SVET Reports

SVET Markets Weekly Update (January 9–13, 2023)

The 2nd week of 2023 was dominated by bulls with NASDAQ closing it just above 11K, rising 4 percent, while BTC, boosted by improved sentiments (absence of negative news) and technical factors (oversold), gained more than 20 percent, rising from 17th to almost 21K.

Week’s brief history:

Yearly Inflation Rate (Dec): 6.5 percent (fact), 6.5 (prognosis);
Yearly Core Inflation Rate (Dec); 5.7 percent (fact), 5.7 (prognosis);
Consumer Price Index (CPI) (Dec); 296.8 (fact), 296.7 (prognosis);
Monthly Core Consumer Prices Index (CPI) (Dec); 0.3 percent (fact), 0.3 (prognosis);
Initial Jobless Claims (1st week of Jan): 205K (fact), 215K (prognosis).
Monday’s NASDAQ kept Friday’s bullish momentum until midday, when the Atlanta Fed President threw cold water on it. Bostic just reiterated Powell’s ultra-hawkish position, which was expected, of course. However, markets, which do not have neither memory, nor soul — only sentiments, flushed red.

Using the absence of negative news bulls tried to ride tech stocks up sitting on top of Tesla (TSLA). Many of them expected the end-of-the-year effect (portfolio-rebalancing) to kick in, at last.

It didn’t happen on Monday, when NASDAQ closed at 10635 — just below its opening (10662) — with BTC following (opened: 17227, closed: 17221). Not all coins were born equal, however. BNB, MATIC and ETH were doing better than BTC at the start of the week. Still, their surge was not supported by rising volumes, which stopped Monday’s rally short.

On Tuesday, Jan 10, after Bostic’s set back a day before, Powell’s ‘stick to our knitting’ speech in Stockholm came almost unnoticed by markets. NASDAQ went up by 1.2 percent (from 10607 to 10742) and BTC increased by about one percent (open: 17246, close: 17432). This bullish reaction was technical and was going against fundamentals, including, National Federation of Independent Businesses (NFIB) reporting business owners optimism index dropping to 10-years low (89.8).

Side Note:

[NFIB index has almost zero influence on the trading activity. The reason I mentioned it is to accentuate FED policy’s disconnect from the real economy. As Powell, himself, noted in Stockholm: “(FED can not) wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities”. Only those ‘authorities’ might be too politically engaged and those ‘goals’ might be completely misplaced.

Global macro-picture has been re-drawn dramatically during the past decade. Re-shoring and rising production costs have already established the new ‘inflationary normal’ all over the world. However, central banks still follow the orthodox Neo-Keynesian paradigm trying to restore economically non-substantiated inflationary levels.

Bringing inflation back to the 2-percent target, indicated by the FOMC, is impossible without driving the economy into the deep recession. To climb out from this man-made hole will require, sooner or later, dropping the rate again, drastically. The inflation will be back, with vengeance.

Powell said “Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time.” He is right. However, what he forgot to mention is that “a healthy economy” is the growing one, where impulses for innovations are not irretrievably damaged (destroyed) by the dogmatic and incoherent ‘monetary policy’.]

On Wednesday, China announced adjustments to its ‘containment’ policy, Mortgage Refinance Index ticked up, and crude oil and gasoline stocks rose — those were the bull rally’ s main catalyzers.

[Remarks: a) Refinance Index rise to 326.7 corresponds to mortgage applications increase of 1.2 percent and shows growing borrowers optimism regarding the rate further decline, while 30-year fixed rate fell to 6.42 percent; b) oil and gasoline stocks increased by 18.9M and 4.1M barrels correspondingly at Jan 11, while an inflationary decrease was expected.]

NASDAQ went from 10794 to 10931 (+1.3 percent) and BTC — from 17376 to 17550 (+1.0). Volumes were also growing, indicating further price increase. Indeed, BTC added another 4 percent, crossing 18K during after-hours.

At the same time, this bull run would not be maintained if Thursday’s yearly inflation rate (for Dec) didn’t come out as expected (5.7 percent, compared to 6.0 in November). Initially, it led to ‘sell-the-news’ short-term correction in the morning session but bulls gained it back fast, bringing NASDAQ to 11K.

