Introduction

News the US was making advances toward renewed trade talks with China lift global indices. Also, the Consumer Price Index came in weaker than expected and alleviated some fear of future FOMC rate hikes. At 0.2% for the month and 2.7% YOY the data show a deceleration of inflation gains in the wake of the two hikes we've seen this year. If deceleration persists, we could see the Fed begin to back off their timeline.

Asian markets were broadly higher in Thursday trading. The chance of renewed trade talks sent a wave of relief through the markets that drove the Heng Seng up by 2.54%. The mainland China Shanghai index advanced more than 1.5% and was followed by a 1% gain in the Nikkei. European stocks were not so buoyant, indices in the region were mixed and many closed with losses as the ECB and BOE decide to hold rates steady.

The BOE says it will need to continue its course of gradual, incremental interest rate hikes to keep inflation trajectory on target; the ECB says it is on track to end bond purchased in December and that inflation is on track to meet their target over the medium term. According to the press release we can expect to see interest rates remain at their current level in the EU until after next summer.

Market Statistics

Futures trading was positive all morning and were able to gain strength going into the opening bell. The trade was driven by relief, relief the US was reaching out to China and relief that inflation appears to be contained, and led to broad gains in the US market. The open was calm, the indices began the day with small gains and were able to move higher from there. The S&P 500 topped out near 0.50% for the day and closed very near the all-time high but off the highs of the day.

Economic Calendar

The Economy

Initial claims for unemployment insurance fell -1,000 from last week's upwardly revised figure. The revision is plus +2,000 which leaves this week's figure up 1,000 from last week's report. Regardless the nuance this figure is the lowest level since 12/6/1969. The four-week moving average of claims fell -2,000 from its upwardly revised level and also hit a new low dating back to 12/6/1969. On a not-adjusted basis claims fell -6.7% versus an expectation of -6.1%, not-adjusted claims are down -23% from this time last year. The wide gap between this year's not-adjusted claims and last years is due in part to last years hurricanes, with Florence making landfall today it's possible we'll see first-time claims jump in the next week or two.


Continuing claims for unemployment insurance fell -15,000 to hit 1.696 million; the previous week's figure was revised up by 4,000. The four-week moving average of continuing claims fell -8,250 to hit 1.711 million and set a new long-term low dating back to 11/24/1973. This figure, and the initial claims figure, shows a continued downtrend in claims that is consistent with tight labor market conditions and upward pressure in wage inflation.

Total claims for unemployment fell -23,998. This decline is as expected and in line with seasonal and long-running trends within the labor market. The total number of claims is down -11.9% from last year and continues to show an accelerated tightening of labor conditions relative to previous years. I expect to see the total claims continue to fall for another six weeks or so, eventually hitting my target below 1.5 million.


The Consumer Price Index came in at 0.2% headline and 0.1% at the core, both a tenth weaker than expected. The YOY figures are 2.7% at the headline and 2.2% at the core, both weaker than expected and down from the previous month. The data is a plus for the economy as it shows a deceleration of inflation and points to fewer rates in the coming year than previously expected. What it didn't do was upset expectations for rate hikes this year, the CMEs FedWatch Tool still shows a 100% chance of a hike at the next meeting (two weeks) and an 82% chance of another hike in December.


The Dollar Index

The Dollar Index fell about -0.30% on today's news. Between the CPI and expectations for rate hikes from the BOE and ECB (they are on track to hike in the third quarter of next year), FOMC ECB and BOE policies are coming back into convergence. This convergence could put downward pressure on the DXY with the caveat US PCE inflation data is still running hot, and there is an FOMC meeting less than two weeks away. Today's decline in the DXY brought it down to near-term support at $94.50, and it looks like it could fall further. The indicators are pointing lower and consistent with lower prices, a move below $94.50 would be bearish and could take the index down to $94 or $93.


The Gold Index

Gold prices tried to rise after today's CPI data but the outlook for FOMC rate hikes, and now the outlook for ECB and BOE rate hikes, kept the metal under pressure. Today's candle moved up to set a three week high, but resistance at the $1,218 level capped gains and reversed today's action. By the end of the session, the metal had fallen back below the short-term moving average, but a deep fall may not be brewing. Today's action was halted at my support/resistance target of $1,205, and the indicators remain bullish. Based on recent activity and in light of an upcoming FOMC meeting it is possible that gold will continue to trend sideways at current levels. In the absence of new information, a move below $1,205 may go as low $1,190, a move above the short-term moving average may go as high as $1,220.


