8%.  European markets see only red this morning as the dollar’s strength and weakening global growth worries persist.  With another day of waiting ahead and bond yields surging, U.S. futures suggest a bearish open, with the QQQ leading the selling. 

Economic Calendar

Earnings Calendar

We have five verified reports on Tuesday, but only two qualify as somewhat notable.  They are AZZ and PNFP.

News & Technicals’

The Bank of England intervenes in the bond market again today.  “Dysfunction in this market and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” the Bank of England warned.  The move marks the second expansion of the central bank’s extraordinary rescue package in as many days after it increased the limit for its daily gilt purchases on Monday ahead of the planned end of the purchase scheme.  Israel and Lebanon reached a historic agreement to resolve a long-running maritime border dispute following months of negotiations guided by the United States.  “This is a historic achievement that will strengthen Israel’s security, inject billions into Israel’s economy, and ensure the stability of our northern border,” Israel’s Prime Minister Yair Lapid said in a statement.  His comments came after Lebanon received the final draft of the U.S.-brokered agreement with Israel. 

“I hope Musk cleans up Twitter,” JPMorgan CEO Jamie Dimon said in a CNBC interview.  The remarks are Dimon’s first on the Musk-Twitter deal, revived last week after a fresh bid from Musk to buy the company.  Dimon echoed Musk’s concerns about spam accounts and said Twitter should give users more control over its recommendation algorithms.  Delta will have an exclusive five-year partnership with Joby operating electric vertical takeoff and landing aircraft, or eVTOLs, as part of the Delta network.  As a result, Delta CEO Ed Bastian envisions moving passengers to and from airports quicker and with less hassle. 

Two subsea pipelines connecting Russia to Germany are at the center of international intrigue after a series of blasts caused what might be the single largest release of methane in history.  Many in Europe suspect the incident resulted from an attack, particularly during a bitter energy standoff between the European Union and Russia.  However, the Kremlin has repeatedly dismissed claims it destroyed the pipelines, calling such allegations “stupid” and “absurd.” 

As mentioned in Monday’s report, the hurry-up and wait in the market evolved into a chop fest as we ponder on inflation data and the beginning of the earnings season.  The semiconductor attracted the most bear activity due to the new U.S. chip regulations temporally pushing the QQQ to a new 2022 low.  Though we saw a  reprieve from bond yield worries, they are back with a vengeance this morning, with the 2-year climbing to 4.32% in early Tuesday.  In addition, the national average gas price continues to rise at $3.92, adding worries that the core inflation rate could rise despite the rapid rate-increasing efforts of the FOMC.  Unfortunately, we face another day of waiting with little on the earnings and economic calendars to inspire.  Plan for markets to be sensitive to early earnings warnings and geopolitical events and keep a close eye on support challenges as the bears continue to drive sentiment.

Trade Wisely,

Doug

Today the market may breathe a sigh of relief with the bond market closed for Columbus Day, providing a break from the rising yields.  Unfortunately, with no earnings or economic reports today, we could see a choppy day as we wait for the inflation reports and the kick-off of the 4^th quarter silly season.  The hopefulness of the so-called Fed pivot fell apart on Friday with the strong jobs report suggesting another 75 basis point increase is possible.  Watch for earnings warnings and possible downgrades as the economic challenges continue.

Asian markets fell across the board during the night, with tech stocks taking the biggest hit due to the new U.S. chip regulations.  European markets traded in a choppy session this morning with flat to slightly bearish results.  U. S. futures recovered substantially from overnight losses, but at the time of this report suggests an uncertain and flat open.  Expect choppy price action and a sensitivity to the news cycle as we hurry up and wait.

Economic Calendar

Earnings Calendar

Although we have eight companies listed on the Monday earnings calendar, there are no confirmed reports today.

News & Technicals’

The U.S. announced Friday that new U.S. rules require companies to apply for a license if they want to sell certain advanced computing semiconductors or related manufacturing equipment to China.  Notably, the changes also mean foreign companies will need a license if they use American tools to produce specific high-end chips for sale to China.  “The U.S. has been abusing export control measures to block and hobble Chinese enterprises wantonly,” the Chinese Ministry of Foreign Affairs Spokesperson said. 

