SVET Markets Weekly Update (April 10 - 14, 2023)

16 Apr 2023 by rate3

The 14th week saw NASDAQ break 12K (open: 11975, close: 12123, +1.2%). BTC rose to its 10-month high of 31K (open: 28277, close: 30324, +7.2%), underpinned by data showing the unforeseen decrease in PPI on Thursday and the slowing inflation on Wednesday. At the same time, the markets seem to be getting ahead of themselves in the face of the weakening economy and the Fed's reluctance to change its policies, even as a fledgling banking crisis and a worsening geopolitical climate loom.

Notable Macroeconomic Updates:

Producers Price Index (PPI) (March): -0.5 percent (fact), 0.0 (consensus), 0.0 (previous);
Inflation Rate (March): 0.1 percent (fact), 0.2 (consensus), 0.4 (previous);
Retail Sales (March): -1.0 percent (fact), -0.4 (consensus), -0.2 (previous);
Michigan Consumer Sentiment (preliminary) (April): 63.5 (fact), 62 (consensus), 62 (previous).
On Monday, the Census Bureau announced that February's total inventories of merchant wholesalers were USD 919.2B, up 0.4 percent from January (expectations were 0.2 with -0.6 previous). The increase was led by automotives, up 1.7 percent, and negatively affected by stocks of farm products, down 3.3 percent. This increase in inventories is a typical signal of a recession as businesses cut back on production to adjust to lower demand. Meanwhile, the NY Fed reported that inflation expectations had increased at the one- and three-year horizons to 4.7 percent (4.2 percent previously) and 2.8 percent, respectively, indicating growing consumer anxiety about the economy's future. No surprises there.

However, the lack of new information did not stop traders from continuing their technically-driven bear rally. This resulted in the NASDAQ increasing by 0.9 percent (opening at 11975 and closing at 12084) and BTC increasing by 3.1 percent (opening at 28277 and closing at 29173). BTC continued to rise by another 3.4 percent in after-hours trading, breaking through the 30K resistance level for the first time since June 2022. The decreasing volumes on all crypto exchanges since the third week of March (allegedly due to SVB collapsing on March 8) show the speculative nature of this run, driven by several big players trying to squeeze out retail short-sellers.

On Tuesday, the National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index decreased by 0.8 points in March to 90.1 (previously 90.9, forecasted 89), marking the 15th consecutive month below the 49-year average of 98. The index reached this low twice before (on its way down): in 1980, amid the "Carter's recession," and in 2008 after the homes' mortgage epic debacle. However, this was not the reason traders dragged both NASDAQ (o:12080, c:12031) and BTC (o:30098, c:30130) sideways. It was rather technical. Both look heavily overbought on daily graphs, causing volatility.

On Wednesday, we saw how the FOMC's shortsightedness overpowered reality. Despite the BLS reporting that March's CPI increased 0.1 percent, decelerating from a 0.4 percent rise in February and below the market's expectations of a 0.2 percent gain, traders focused instead on the Fed's stubbornly hawkish rhetoric. As a result, the NASDAQ went down 1.5 percent (opening: 12110, closing: 11929), while BTC decreased 1.2 percent (opening: 30157, closing: 29798), only to recover back over 30K after hours.

The confusion among players regarding the Fed's policies is even more apparent when taking into account that the index for shelter was the significant contributor to the recent decline (0.6 percent vs. 0.8 percent in February) added by a sharp decline in energy (-3.5 percent vs. -0.6 percent). Previously, Powell mentioned rising prices for rented apartments among his main concerns.

Thursday was a day when fundamentals met technicals. Not only did the BLS surprise markets (forecasts were +0.1) by reporting PPI fell by 0.5% in March, while the core PPI declined 0.1% - the first decrease in two years, marking the biggest decline since April 2020, but also the number of unemployment benefits rose by 11K to 239K, exceeding market expectations of 232K.

Most of the decline can be attributed to a decrease in gasoline prices (-11.7%), with prices for services also getting lower (-0.3%) - the largest decline since April 2020, mainly due to a 7.3% drop in margins for vehicle wholesaling. NASDAQ reacted by rising 1.4% from 11997 to 12166, while BTC, still constrained by low volumes, ranged during the daily session (o:30272, c:30335) but then continued to edge towards 31K after hours.

On Friday, the fundamentals came out mixed, with the Census Bureau reporting that retail sales unexpectedly dipped by 1.0 percent in March, while the University of Michigan showed that consumer sentiment suddenly increased to 63.5 in April. This played into the hands of traders who exploit volatility, as it took NASDAQ from a high of 12,205 to a low of 12,026 (-1.5 percent) and then halfway back, closing at 12,123, while BTC corrected a bit from its 10-month high of 31K to 29,966, just to close the day session at 30,324.

On a retail sales side we saw the biggest declines (not adjusted for inflation) in sales of gasoline (-5.5 percent), mostly driven by lower prices; merchandise stores (-3%) as well as in electronics (-2.1%). On the other hand, sales rose 1.9% at nonstore retailers.

The 15th week will bring data on the housing market, including building permits (previous: 1.55M, consensus: 1.45M) and new housing starts (previous: 1.45M, consensus: 1.4M). However, these are not likely to have a significant impact on traders, as markets are expected to be driven by technical factors. Continuing bullishness is starting to be restrained by proximity to key resistance levels, as well as some indicators already flashing an overbought status on daily and weekly graphs.