SVET Markets Weekly Update (May 15–19, 2023)

21 May 2023 by rate3

In Week 20, the Empire Index decreased, building permits deteriorated, and retail sales were rising not fast enough. However, traders, driven by technical momentum, disregarded economic fundamentals and pushed NASDAQ (o:12327, c:12657) higher by 2.7 percent. In contrast, BTC (o:27395, c:26890) experienced a rational decline of 1.8 percent.

Notable Macroeconomic Updates:

NY Empire State Manufacturing Index (May): -31.8 percent (fact), -3.75 (consensus), 10.8 (previous);
Building Permits (April): 1.416M (fact), 1.437M (consensus), 1.437M (previous);
Retail Sales (April): 0.4 percent (fact), 0.8 (consensus), -0.7 (previous);
Initial Jobless Claims (May/12): 242K (fact), 254K (consensus), 264K (previous);
Philadelphia Fed Manufacturing Index (May): -10.4 percent (fact), -19.8 (consensus), -31.3 (previous).
World’s Updates:

India: vehicle sales surged by 13.4%;
Germany: the Indicator of Economic Sentiment dropped to -10.7;
South Africa: Country’s retail trade fell 1.6% YoY;
Japan: the annual inflation rate jumped to 3.5%;
South Africa: building permits slipped by 18%;
Indonesia: car registrations decline of 28.8% YoY.
On Monday, the NY Fed reported that business conditions had deteriorated far beyond expectations. However, traders, focusing on technicals, managed to push the NASDAQ (o:12327, c:12343) slightly higher, while BTC (o:27395, c:27418) remained unchanged.

New York business activity dropped sharply per May Empire State Manufacturing Survey. General business conditions index fell by 43 points to -31.8. New orders and shipments plunged after previous rise. Delivery times shortened somewhat, inventories contracted. Employment and hours worked edged lower for fourth consecutive month. Prices increased at similar pace as last month. Capital spending plans turned sluggish. Businesses expect little improvement in conditions over next six months.

Other Markets Updates:

India: April 2023 passenger vehicle sales in India suddenly surged by 13.4% to 313,278 vehicles, rebounding from zero growth last month, per Society of Indian Automobile Manufacturers (SIAM) data. Yearly, April recorded highest-ever sales growth of 12.9% for passenger vehicles in that month.

On Tuesday, the retail sales data issued by the Census Bureau disappointed traders, which dragged NASDAQ (o: 12393, c: 12343) and BTC (o: 27060, c: 26933) down.

Retail sales in the US rose 0.4% mom in April, bouncing back from two months of declines, but below market forecasts of a 0.8% increase. Motor vehicle and part dealers’ sales were up 0.4%. Other increases occurred in building material (0.5%); food services (0.6%); retailers (3.6%). However, gasoline station sales unexpectedly fell 0.8%, and food store sales declined 0.2%. Clothing (-0.3%); electronics (-0.5%); furniture (-0.7%) also experienced decreases. Core retail sales, which exclude automobiles, gasoline, building materials, and food services, increased faster at 0.7%, indicating sustained consumer demand.Other Markets Updates:

Germany’s ZEW Indicator of Economic Sentiment dropped to -10.7 in May, the lowest in five months, much worse than the expected -5.3. These declines partly stem from expectations of future interest rate hikes by the European Central Bank and concerns about a potential default by the United States, leading to increased uncertainty in international economic development. Consequently, financial market experts anticipate a further worsening of the already unfavorable economic situation in the next six month, mentioning the potential for a recession in the German economy.

On Wednesday, stocks edged higher on technicals, disregarding the Census Bureau permits report. NASDAQ (o: 12388, c: 12500) added one percent, while BTC (o: 26669, c: 27385) followed with a 2.3% increase.

Building permits in the US dropped by 1.5% to 1.416M in April. This is the second month of decline, falling short of the expected 1.437M permits. Reasons include higher interest rates and rising consumer prices. Permits decreased in the Northeast (-23.6%) and Midwest (-15.2%), but rose in the South (4.3%) and West (3.8%).

Other Markets Updates:

South Africa: Country’s retail trade fell 1.6% YoY in March — the fourth consecutive month of declines — following a 0.7% drop in April and missing estimates of a 0.7% decrease. The power crisis impacted food, beverage, and tobacco retailers (-6.6%). However, textiles, clothing and footwear goods saw a grow (6.3%).

On Thursday, jobless benefits decreased more than expected, while the Philadelphia Index rose, indicating better economic conditions and an increased probability of a rate hike. Nonetheless, NASDAQ (o: 12,513, c: 12,688) added 1.4 percent based on technicals, while BTC (o: 27,237, c: 26,734), which still lacks volumes, retreated 1.8 percent.

The BLS reported that jobless benefits fell to 242K in the week ending May 13th, below the expected 254K and down from an 18-month high of 264K. This indicates a tight labor market, potentially providing the FED with room for further rate hikes. There were significant decreases in claims in Massachusetts (-14.0K), Missouri (-2.3K), and New Jersey (-1.1K).

In May, the Philadelphia Fed Manufacturing Index rose to -10.4, marking the slowest pace in four months and showing improvement from April’s -31.3. It also exceeded market expectations of -19.8. New orders (-8.9 vs -22.7) and shipments (-4.7 vs -7.3) increased, while employment experienced a decline (-8.6 vs -0.2).

Other Markets Updates:

Japan: The April’s annual inflation rate jumped to 3.5% from March’s 6-month low of 3.2%.

South Africa: March’s building permits passed in largest municipalities slipped by 18% from a year ago to ZAR 9.1 million, following 12.7% rise in the prior month. The most affected sector is non-residential buildings (-52.5%). Residential segment decreased for much lesser extent (-4%).

On Friday, traders were expecting Jerome giving them clues on the markets’ direction. It didn’t happen, so NASDAQ (o:12709, c:12657) and BTC (o:26909, c:26890) just ranged.

On the “Perspectives on Monetary Policy” panel before the Thomas Laubach Research Conference, Powell said, “We face uncertainty about the lagged effects of our tightening so far, and about the extent of credit tightening from recent banking stresses.” Essentially, this means that the FOMC chooses to sit on the fence instead of acknowledging its responsibility for gradually driving the country’s financial system into the gutter.

Other Markets Updates:

Indonesia: In April 2023, car registrations in Indonesia experienced a year-on-year decline of 28.8%, resulting in a total of 58,911 units. The previous reading was +2.6%

Week 21, with FOMC Minutes coming out on Wednesday, Core PCE (previous: 0.3%, consensus: 0.3%) as well as Durable Goods Orders (previous: 3.2%, consensus: -1%) on Friday, is expected to be driven by technical factors. These factors are mostly bullish for NASDAQ, with a possibility of a correction in the 12.7K — 12.8K zone. The upcoming week might also be a period of recovery for BTC, which, however, is still lacking attention from new buyers.