U.S. markets closed higher ahead of Wednesday’s FOMC announcement with the Dow and S&P 500 posting their 7th-straight monthly gain. The Nasdaq set another all-time high of 6,737 while closing above the 6,700 level for the second time in three sessions.

Meanwhile, the Russell 2000 led the major indexes with a gain of 0.8% after closing back above the 1,500 level. Consumer Stapes were a standout after the sector rallied 0.8%.

The Industrials and Financial sectors fell 0.4% and 0.3%, respectively.

Global Economy- European markets traded to a 5-month high after mostly bullish economic news out of the Eurozone. The Belgium20 rose 0.4% and the Stoxx Europe 600 gained 0.3%. France’s CAC 40 climbed 0.2% while UK’s FTSE 100 added 0.1%. Germany’s DAX 30 was closed for the Reformation Day holiday.

The Eurozone October CPI estimate rose 1.4% year-over-year, weaker than expectations for a gain of 1.5%. The October core CPI rose 0.9% year-over-year, weaker than expectations of for a rise of 1.1% and the smallest pace of increase in 5-months.

The Eurozone September unemployment rate fell 0.1% to 8.9% from a downward revised 9.0% in August, better than expectations for a rise of 0.1% to 9% and a 7-1/2 year low.

Eurozone Q3 GDP rose 0.6% quarter-over-quarter and 2.5% year-over-year, stronger than expectations for a gain of 0.5% and +2.4%, respectively.

Asian markets were mixed after China’s bond market somewhat stabilized with yields on Chinese government bond prices reaching a three-year high on Monday. South Korea’s Kospi jumped 0.9% and China’s Shanghai index climbed 0.1%.

Hong Kong’s Hang Seng Index was down 0.4% and Australia’s S&P/ASX 200 dipped 0.2%. Japan’s Nikkei slipped less than a point.

The China October manufacturing PMI fell 0.8 to 51.6, weaker than expectations for a drop of 0.4 to 52.

The Bank of Japan kept its benchmark rate at -0.1% and its 10-year bond yield target at 0.0% with no change to its bond buying pace in November from October.

The BOJ also raised their GDP forecast to 1.9% from a previous forecast of 1.8% and lowered its core inflation estimate to 0.8% from an earlier estimate of 1.1%.

The Redbook Index increased by 3.5% in the week ending October 21st.

U.S. chain store sales fell 1.1% in the week ending October 28th. On a 12-month basis, sales slowed to 1.3% year-over-year from 2.2%.

The Employment Cost Index ECI rose 0.6%, topping expectations for a gain of 0.6% for the quarter.

U.S. August 20-City Case Shiller home price index rose 0.42% to 202.87. For the 12-months, the pace accelerated to 5.92% year-over-year versus 5.83%.

October Chicago PMI Business Barometer Index checked in at 66.2 versus expectations of 62.

U.S. consumer confidence soared to a 17-year high of 125.9 from 120.6 in September. Expectations were for a rise to 120.

October State Street Investor Confidence Index at 96.9

Market Sentiment- FOMC preview: no change in rates is expected from the Fed with Wednesday’s announcement at 2:00pm (EST). There is no press conference, nor any updated economic projections, so the policy statement is all analysts will have to go on for clues to the normalization path.

The strength in the economy in Q2 and Q3 has the market pricing in a December hike with a better than 80% probability, and has been supported by Fedspeak from nearly every policymaker.

The iShares 20+ Year Treasury Bond ETF (TLT) closed higher for the third-straight session after reaching an intraday peak of $124.66.

Resistance at $125-$125.50 held with a move above the latter and the 50-day moving average being a bullish development. Support is trying to move up to $124.25-$124 with a move below $123.50 being a bearish signal.

 

Market Analysis-The Spiders Dow Jones Industrial Average ETF (DIA) has formed a mini trading range between $232.50-$235 over the past 8 sessions with the recent all-time high at $234.70.

Resistance is at $234-$234.50 with a close above $235 getting $237-$237.50 in play. A move below $232.50-$232 would be a bearish development for a continued backtest towards $230.

RSI recently peaked near 90 and overbought levels following the breakout above late July and early August resistance. Continued closes above support at 70 would be a bullish development.

 

The Energy Select Sector Spider (XLE) closed higher for the 4th-straight session following the recent backtest to $66.34 and breach of a descending 200-day moving average.

The 50-day moving average is in a strong uptrend and is on track to clear the 200-day moving average to form a golden cross. Current resistance is at $68-$68.25 with today’s high reaching $68.16.

A move above the latter would be a bullish signal for another run at $69-$70. A move below $67.50-$67.25 could signal additional weakness. RSI is back in an uptrend after bottoming near early August support at 50.

 

All the best,
Roger Scott