SVET Markets Weekly Update (April 24–28, 2023)

28 Apr 2023 by rate3

During Week 17, the focus was on better-than-expected corporate earnings. NASDAQ experienced a 1.4 percent increase, starting at 12053 and closing at 12226. BTC, on the other hand, reinforced its position more significantly, with a 6.7 percent growth, opening at 27443 and closing at 29328.

Notable Macroeconomic Updates:

- Durable Goods Orders (March): 3.2 percent (fact), 0.7 (consensus), -1.2 (previous);
- GDP Growth Rate QoQ Adv (Q1): 1.1 percent (fact), 2 (consensus), 2.6 (previous);
- Core PCE Price Index (March): 0.3 percent (fact), unchanged (consensus), 0.3 (previous);
- Case-Shiller Home Price (Feb): 0.2 percent (fact), -0.7 (consensus), -0.6 (previous);
- CB Consumer Confidence (April): 101.3 (fact), unchanged (consensus), 104 (previous);
- Chicago Fed National Activity Index (March): -0.19 (fact), -0.02 (consensus), -0.19 (previous);
- Dallas Fed Manufacturing Index (April): -23.4 (fact), -14.6 (consensus), -15.7 (previous).

On Monday, the Chicago Fed published their tantalizingly abstract National Activity Index (CFNAI), which is a weighted average of 85 monthly indicators of national economic activity. It came in at -0.19 in March, which was unchanged since February, undercutting the forecast of -0.02 and pointing to below-trend growth. Production-related parts of the index contributed the most (-0.08) to the decline in the CFNAI, as compared to the sales-related ones.

At the same time, the Manufacturing Index delivered by the Dallas Fed showed that perceptions of broader business conditions had notably worsened. The index dropped from -15.7 in March to -23.4 in April, its lowest reading in nine months. The labor market continued its moderate growth, with a decline in work hours and an increase in wages.

The Fed’s reports are usually ignored by markets since they rely on past information that has already been absorbed by prices. Furthermore, these reports are unlikely to change the opinions of FOMC members when they take their vote on May 2–3, as those opinions are mostly politically driven and have been formed long before the reports were published. However, reading these writings might set many troubled minds at ease by hypnotizing them with an illusory “clockwork” of the economic mechanism’s dark interiors. Once again, neither NASDAQ (open: 12053, close: 12037) nor BTC (open: 27443, close: 27383) were affected by the Fed’s “science”.

On Tuesday, traders were surprised to see that sales of new homes in March had skyrocketed by almost 10 percent, exceeding the projected increase of 1 percent by most analysts. This surprise was compounded by the First Republic Bank’s scare, as the bank’s stocks plummeted by 50 percent from 16.0 to 8.0. Reports revealed the bank’s vulnerable liquidity position, with a 40.8 percent reduction in deposits. Consequently, this led to a 1.4 percent decline in NASDAQ (o: 11968, c: 11799), while BTC (o: 27394, c: 27611, +0.8) continued its upward trend after the sharp downward correction of the previous week.

According to the Census Bureau, sales of new single-family houses surged 9.3 percent in March to 683K, beating the forecast of 630K and marking the highest level in a year. Notably, sales increased in the Northeast (to 65K, a 170.8 percent rise) and in the West (to 161K, a 29.8 percent increase), and to a lesser extent in the Midwest (up 6 percent to 71K). The only decline was seen in the South, which dropped 5.4 percent to 386,000. This was supported by the Case-Shiller Price Index, which showed a 2.0 percent annual gain in February, while both the 10-City and 20-City Composite indexes increased by 0.4 percent each (no increase was projected).

During the month of April, there was a decline in business conditions among manufacturing firms in the Fifth District (Richmond’s Fed). This was indicated by the composite manufacturing index which dropped from −5 in March to −10 in April. In particular, two out of the three component indexes of the composite manufacturing index experienced a decline. The shipments index decreased from 2 in March to −7 in April, while the new orders index fell from −11 to −20. On a positive note, the employment index slightly improved, rising from −5 in March to 0 in April.

Overall, the data shows that the continuing increase in prices is accompanied by a slow deterioration in regional business conditions. However, the employment situation remains stable or is even improving in some regions, which increases the likelihood of the next hike in the Fed’s rate.

On Wednesday, the Census Bureau surprised markets once again by reporting that Durable Goods for March recovered sharply to 276.4B. This news was accompanied by tech companies’ positive earnings reports, with Meta’s stock shooting up by 11.2 percent, surpassing the projected 2.2 EPS (earning per share) while 2.02 was initially expected. However, technical factors, such as the ongoing correction from yearly highs, forced NASDAQ (o: 11913, c: 11854) and BTC (o: 29965, c: 27884) into a range, with BTC recovering to 29K in after-hours trading.