Allianz Chief Economic Adviser Mohamed El-Erian said he predicts headline inflation “will probably come down to about 8%,” but that core inflation “is still going up.”  El-Erian said an increase in core inflation means “we still have an inflation issue.”  On Monday, the Bank of England announced that it would introduce further measures to ensure an “orderly end” to its purchase scheme on October 14.  Following last month’s unprecedented spike in gilt yields, LDIs — which hold substantial quantities of gilts and are owned predominantly by final salary pension schemes — were receiving margin calls from lenders. 

The bears could breathe a sigh of relief today because the bond market is closed for Columbus Day, which aided the Friday selling as yields surged.  However, the challenging price volatility will remain due to the uncertainty of the 4th quarter earnings season beginning Thursday, FOMC minutes, a CPI, PPI, and retail sale report.  Moreover, the narrative of a Fed pivot that created last week’s nasty whipsaw hurt a lot of speculation retail bounce traders.  It may soon usher in a capitulation event if earnings begin to disappoint and fear turns to panic.  That said, be ready for big price swings but stay focused and follow the trend because there will be plenty of opportunities to profit.   

Trade Wisely,

Doug

The narrative of a Fed pivot kept the bulls inspired Wednesday despite the economic data showing the battle against inflation is not over.  Moreover, the decision of OPEC to cut production by two million barrels a day adds pressure to the inflation fight as oil and gas prices surge.  With few notable earnings reports, Jobless Claims, and several Fed speakers, we should expect another wild of price volatile as we wait for the Friday Employment Situation numbers. 

While we slept, Asian markets traded mixed in reaction to the OPEC decision.  European market markets struggle in a choppy morning session turning modestly bearish as the rally momentum fades.  As I write this report, U.S. futures have reversed overnight gains suggesting a lower open ahead of earnings and economic reports.  With 4^th quarter earnings just a week away, uncertainty remains high, so plan for the challenging price action to continue.

Economic Calendar

Earnings Calendar

Just one week before the official kick-off of 4^th quarter earnings, we have a few noteworthy stocks on the calendar today.  Notable names include ANGO, CAG, STZ, LEVI, & MKC.

News and Techniclals’

Energy analysts believe deep production cuts from OPEC+ could backfire for U.S. ally Saudi Arabia.  OPEC and non-OPEC allies, often referred to as OPEC+, agreed on Wednesday to reduce oil production by 2 million barrels per day from November.  The move is designed to spur a recovery in oil prices, which had fallen to roughly $80 a barrel from more than $120 three months ago.  However, Washington sees OPEC+’s decision as political interference and a “blow” against U.S. President Joe Biden, said Dan Yergin, vice chair of S&P Global.  Secondly, it’s seen as somehow political interfering in the U.S. election, although the cut doesn’t go into effect until November,” he said.  “There seems to be a mini battle between [Strategic Petroleum Reserve] releases in the White House and what’s going on with OPEC+,” said Bill Perkins, CEO of Skylar Capital Management. 

Analysts said Apple’s next iPhone would likely be equipped with USB-C charging rather than its proprietary Lightning system.  It comes after lawmakers in the European Parliament approved a law requiring electronics sold in the European Union to be equipped with a USB Type-C charging port by the end of 2024.  Indeed, there are rumors that Apple is exploring USB-C for the iPhone 15, which is what the next device could be called if the traditional naming convention continues.  Analysts said Apple’s change to USB-C will likely be for the global market, including the U.S., rather than just the EU. 

Ford is increasing the entry-level price of its electric F-150 Lightning pickup by $5,000 for the 2023 model year due to rising costs and supply chain issues.  As a result, the starting price of the 2023 Lightning Pro model will be $51,974 – up nearly 11% and a 30% increase from the truck’s $39,974 price in May 2021.   However, the company said the price increase would not impact current retail order holders and commercial and government customers with scheduled orders.  Treasury yields rallied slightly in early Thursday trading as inflation worries and hawkish Fed policies continue.

The wild price action continues as the hope of a Fed pivot inspires buyers to recover the Wednesday morning gap that temporarily produced gains on the day.  Unfortunately, bond yields and the dollar’s strength continue to inhibit bullish sentiment.  Add in the OPEC decision that’s quickly raising oil and gas prices and fanning the flame of inflation, thickening the dark cloud hanging over the weakening economy.  Today we get the latest read on Jobless claims and more Fed speeches for the market to process as we move toward the Friday Employment Situation report.  Plan carefully and expect the volatile uncertainties to continue.

