SVET Markets Weekly Update (May 8–12, 2023)

14 May 2023 by rate3

Despite a slight decrease in inflation and ongoing deterioration in consumer sentiment, Week 19 turned out to be uneventful, with the NASDAQ remaining flat at the 12.2K level and BTC continuing to experience technical corrections, resulting in a 4.7 percent decline and a closing price of 26459.

Notable Macroeconomic Updates:

Inflation Rate YoY (April): 4.9 percent (fact), 5 (consensus), 5 (previous);
Core Inflation Rate YoY (April): 5.5 percent (fact), 5.5 (consensus), 5.6 (previous);
Michigan Consumer Sentiment (May): 57.7 percent (fact), 63 (consensus), 63.5 (previous);
PPI MoM (April): 0.2 percent (fact), 0.3 (consensus), down 0.4 (previous);
NFIB Business Optimism Index (April): 89 (fact), 89.6 (consensus), 90.1 (previous).
World’s Updates:

China’s exports rose by 14.8 percent while inflation is on a record lows;
Australia Consumer Sentiment Index jumped almost 10%;
Argentine’s inflation increased to 108.8 — the highest since 1991;
Auto manufacturing in Brazil decreased sharply while Country’s central bank kept its rate at 13.75 percent;
Mexico’s annual inflation fell to 6.25 percent;
South Korea’s unemployment rate decreased to 2.6 percent;
the Bank of England increased the interest rate to 4.5 percent.
On Monday, the NY FED reported that short-term inflation expectations had declined to 4.4 percent, while long-term expectations had risen slightly. The stock market was mixed due to the absence of news, with NASDAQ (open: 12231, close: 12256) trailing. Additionally, BTC (open: 27766, close: 27340) corrected downwards by 1.5 percent on technical factors, compounded by news about exchanges buckling under regulatory pressure (Bittrex).

As per the NY FED April Survey, consumers’ inflation expectations for the one-year-ahead horizon fell to 4.4 percent, while for the three- and five-year-ahead horizons, they rose slightly to 2.9 percent and 2.6 percent, respectively. Moreover, the mean probability that the US unemployment rate will be higher one year from now increased by 1.1 percentage points to 41.8%.

Other Markets Notable Monday’s Updates:

China: Country’s exports rose unexpectedly by 14.8% YoY to a high of USD 315.59B in March 2023, rebounding sharply from a 6.8% drop in January-February combined and beating market consensus of a 7% fall. It was the first advance in shipments since September 2022 as Beijing boosts trade with developed countries and emerging economies. Steel products (53.2%) and refined products (35.1%) were the largest contributors. Exports to China’s largest partner, ASEAN, rose 35.43%, while those to the EU (3.38%) and Russia (136.43%) also increased. Conversely, exports fell to Japan (-4.8%), Taiwan (-27.6%), and the US (-7.68%), while they expanded to Australia (23.7%) and South Korea (11.3%).

Australia: In April 2023, the Westpac-Melbourne Institute Consumer Sentiment Index for Australia jumped 9.4% MoM to reach 85.8, its highest since June 2022, following a month of being near a 30-year low. The RBA’s pause on rate hikes bolstered the upturn, with the gauge for economic conditions in the next 12 months surging 16.5% to 85.4.

Brazil: Auto manufacturing in Brazil decreased in April 2023, with production dropping 19.4% month-over-month to 178,853 units, the lowest level for that month since 2020, below market projections of a 0.2% decline. Production fell across the board for trucks (-41.1%), light vehicles (-18.1%), and buses (-16.9%). On a yearly basis, vehicle production decreased by 3.9% when compared to the same period in 2022.

On Tuesday, the Small Business Optimism Index for April decreased further, but traders, who were waiting for Wednesday’s inflation data release, remained apathetic and NASDAQ (c:12195, o:12179) as well as BTC (o:27758, c:27716) were almost unmoved.

NFIB’s Small Business April’s Optimism Index decreased by 1.1 points to 89.0 marking the 16th consecutive month below the 49-year history of 98. Labor quality and inflation on the top of small businesses’ concerns.

Overall, small businesses are facing significant challenges related to labor quality, inflation, inventory management, and supply chain disruptions. The decrease in reports of positive profit trends and a decrease in the net percent of owners raising average selling prices suggest a slowdown in business growth. Shortages in key industries such as manufacturing, agriculture, retail, and wholesale are further exacerbating the challenges faced by small businesses.

However, the fact that a net 17% of owners are planning to create new jobs in the next three months and a net 21% plan to raise compensation suggests that some small businesses are still optimistic about their prospects. The high percentage of owners reporting capital outlays in the last six months also precludes that some businesses are investing in their growth despite the challenging environment.

Also, John Williams, CEO of NY Fed, made a speech at the Economic Club of New York, where he said that he’s seeing signs of improvement in the US economy, with supply chain pressures easing and rent inflation moderating. He expects inflation to decline to around 3 1/4 percent this year before returning to the longer-run goal of 2 percent over the next two years, with unemployment gradually rising to about 4 to 4 1/2 percent over the next year.

World’s Notable Macroeconomic Updates:

Brazil: Country’s central bank kept Selic rate at 13.75% in May 2023, hinting at a possible halt on future hikes. Inflation decreased to 4.65% in March from 5.6% in Feb 2023, with expectations at 5.8% and 3.6% for 2023 and 2024. The board noted global activity and inflation’s resilience, with tightening continuing in significant economies.