The Census Bureau’s Advance Durable Goods Report showed that new orders in March increased by 3.2 percent, rebounding from the previous month’s decline of 1.2 percent. This exceeded market expectations of a 0.7 percent growth. The increase was primarily driven by the demand for transportation equipment, which rose by 9.1 percent. Specifically, there was a significant increase in orders for both civilian aircraft (78.4 percent) and defense aircraft (10.4 percent). Additionally, there was a 1.9 percent increase in demand for computers and electronic products. However, there was a slight decrease in demand for vehicles, which declined by 0.1 percent.

Overall, when excluding aircraft and defense capital goods, orders actually decreased by 0.4 percent in March, which was an improvement compared to the 0.7 percent decline in February. This data demonstrates that businesses’ spending plans are still experiencing a decline, indicating a potential recession.

For reference: Orders for transportation are frequently influenced by major aircraft manufacturers. As an example, Boeing delivered 64 commercial jets in March. The Boeing 737–700 has an average listed price of under USD 90 million, while the Boeing 777–9 is priced at USD 442 million. The most popular commercial planes from Boeing are priced between USD 89.1 million and USD 112.6 million. It is common for aircraft to be acquired at prices lower than the listed price, with discounts ranging from 20 percent up to 60 percent.

On Thursday, markets were excited by tech companies’ better-than-forecast earning reports, with Intel (-0.04 EPS vs -0.16) gaining 4.92 percent and Meta continuing to rise. The NASDAQ (o: 11972, c: 12142) increased by 1.4 percent, while BTC (o: 28862, c: 29673) added 2.8 percent. However, traders ignored the macroeconomic side, where BEA posted its Q1 GDP estimate at 1.1 percent growth, following a 2.6 percent increase in Q4. Additionally, the DOL showed a decrease in unemployment claims to 230K from 246K the previous week (markets expected a rise to 249K). Overall, with players continuing to fight the Fed, volatility remains high.

The economy grew by 1.1 percent in Q1, missing market expectations of a 2 percent growth and relenting from a 2.6 percent increase in Q4. The major slowing factors are lack of investments and collapsing housing market, both, on the residential side where investment contracted for the 8th consecutive period (-4.2 percent vs -25.1 percent in Q4) as well as on the non-residential side where growth slowed sharply (0.7 percent vs 4.0 percent). At the same time, consumer (3.7 percent vs 1.0 in Q4) and public (4.7 percent vs 3.8) spendings keep growing despite a persistently high inflation.

It is not rocket science to figure out that with such a strong demand side and recovering supplies, our present economic hardships are absolutely unnecessary. They are ‘Powell-made.’ The chairman’s lack of practical experience is uniquely combined with his non-professionalism, which prevents him from accepting new macroeconomic realities.

Obviously, thinking about the 1970s as a precedent for the ‘returning with vengeance inflation,’ Powell makes a rookie mistake by ignoring technological progress and a younger, much more diverse, and less risk-averse generation of fund holders. Additionally, privately managed capitals (including individuals and overseas) have now comparable size to corporations and governments, and it allows to a “public” to play a much more important role in reaching an equilibrium in money markets.

Furthermore, new technologies allow for faster alleviation of the consequences of inflation by redirecting investments towards the most productive industries and increasing outputs while decreasing prices. With his not-well-thought-through, scholastic, fast-food approach to market ‘regulation,’ Powell is only prolonging the recession and worsening the economic situation for everyone in the world.

The estimates for March, released by the BEA on Friday, indicated that the PCE (personal consumption expenditure) increased by 0.1 percent (spending on services rose, while spending on goods decreased), while Core PCI (excluding food and energy) rose by 0.3 percent meeting analysts’ expectations. Traders considered this positive news and continued to invest in tech stocks, resulting in a slight rise in NASDAQ (o: 12117, c: 12226). Meanwhile, BTC (o: 29229, c: 29328) remained within a range.

In Week 18, traders are expected to pause ahead of Wednesday’s Fed Interest Rate Decision (previous: 5 percent, expected: 5.25). The week will begin with Monday’s Manufacturing PMI for April (46.3, 46.7) and March’s JOLTs (9.931M, 9.683M). On Friday, BLS will release the Unemployment Rate data (3.5 percent, 3.6). Overall, it appears to be another week of range-bound trading.