Trade Wisely,

Doug

The fast two-day rally revived hope of a market bottom, and it certainly was a welcome change from the selling, but with FOMC unlikely to pivot, was it too much too soon?  Currencies continue fluctuating, and the bond yields ticked up early Wednesday, bringing back some uncertainty this morning.  If the bottom is indeed in, we need to wait and see proof that the institutions support a higher low and they have the willingness to break the index downtrends.  Avoid the fear of missing out on emotional trading and stick to your rules and sound technical analysis principles.

Asian markets closed mostly higher, with Hong Kong surging up 5.90% as the Shanghai index drifted lower by 0.55%.  European markets are in pullback mode this morning, seeing red across the board as PMI data points to recession.  U.S. futures are also retreating ahead of a busy morning of economic data as the dollar bounces, and bond yields tick up.  Plan for another wild day.

Economic Calendar

Earnings Calendar

On the Wednesday earnings calendar, we have six confirmed reports.  Notable reports include HELE, LW, and RPM.

News and Technicals’

Elon Musk’s revived $44 billion deal to buy Twitter sparked fresh debate over what the billionaire will do with the service if he eventually owns it.  On Tuesday, Musk tweeted that buying Twitter is an “accelerant to creating X, the everything app.” He did not provide further details.  However, musk may be hinting toward so-called “super apps,” which are popular in China and other parts of Asia and pioneered by the likes of Chinese technology giant Tencent.  Chinese app WeChat, run by Tencent, is the biggest super app in the world.  Musk previously called WeChat “great” and said there is an opportunity to create an app like that outside of China. 

OPEC+’s plans to cut oil production is a “mistake,” said U.S. Senator Chris Murphy.  “I think it is a mistake on their part.  And I think it’s time for a wholesale re-evaluation of the U.S. alliance with Saudi Arabia,” Murphy told CNBC.  “I think you’ve got to be very careful to do business with the Saudis these days,” he said.  Germany’s economy minister has accused the U.S. and other “friendly” gas supplier states of astronomical prices for their gas supplies.  He suggested some gas suppliers were profiting from the fallout of the war in Ukraine, which has sent global energy prices soaring.

The substantial two-day rally was just what the market needed to revive traders and investors tired of the consistent selling, but is it too much too soon with FOMC unlikely to pivot?  As of now, the index downtrends remain intact, as do the technical and price resistance above.  The dollar is bouncing this morning, and the treasury yields ticked up slightly in the early Wednesday trading suggesting the currency fluctuations could continue to raise market uncertainty.  Today we will find out if OPEC will cut production levels which could add inflationary pressure as winter approaches.  We will also get Mortgage Applications, ADP, Trade numbers, PMI Final, ISM Services, and Petroleum Status reports this morning.  Keep in mind the Employment Situation report Friday morning because it’s not uncommon for the price action to become light and choppy ahead of the number. 

Trade Wisely,

Doug

Happy day, the bulls returned to work on Monday, finding inspiration in the pullback of bond yields and the declining dollar.  However, it was not all sunshine and roses with the bearish ISM report and the sharply declining construction spending.  Though the relief rally was overdue, keep in mind downtrends remain intact, as well as significant overhead resistance, so the feeling the bottom may be in is premature.  Stay focused on price, and remember, the bulls still have a lot to prove before we sound the all-clear signal. 

Asian market closed mixed after a smaller than expected Australian rate hike, though the Nikkei surged nearly 3%.  European markets leap higher this morning as they celebrate the needed selling relief.  Ahead of factory orders, the JOLTS report, and a parade of Fed speakers, U.S. futures point to a huge gap up open despite the tremendous economic uncertainties.  Watch for the possibility of a pop and drop as we test the downtrend and overhead resistance levels.

Economic Calendar

Earnings Calendar

We have just four confirmed reports on Tuesday.  They are AYI, NG, SAR, and SGH.

News & Technicals’

Monetary and fiscal policies in advanced economies — including continued interest rate hikes — could push the world toward a global recession and stagnation, the UN Conference on Trade and Development (UNCTAD) said on Monday.  A global slowdown could potentially inflict worse damage than the financial crisis in 2008 and the Covid-19 shock in 2020, warned the UNCTAD in its Trade and Development Report 2022.  “We still have time to step back from the edge of recession.  Nothing is inevitable.  We must change course,” said UNCTAD Secretary-General Rebeca Grynspan.  North Korea fired a ballistic missile over Japan for the first time in five years on Tuesday, prompting a warning for residents to take cover and a temporary suspension of train operations in northern Japan.  Speaking to reporters shortly afterward, Prime Minister Fumio Kishida called North Korea’s actions “barbaric” and said the government would continue gathering and analyzing information. 

