SVET Markets Weekly Update (May 1–5, 2023)

06 May 2023 by rate3

In Week 18, NASDAQ (o:12210, c:12235, +0.2%) and BTC (o:28596, c:29561, +3.3%) fluctuated due to various factors such as the 0.25 point rate hike by the FOMC, bank breakdown, and employment data. Despite the positive run on Friday’s unexpectedly positive BLS statistics, markets stalled on weekly graphs.

Notable Macroeconomic Updates:

Fed Interest Rate Decision: 5.25 percent (fact), 5.25 (consensus), 5.0 (previous);
Unemployment Rate (April): 3.4 percent (fact), 3.6 (consensus), 3.5 (previous);
ISM Manufacturing PMI (April): 47.1 (fact), 46.8 (consensus), 46.3 (previous);
ISM Services PMI (April): 51.9 (fact), 51.8 (consensus), 51.2 (previous);
JOLTs Job Openings (March): 9.59M (fact), 9.775M (consensus), 9.974M (previous).
On Monday, JMP seized FRB, and the Manufacturing PMI rose to 47.1 in April (consensus was 46.8), up from a three-year low of 46.3 in March. Meanwhile, traders took a pause as expected prior to the FED meeting starting tomorrow. The NASDAQ (o:12210, c:12212) stalled as BTC (o:28596, c:27843) dropped 2.6 percent in a continuing correction with low volumes.

According to the Institute for Supply Management (ISM), activity in the manufacturing sector shrank further in April, marking the sixth consecutive month of downgrades after a 28-month period of growth. This was attributed to higher borrowing costs and tight credit, while employment levels stabilized after two periods of decline.

On Tuesday, BLS reported that JOLTS’ decrease surpassed expectations. However, this did not affect traders, who remained focused on a banking debacle. As a result, JPM was devalued by -11.4 percent, BOA by -2.4 percent, and WFC by -2.9 percent. NASDAQ (o:12198, c:12080, down 0.9 percent) succumbed to the mood, while BTC (o:28106, c:28686, up 2.0 percent) continued to fluctuate.

March’s job openings decreased to 9.6M (-384K), 1.6 million lower than December, while projections expected 9.77M. Job openings decreased in transportation, warehousing, and utilities (-144K) but increased in educational services (+28K). Additionally, layoffs and discharges increased to 1.8M. These figures indicate the labor market may be cooling off, but not enough to satisfy Jerome, who is poised to continue raising the rate (currently 5.0 percent) until it allegedly reaches the core inflation rate (currently 5.6).

On Wednesday, Jerome raised the rate by another 0.25 basis points to 5.25 percent, confirming market predicaments. Traders who expected action were disillusioned as they saw both NASDAQ (c:12097, o:12025) and BTC (o:28306, c:28322) in a ranging pattern, while the Services PMI continued to increase.

In April, the Services PMI recorded a reading of 51.9 percent, indicating expansion in the services sector for the fourth consecutive month. This sector has demonstrated growth in 34 out of the past 35 months, except for a contraction in December. The expansion was driven by growth in new and export orders, accompanied by one of the swiftest supplier delivery performances seen since December 2015, thanks to ongoing enhancements in capacity and supply logistics. However, the rate of production increase was the slowest since May 2020, and employment growth also decelerated. At the same time, there was a slight uptick in price pressures.

On Thursday, macroeconomic data came out mixed. DOL reported that weekly jobless claims rose to 242K, while Challenger Inc. data showed that in April, employers announced fewer job cuts than in March. In response, the markets barely moved, with NASDAQ (o: 11997, c: 11966) and BTC (o: 29054, c: 28895) remaining at their Wednesday’s levels.

The latest job cuts report by “Challenger, Gray and Christmas” — the firm specializing in outplacement and executive coaching — unveiled than n April, there were 66,995 cuts, a 176% increase from April 2022 but a 25% decline from March’s 89,703 cuts. This year, plans to cut over 337K jobs have been announced, a 322% rise compared to the first four months of 2022 (approximately 80K cuts). Excluding 2020, it is the highest January-April total since 2009.

In April, the retail sector dominated with a 270% surge in cuts compared to March. The technology industry followed, announcing around 12K cuts, but it leads in total cuts this year with 114K, accounting for 34% of all 2023 announcements. Year-to-date, the total is up by 24,724%, a dramatic increase from the 459 cuts reported through April 2022. Financial firms secured the third position with a 285% rise from April 2022.

On the hiring front, there has been a notable decline compared to 2022. In April, companies announced intentions to add approximately 23K positions, bringing the year’s total to around 94K. This marks an 81% decrease from the 487K hiring plans announced during the corresponding period last year.

On Friday, after the markets stopped worrying (at least for a while) about the Fed rate, good news suddenly became good news again as traders refocused on the upcoming recession. The NASDAQ (o: 12073, c: 12235) as well as BTC (o: 28952, c: 29561) added 1.3% and 2.1% respectively during the daily session after the BLS published its employment statistics, which showed that the unemployment rate unexpectedly went down from 3.5% in March to 3.4% in April, reaching its 50-year low.

The unemployment rate is one of the most controversial of all lagging indicators used by the FOMC to make decisions on rate changes. While current BLS data shows it at 3.4%, with 5.7M unemployed persons, the rate doesn’t include those not actively looking for work. This group, which increased by 346K to 5.3M, was not counted as unemployed because they didn’t respond to the survey in the preceding 4 weeks.

Moreover, the number of persons not in the labor force but who wanted and had looked for a job in the past 12 months (but not in the 4 weeks before the survey) increased by 191K to 1.5M in April. Thus, we have at least 0.5M newly unemployed individuals unaccounted for in government statistics for various formal reasons. This exceeds the decrease of 182K in the number of unemployed people reported by the BLS.

Despite this, the markets, buoyed by big institutional players loaded with excessive liquidity throughout 2022, continue to rise, consistently dismissing negativity and overweighting positive news.

Next week, BLS will release April’s Core Inflation Rate update (previous: 5.6%, consensus: 5.5%) and DOL — April’s Core PPI data (previous: down 0.1%, consensus: up 0.2%). Traders may attempt to push NASDAQ above the key resistance zone of 12.2–12.3K, particularly if official macro-data is positive. If this major tech index zone is breached, it could lead crypto-players to move BTC above 30K.