SVET Markets Weekly Update (Feb 21 - 24, 2023)

26 Feb 2023 by rate3

Week 8 turned out to be volatile and bearish-leaning, as expected. NASDAQ reduced by -2.1 percent (opening at 11640 and closing at 11394), and BTC slipped by -4.7 percent (opening at 24272 and closing at 23127). The released macroeconomic data has kept traders on edge, demonstrating a surprising resilience and a prolonged inflationary stickiness of the economy.

Notable Macroeconomic Updates:

Initial Jobless Claims (Feb/18): 192K (fact), 200K (consensus);
S&P Global Composite PMI (Feb): 50.2 (fact), 47.5 (consensus);
Chicago Fed National Activity Index (Jan): 0.23 (fact), -0.25 (consensus);
Existing Home Sales (Jan): -0.7 percent (fact), +2.0 (consensus).
Tuesday's trading session opened by the National Association of Realtors reporting the home declined 0.7% to 4.0 million in January (with median price - 359,000 - increased 1.3 percent from one year ago), a twelfth straight month of decreases (forecasts were 4.1 million) and the lowest reading since October of 2010. The East and Midwest registered decreases while the South and the West - increases. At the same time, S&P Global Manufacturing PMI upped to 47.8 in February from 46.9 in a previous month, beating forecasts of 47.1. It was an another sign that economic conditions deteriorates on a slower than expected peace which might give FOMC a cart-blanch on continuing its destructive policies longer than it was thought by analytics in January. Accordingly, NASDAQ reacted by easing to -1.27 percent (o:11640, c:11492) while BTC, showed non-compliance, and resisted staying above 24.4K (o:24569, c:24465).

The trading session on Tuesday was opened with a report by the National Association of Realtors that home sales declined by 0.7% to 4.0 million in January, with the median price of $359,000 increasing by 1.3% from one year ago. This marked the twelfth straight month of decreases, with forecasts predicting 4.1 million sales, and the lowest reading since October of 2010. The East and Midwest regions saw decreases, while the South and the West saw increases.

At the same time, the S&P Global Manufacturing PMI increased to 47.8 in February from 46.9 the previous month, beating forecasts of 47.1. This was another sign that economic conditions were deteriorating at a slower pace than expected, which might give the FOMC a carte blanche to continue its policies for longer than analytics had thought in January.

As a result, the NASDAQ reacted by easing to -1.27% (opening: 11,640, closing: 11,492), while BTC showed non-compliance and struggled to stay above 24.4K (opening: 24,569, closing: 24,465).

On Wednesday's trading session, bears attempted to use the FOMC Minutes, which were published in the midst of the day, to push markets further down. However, they were taken aback as traders were generally unimpressed by the content of the document. The minutes basically reiterated positive macroeconomic data such as a tight labor market, lower PCE, increased GDP, and eased inflation, which had already been priced in by the markets.

The minutes also showed that "participants agreed that inflation was unacceptably high," and "there was a wide dispersion in views about the extent of a potential slowdown." However, they did not provide players with any guidance on what might be the Fed's next move at their next meeting on March 21-22.

The NASDAQ reacted accordingly by staying above 11.5K (open: 11517, close: 11507), with BTC whales starting to take a clue from general market conditions and stepping down a bit, leading to a meager 1.28 percent correction (open: 24110, close: 23799).

At the start of the Thursday session, the Department of Labor released its weekly Unemployment Insurance Report (ending February 18th), which showed that the number of people filing for unemployment benefits fell by 3K to 192K, below analysts' expectations of 200K. A tight labor market might force some companies to raise wages to attract staff, adding further inflationary pressure.

NASDAQ dropped from 11636 at the opening to 11432 mid-day, reacting to the news. In the afternoon, it attempted to recover, closing at 11591 resulting in a small (-0.4 percent) decline. BTC also dropped from 24007 to 23747, before recovering to 23945 (-0.2 percent).

Furthermore, unexpectedly positive macroeconomic data was released in the morning. The Chicago Fed National Activity Index (CFNAI) rose to +0.23 in January from -0.46 in December, and the Kansas Fed Composite Index increased to 0 points in February from -1 point in January. This further complicates the traders' game plan and strengthens the FOMC's hawks.

Personal income increased by USD 131.1B (+0.6 percent) in January, according to estimates released by the Bureau of Economic Analysis on Friday. However, it missed the market's expectations of 1.0 percent. Additionally, personal consumption expenditures (PCE) rose to USD 312.5B (1.8 percent), while the analyst forecast was 0.4. The Core PCE (excluding food and energy) price index added +0.6 percent, beating expectations by +0.2 percent. The PCE is considered to be one of the lagging, backward-looking indicators on which the FOMC bases its decisions, and its rise is not conducive to traders' bullish sentiments.

On the other hand, one of the leading indicators, the sales of new single-family houses, jumped by 7.2 percent in January, exceeding the December rate of 625K (which was 19.4 percent below the January 2022 estimate of 831K). This increase surpassed forecasts by almost 20 times and confirms the continued resilience of the economy, which might stimulate more aggressive rate hikes. This was further confirmed by the University of Michigan's Index of Consumer Sentiment, which rose to 67 in February (the highest since January 2022) from 64.9 in the previous month, while an expectation of 62.3 was predicted.

In response, NASDAQ continues to fluctuate, opening at 11404 and closing at almost the same level of 11394. Meanwhile, BTC keeps to gradually receding from its height of 25.2K, which was reached a week ago. It stepped down by 2.4 percent (opening at 23781 and closing at 23213) during Friday's trading session.

Next week's macroeconomic coverage includes the forward-looking Durable Goods Orders report on Monday, the lagging Initial Jobless Claims issue on Thursday, and the releases of the ISM Manufacturing as well as Non-Manufacturing PMIs on Wednesday and Friday respectively. If these reports meet or exceed traders' expectations, it is unlikely to reduce the market's volatility.