Manhattan apartment sales fell 18% in the third quarter, putting the brakes on New York’s real estate comeback.  However, the figure last fell in the fourth quarter of 2020 and marks a turnaround for the nation’s largest real estate market.  Brokers say the drop marks a return to normalcy after the artificially high sales of 2021.  There are growing fears of a housing market crash in the U.K. after a swathe of tax cuts announced by the government sent interest rate expectations soaring, driving up lending rates for homebuyers.  As a result, several banks suspended mortgage deals for new customers, and many have now returned to the market with significantly higher rates.  Oxford Economics estimates that if interest rates remain at the levels currently being offered, house prices are approximate “30% overvalued based on the affordability of mortgage payments.” 

With the U.S. dollar declining and bond yields easing slightly, the bulls finally found the inspiration to rally Monday despite the declining ISM and Construction spending numbers.  It’s a welcome relief from the short-term oversold condition of the indexes.  However, the indexes remain in downtrends, and we have yet to challenge the significant overhead resistance levels, so be careful in assuming this is an all-clear buy signal.  While yesterday’s big point move raises hope of a market bottom, we still have an inflation problem and a Fed showing no signs of pivoting.  Today we will get a reading on factory orders and the JOLTS report with another parade of Fed speakers.  With the dollar falling, keep a close eye on commodity prices that typically rally during currency weakness which could quickly add pressure to the fight against inflation.  With earnings season just nine days away, volatility is likely to remain high, especially if we continue to get downgrades and earnings warnings.

Trade Wisley,

Doug

As we begin a new quarter, inflation remains unacceptably high, and everyone wonders what will break first.  The economy or the FOMC’s hawkish stance?  Today the FOMC has called an emergency meeting.  One has to wonder if we are again on the brink of a banking or liquidity crisis.  Stay alert for price gyrations as news comes out.  The official kick-off of 4^th quarter earnings is only 10-days away, so keep an eye out for possible downgrades and warnings with the consumer-facing some difficult decisions as prices continue to rise.  The overnight reversal and intraday whipsaws will likely continue, so plan your risk carefully.

Asian markets closed mostly lower, with oil rising and the Hang Seng falling to its lowest level in 11 years.  European markets trade primarily lower this morning as Credit Suisse declines sharply.  However, as I write this report, the U.S. futures have recovered from overnight lows, pointing to another gap as another premarket pump hopes to inspire the bulls.  Watch for the possible pop and drop with so much price resistance above despite the short-term oversold condition.

Economic Calendar

Earnings Calendar

There are no confirmed earnings reports for today.

News & Technicals’

Shares of Credit Suisse plunged nearly 10% in Europe’s morning session after the Financial Times reported that the Swiss bank’s executives are talking with its major investors to reassure them amid rising concerns over the Swiss lender’s financial health.  Spreads of the bank’s credit default swaps (CDS), which provide investors with protection against financial risks such as default, rose sharply Friday.  They followed reports the Swiss lender is looking to raise capital, citing a memo from its Chief Executive Ulrich Koerner.  The U.K government reverses planned tax cuts due to currency fluctuations.  It represents a major and humiliating U-turn for new Prime Minister Liz Truss, who was insisting that she was “absolutely committed” to the cut as recently as Sunday.  She also revealed the decision was taken by Kwarteng and had not been announced to her whole cabinet. 

Markets entered a dangerous new phase in the past week, in which statistically unusual moves across asset classes are commonplace.  According to Mark Connors, former Credit Suisse global head of risk advisory, surging volatility in what are supposed to be among the world’s safest fixed income instruments could disrupt the financial system’s plumbing.  He said that could force the Fed to prop up the Treasury market.  Doing so will likely force the Fed to halt its quantitative tightening program ahead of schedule.  The other worry is that the whipsawing markets will expose the weak hands of asset managers, hedge funds, and other players who may have been overleveraged or taken on unwise risks.  As a result, margin calls and forced liquidations could further roil markets.