CPI also decreased according to consensus (296.8) but ‘core CPI’ (less food and energy) expanded by 0.3 percent (+0.2 was expected). Importantly, its ‘service’ part (notably, shelter and transportation) surged 0.8 and 0.2 percent (on a monthly basis), correspondingly. That is the fastest increase for the past six months. It might be factored negatively in FOMC’s 1st-of-Feb rate decision (0.5 points increase, instead of 0.25).

Moreover, the Department of Labor showed 205K of initial jobless claims for the first week of 2023 (4-week moving average is 212.5K). It undershot analysts’ expectation of 214.5K. The labor market’s resilience only strengthens the Committee Board’s hawkish resolve.

Regardless, new-year’s exuberance is rising in markets. It is visible on most graphs in daily frames, which attracts more traders. That creates the dissonance between markets’ medium-term and short-term momentums and leads to higher volatility, which is more pronounced on BTC charts.

On Jan 12 session NASDAQ was trading between 10797 (low) and 11027 (high) (2.1 percent gap), while BTC showed 17925 as session’s low and 19060 as its high (the gap of 6.3 percent).

Michigan Consumer Sentiment Index showing 64.6, Harker (Philadelphia FED President) non-committing remarks and the notable reduction of export prices helped to maintain the week-long bullish push at Jan 13.

However, fundamentals have not changed and Friday’s continuation looks technical. NASDAQ gained 1.6 percent, while BTC was having its best time since March 2022 (on weekly). It advanced 3.2 percent during the day session and then added another 9 on after-hours (up to 21.2K). Wiping out the ‘FTX sink’ from our charts feels good. Bulls saw new recruits joining their ranks.

Positivity prevails but sudden profit-taking might be severe. Will it be just a trading zone change or some adventurous whales have enough nerves to risk a bigger game?

Next week’s (Jan 17 — Jan 20) most anticipated macroeconomic update is the Bureau of Labor’s PPI (Producer Price Index). Traders will be mostly watching for its ‘index for services’ part, which FED considers one of the main inflationary drivers.

In November 2023 ‘services for intermediate demand’ gained 0.6 percent with 60 percent of this upsurge coming from an 11.3-percent boost in prices for ‘securities brokerage, dealing, investment advice, and related services’ (source: BLS). This persistence of trading activities is the byproduct of Powell’s War against markets.

Continuing government’s interventions into the price-settlements mechanism only distorts the economy and prevents its self-adjusting.

Among the 3rd week’s other notable updates are: Census Bureau’s Retail Sales (Wed, Jan 18) and Building Permits (Thur, Jan 20).

November’s Sales were USD 689.4B. Retail’s bottom-line went down 0.6 percent from the previous month but up 6.5 percent against Nov 2021. The main contributors to that increase were sales on gas stations (up 16.2 percent from November 2021) and ‘food services and drinking places’ (up 14.1 percent). Analytics expect Retail Sales to drop 0.5 percent in December.

Permits in November tumbled to 1.342M, or 11.2 percent below the October’s 1.512M and 22.4 percent lower than one of all-times-highs 1.729M reached in November 2021. Permits still stand higher with their median counts of 1.1M.

Periodical data updates of companies’ technology spendings (incl. Web3.0) are not easy to find. One of those is part of the NY Empire State Manufacturing Survey, which will be published by NY FED on Tuesday, Jan 17.

The main Index (general business conditions) contracted to -11.2 in December (+4.5 in November). Technology spendings, which were at index’s historical highs (>30) in mid-2021 and then dropped to 11.2 in Dec 2022, are projected to rise to 15 (index’s average) within the next 6th months. It coincides with most institutional analysts’ expectations that the FED rate will stabilize in Q3Q4.

NY Manufacturing Index is based on corporate executives’ monthly surveys in which 200 NY State’s companies participate. It is not closely followed by most traders. Nonetheless, it might serve as an early indicator of rising (or subsiding) corporate activities across the country, including, in the tech sector. Increased corporate spendings on IT improves tech companies bottom-lines and boosts their stocks prices. Of course, the FED might as easily crash the NY State Index with the rest of the economy.

Overall, the 3rd week of 2023 is rich on macroeconomic updates and expected to be trade-active with prices going back-and-forth, while players will be re-adjusting their short and medium-terms positions.