Mexico: Country’s annual inflation fell to 6.25% in April 2023. Overall, the data suggests that inflation rate is showing signs of easing, but it remains above the Central Bank’s 2.0%-4.0% target range. The decrease in prices for certain categories and the slight monthly decrease in consumer prices could indicate that inflationary pressures may continue to ease in the coming months. However, it remains to be seen if this trend will continue in the long term.

South Korea: The unemployment rate in the Country decreased to 2.6% in April 2023 from 2.7% in the previous month, while the economy added jobs for the 25th straight month. Despite higher borrowing costs and an economic slowdown, the number of people employed increased by 354K from a year ago. The Bank of Korea has been keeping borrowing costs at 3.5 percent flat since February to support employment as inflation has eased.

On Wednesday, BOL reported that both inflation and core inflation rates had fallen, which was in line with market expectations. Accordingly, NASDAQ (o:12286, c:12306, +0.2 percent) remained flat while BTC (o: 28175, c:27692, -1.7 percent) continued its technical downward correction.

Details: The yearly inflation rate decreased to 4.9% in April 2023, the lowest since April 2021, and lower than the market’s expectations of 5%. The price of food increased at a slower rate (7.7% compared to 8.5% in March), while energy costs declined even further (-5.1% compared to -6.4%), including the price of gasoline (-12.2%) and fuel oil (-20.2%). Shelter expenses, which make up more than 30% of the total CPI basket, slowed for the first time in two years (8.1% compared to 8.2%), and the cost of used cars and trucks decreased once again (-6.6% compared to -11.6%). The CPI increased by 0.4% from the previous month, with shelter costs being the primary contributor to the monthly all-items increase, followed by used cars and trucks and gasoline.

In April 2023, the yearly core inflation rate for consumer prices, which disregards unstable items like food and energy, fell as expected to 5.5%, down from 5.6% in the previous month, due to a decrease in rental costs. Month-on-month, core consumer prices increased by 0.4% in April, which matched March’s rate and was in line with what analysts predicted.

World’s Notable Macroeconomic Updates:

China: In April of 2023, China’s inflation rate declined to 0.1% from the previous month’s 0.7%, which was lower than anticipated. The decrease in prices for both food and non-food items was due to an unstable economic recovery after the enclosure policy was lifted. Food prices fell notably due to lower prices of pork and fresh vegetables, while non-food prices fell due to lower prices for transportation and housing. Inflation for health remained steady, while education costs increased.

Note, however, that all publicly available statistical information about the Chinese economy is rigorously censored, which leads many analysts to question its validity.

On Thursday, the increase in PPI was lower than expected but not enough to exit traders, which led to NASDAQ stalling (o:12321, c:12328), while BTC (o:27399, c:26843) slid down another 2 percent.

Details: According to recent data, prices for goods and services produced by businesses rose by 0.2% in April, bouncing back from a 0.4% decline in March. Service-related costs increased by 0.3%, with portfolio management seeing the biggest jump at 4.1%. Additionally, prices increased for food, wholesale alcohol, and lending services. Goods prices also rose 0.2%, with gasoline, vegetables, steel scrap, plastic materials, airplanes, and hydraulic equipment leading the way. Annual inflation for producers slowed down for the tenth straight month to 2.3%, hitting the lowest level since January 2021, and the core rate decreased to 3.2%.

World’s Notable Macroeconomic Updates:

Britain: In May 2023, the Bank of England announced its twelfth consecutive increase in the interest rate, bringing it to 4.5%. The bank anticipates a decrease in inflation to 5.1% in Q4 2023, down from the previous forecast of 3.9% in February, to achieve the 2% target by late 2024. While the economy is predicted to stall in Q1 and Q2, it is expected to grow by 0.25% in 2023, which is an improvement from the previous forecast of a 0.5% contraction.

In March, the UK’s gross domestic product contracted by 0.3% on a monthly basis, which was worse than expected as February’s reading remained unchanged. The services sector, which shrank by 0.5%, was the primary drag on the economy, led by a 1.4% fall in wholesale and retail trade. Output in vehicle trade declined even more sharply, by 4.1%.

On Friday, the UoM survey indicated that consumer sentiment had decreased more than what analysts had predicted. However, the NASDAQ bears managed to slightly push down the index only slightly — from its opening of 12350 to a closing of 12284. Meanwhile, BTC (o:26412, c:26459) remained stable.

In May 2023, the University of Michigan’s consumer sentiment fell sharply to a six-month low of 57.7, below the expected 63. While year-ahead inflation expectations decreased to 4.5% from April’s 4.6%, the five-year outlook increased to 3.2%, the highest since 2011, compared to last month’s 3%. Looks like concerns about the economy continue to increase.

World’s Notable Macroeconomic Updates:

Argentine: Country’s inflation remains at the highest level since 1991, increasing 108.8% YoY in April after rising 104.3% in March.

On Week 20, traders are likely to continue searching for technical clues on their charts as macroeconomic data for April’s monthly retail sales (previous: 0.6 percent, consensus: 0.7) and building permits (previous: 1.43M, consensus: 1.43M) on Wednesday are not expected to bring any excitement until Friday, when Jerome Powell is scheduled to give a speech.