Monthly consumer prices grew by 3.08% and annually by 83.45%.  The domestic producer price index was up 4.78% from the previous month and a whopping 151.5% year on year.  Inflation for the country of 84 million people has soared in the last two years, particularly as Turkish President Recep Tayyip Erdogan insists on continuing to cut interest rates rather than raise them — deviating from the conventional way of controlling inflation.  “My biggest battle is against interest.  My biggest enemy is interest.  We lowered the interest rate to 12%.  Is that enough?  It is not enough.  This needs to come down further,” Erdogan said during an event in late September.

As we begin a new quarter, indexes remain in a short-term oversold condition, and as of the Friday close, the bears left all but IWM at fresh 2022 lows.  Moreover, with the official start of the 4^th quarter earnings 10-days away and the mid-term election only 35 days, there is a lot of uncertainty about what comes next.  Adding to the concern, the FOMC has called an emergency meeting for today.  Could we be on the brink of another banking or liquidity crisis?  China is also making concerning moves that may soon trigger a selloff in the dollar to stabilize the Yuan.  With so much uncertainty, traders must be ready for just about anything.  As a result, overnight reversals and news-inspired intraday reversals are likely to continue.  Watch for reports of earnings downgrades and warnings from companies of potential top or bottom line misses as consumers face some complex decisions heading into the winter.  September was challenging, but we have not seen full-on panic, so perhaps October will bring us some selling relief.

Trade Wisely,

Doug

A negative GDP, hotter than expected jobs market, layoff reports, company downgrades, and currency fluctuations are just some of the issues creating the wide-ranging chop in the indexes.  This morning we wait for the FOMC favored inflation report, the Core PCE, after learning the Eurozone hit a new 10% inflation record.  Though we are oversold in the short-term and should watch for a possible relief rally, the uncertainty of the path forward will make it difficult for the bulls to find much inspiration and gives the bears very little reason to back off.  Expect the challenging price action to continue in the days ahead with the 4^th quarter earnings season rapidly approaching.

Asian markets closed mostly lower while we slept, reacting to the SP-500 new year low.  However, with European inflation soaring to 10% and the BOE back on the QE train, the eurozone market see modest gains across the board.  U.S. futures also point to a bullish open as we wait for the Personal Income and Outlays report.  Plan for price volatility and watch out for those big point intraday whipsaws in this wide-ranging chop zone. 

Economic Calendar

Earnings Calendar

W have a very light day on the Friday earnings calendar with only one CCL with any noteworthiness. 

News & Technicals’

Eurozone inflation spikes to a record 10%, adding pressure on the ECB to act.  Moreover, the reading showed price increases broadening out from volatile food and energy prices into nearly all segments of the 19-member bloc’s economy.  Energy prices rose 40.8% year-on-year, up from 38.6% in August, followed by food, alcohol, and tobacco at 11.8%, up from 10.6% last month.  In addition, federal student loan borrowers whose loans are not held by the U.S. Department of Education will no longer be able to consolidate for forgiveness as of Thursday.  Nike’s first fiscal quarter revenue was up 4% to $12.69 billion, beating estimates.  However, Nike’s net income was down 22% to $1.5 billion.  The sneaker giant said inventory on its balance sheet was up 44% to $9.7 billion, driven by ongoing supply chain issues. 

British Prime Minister Liz Truss and Finance Minister Kwasi Kwarteng met the U.K.’s independent monetary watchdog for talks on Friday.  The talks followed a turbulent week for the U.K. economy, including a slump in the pound and gilt yields soaring.  The Senate voted 72 to 25 to pass a funding bill to avert a federal shutdown and fund government operations through mid-December.  The bill now goes to the House, where it’s expected to pass later this week.  It includes an additional $12 billion in aid for Ukraine, $1 billion in heating and utility assistance, and emergency aid for natural disasters. 

A negative GDP reading and hotter-than-expected jobless claims quickly reversed the Wednesday rally as the wide-ranging chop filled with uncertainty plagues the indexes.  While the FOMC works to reduce inflation, Congress continues to burrow and spend like drunken sailors.  This morning Europe reported a new record high of 10% inflation as we wait here in the U.S. for the FOMC favorite indicator, the Core PCE numbers, before the bell.  The downgrade of APPL put a lot of pressure on Nasdaq, and I suspect we will see more companies downgrades as we head for the 4^th quarter earnings season.  Though we remain oversold in the short-term, suggesting a relief rally is due to the pressure in bond yield, and currency fluctuations will likely keep volatility challenging in the days and weeks to come.

Trade Wisely,

Doug