The Gold Miners ETF GDX gapped up at the open only to fall throughout the day and close with a loss. The short-covering rally that sent prices higher early in the week may have run its course. Today's weakness in gold certainly helped weigh on the sector and may keep it trading at or near current levels into the foreseeable future. The indicators are bullish and pointing higher which suggests rising prices are here, the caveat is that in a downtrend such a signal is better used for bearish positions than not. If the index can move higher resistance is likely at $18.60, if it falls support is likely at $17.50.


The Oil Index

Oil prices fell back to support on concerns slowing growth could hamper demand. While growth is expected around the world outlook is dimming, and that is weighing on prices. Not only are trade disputes having an impact, a crisis in some emerging markets threatens to hurt demand. Turkey for one is still in crisis and just saw its central bank raise interest rates 650 basis points to 24%. WTI fell more than -2.25% on the concerns, but the move was halted by support at the short-term moving average. The indicators are mixed and suggest range-bound trading at current levels could persist. A fall below the short-term moving average could take prices down to $66.50, a move up may find resistance near $71.00.


The Oil Index was able to move higher in today's trading, but the gains were capped by the short-term moving average. The move is bullish, but the candle shows indecision and resistance is present. The indicators are rolling into a bullish trend-following signal, so I am optimistic the earnings outlook will outweigh near-term volatility in oil prices. A move above the short-term moving average would be bullish, a move down may find support at the long-term moving average near 1,450.


In The News, Story Stocks and Earnings

Shares of Kroger fell hard on news the company is performing as expected. The company reported a 1.0% increase in YOY revenue (missed consensus by a hair) that resulted in better than expected EPS. The results come in the face of rising costs and narrowing margins that had no impact on the forward outlook. The company reaffirmed its full-year guidance, and yet shares fell -10% on the news. Shares of KR are now trading near a support target at $27.50.


Target says it will hire 20% more seasonal workers than it did last year with most slated to operate the online sales department. I say to them good luck. America is facing a labor crisis, labor shortages were reported by most districts in the FOMCs Beige Book, and the lack of help is evident everywhere I look. Target may want to hire 20% more workers, but there may not be 20% available to hire. Shares of Target fell -0.65% but remain elevated and near the recently set all-time high.


Shares of Apple surged in the wake of yesterday's product launch. The world's leading consumer tech company advanced more than 2.5% to approach the recently set all-time high. Considering the strength in labor markets, steady increases in YOY wages and expectations for strong sales this holiday season it is likely Apple will be setting new all-time highs over the next few months.


The Indices

The markets moved broadly higher in today's session and led by tech. The NASDAQ Composite advanced 0.75% The tech heavy index moved 0.75% to create a small-bodied green candle and set a one week high. The move is bullish, trend-following but not yet supported by the indicators. Both MACD and stochastic are showing signs of rolling into such a signal, but the moves are not completed. A move up is likely to find some resistance at the current all-time high, a break above the all-time high would be bullish.


The Dow Jones Industrial Average moved up 0.53% to quietly set new all-time intraday and closing highs. The blue chips index created a small bodied green candle in today's action and looks like it will go higher. The caveat is that the indicators have not yet fully confirmed bullish activity although both MACD and stochastic are rolling into a trend-following crossover. A move up would be bullish and likely carry the index up to the 26,500 level in the near-term.


The S&P 500 closed with a gain of 0.53%. The broad market index created a small bodied green candle that extended a trend-following bounce from the short-term moving average. Today's action brings the index close to the current all-time high and indications are bullish. The signal is still weak, but both MACD and stochastic are showing bullish crossovers that are consistent with rising prices. A move up is likely to face some resistance at the all-time high, a move above that would be bullish and could carry the index up to 3,000 in the near-term.


The Dow Jones Transportation Average is the only loser in today's session, but the losses were small. The transports shed -0.43%, but price action was halted above the previous all-time high. Today's action is consistent with consolidation within an uptrend and is presenting an attractive entry point following the break-out witnessed on Monday. The indicators are bullish although momentum is still very weak. A move up may find resistance at the new all-time high, a move below 11,440 could take the index down to the short-term moving average.


Today's action wasn't robust, but it was bullish and shows resilience remains within the market. The indices are moving higher on hope as much as anything else, which is a bit of a concern, but those concerns are mitigated by outlook. Even with global trade disruptions, the US economy is on track for accelerated economic expansion and double-digit earnings growth for at least the next six quarters which is no reason to start selling stocks. So long as growth remains in the forecast I am a bull. I remain firmly bullish for the long-term and cautiously bullish for the near-term.

Until then, remember the trend!

Thomas Hughes