SVET Reports
SVET Markets Weekly Update (May 22–26, 2023)
Week 21 turned out to be bullish for NASDAQ (o: 12644, c: 12975, +2.6%), as anticipated. It was propelled by Thursday’s surge in semiconductors, fueled by the AI craze. With the PCE Index rising, traders persisted in challenging the FED. Meanwhile, BTC (o: 26731, c: 26767) remained stagnant, lacking support from retail buyers.
Notable Macroeconomic Updates:
Core PCE Price Index (April): 0.4 percent (fact), 0.3 (consensus), 0.3 (previous);
Personal Spending (April): 0.8 percent (fact), 0.1 (consensus), 0.4 (previous);
Durable Goods Orders (April): 1.1 percent (fact), 3.3 (consensus), -1 (previous);
GDP Growth Rate (Q1): 1.3 percent (fact), 1.1 (consensus), 2.6 (previous);
S&P Global Composite PMI (May): 54.5 (fact), 50 (consensus), 53.4 (previous);
Initial Jobless Claims (May/20): 229K (fact), 245K (consensus), 225K (previous);
Kansas Fed Manufacturing Index (May): -2 (fact), -21 (consensus), -11 (previous).
World’s Updates:
Turkey: The country’s consumer confidence index jumped;
Japan: The sentiment index for manufacturers soared;
South Korea: Producer prices marked the smallest gain since January 2021;
UK: The retail sales dropped sharply;
France: In April, the unemployment increased after a continuous decline in unemployment for seven months.
On Monday, Fed Bullard came out hawkish as usual, while Fed Barkin was on the fence, and Fed Bostic wanted to wait and see. Traders were bored. The NASDAQ (o: 12,644, c: 12,720) and BTC (o: 26,731, c: 26,862) were flat.
There are many who say that not only are FOMC members confused, but also that they speak too much. Of that we had a confirmation on Monday. Not one but three Federal Reserve Bank presidents — Bullard (St. Louis), Barkin (Richmond), and Bostic (Atlanta) — revealed their views on the economy and interest rates.
Bullard expects slow growth, suggesting a potential half-point rate increase this year. Barkin doubts inflation decline and is undecided about rate hikes in June. Bostic acknowledges challenges and favors a patient approach, waiting for more information. Opinions may differ regarding the future trajectory, but within the over-centralized Fed, only one opinion truly carries weight — that of Jerome, who is playing politics at our expense.
Other Markets Updates:
Turkey: The country’s consumer confidence index in May jumped to 45.5 (previous: 43.8) — the highest level since July 2018. Expectations improved for the upcoming 12 months in terms of the overall economy, as well as households’ financial situation. On the other hand, future inflation prospects rose (38.5 vs 36), along with concerns over unemployment in the following year (44.7 vs 42.2).
On Tuesday, there was a surprising jump in both the Services PMI and new home sales, catching traders off guard and resulting in a slight downturn for NASDAQ (: 12,652, c: 12,560) and BTC (o: 27,284, c: 27,181).
Unexpectedly, there was a 4.1 percent surge in new home sales in April, reaching a total of 683K units. This marked the highest level since March 2022, surpassing the forecasted figure of 665K. Notably, sales experienced a significant rise of 17.8 percent in the South, with 443K units sold. Similarly, in the Midwest, there was an 11.8 percent increase, totaling 76K units. Conversely, the Northeast witnessed a substantial decline of 58.6 percent, with sales plummeting to 24K units. Likewise, the West region saw a 9.1 percent decrease, with sales amounting to 140K units.
The median price of newly sold houses stood at $420,800, while the average sales price was $501,000. These figures are in comparison to $458,200 and $562,400 respectively, recorded a year earlier.
Yet another surprise came from the S&P Manufacturing PMI, which declined to 48.5 in May (previously: 50.2, forecast: 50), while the Service PMI, in contrast, increased to 55.1 (previously: 53.6, forecast: 52.6). Both indexes exceeded market expectations significantly. However, optimism regarding future output in the next 12 months reached its highest level in a year for both the services and manufacturing sectors. One possible explanation is that clients have been building up their inventories in recent months, leading to a decrease in deliveries and forcing manufacturers to adjust their plans. Additionally, there has been a notable decrease in input prices, the first occurrence since May 2020, accompanied by improved supplier delivery times.
On the service side, new orders rose at the fastest rate since April 2022. Additionally, the rate of job creation reached its highest point in ten months. In terms of pricing, both input prices and output charges saw an increase. These signals may raise concerns for optimists who were hoping for the Federal Reserve (FED) to ease rates. Jerome, perceiving this as an indication of a persistently overheated job market, might continue to pursue his policies aimed at reducing demand.
Other Markets Update:
Japan: The Reuters Tankan sentiment index for manufacturers in Japan soared from -3 in April to +6 in May, marking the first positive reading this year. This indicates a recovery from the enclosure-induced slowdown. The survey revealed that more firms now consider business conditions as good. Manufacturers’ mood is expected to improve further in the next three months, while the service sector experienced a minor decline. The automobile and oil refinery industries showed optimism as supply disruptions eased. However, global headwinds and elevated inflation continue to hinder consumption and dampen sentiment.
On Wednesday, FOMC minutes were released without any significant impact due to their dullness. Instead, traders shifted their attention to debt politics, causing NASDAQ (o:12481, c:12484) to decline and creating a gap at the opening. BTC (o:26693, c:26243) slid by 1.7 percent.
Fed is divided with officials expressing uncertainty about future policy tightening, according to the minutes from the FOMC meeting in May. Some participants noted that further tightening may not be necessary if the economy aligns with their outlook. However, others believed additional tightening would be warranted if inflation remains slow to reach 2%.
Other Markets Update:
South Korea: Producer prices rose by 1.6% YoY in April, marking the smallest gain since January 2021. The slower pace of cost increases was observed in agricultural, forestry, and marine products (0.5% vs 4.4% in March); electric power, water, and gas (18.7% vs 28.7%); and services (2.9% vs 3.1%). Meanwhile, manufacturing product costs fell (-1.6% vs +0.5%). On a monthly basis, the producer price index dipped 0.1% compared to a 0.1% increase in March.
On Thursday, NASDAQ experienced a surge during the pre-market session, with a gain of 1.7%. The index closed at 12,698, surpassing Wednesday’s closing value of 12,484. Semiconductors led this upward movement, with Nvidia seeing a significant increase of 24%, rising from a Wednesday closing value of 305 to 379.
Despite indications of a potential Federal Reserve rate increase, stock traders appeared to overlook fundamentals. On the other hand, BTC (with an opening value of 26,403 and closing value of 26,468) remained unaffected by the AI craze, which can be seen as a sign of the absence of retail buyers. BTC’s increase was driven by technical factors and remained relatively modest.
Jobless claims rose to 229K in the week ending May 20th, slightly up from the previous week’s low of 225K but below expectations of 245K. This suggests a strong labor market, potentially influencing the Federal Reserve’s interest rate decisions.
There is further reinforcement for more Fed rate hikes, as indicated by the BEA. According to its preliminary estimate, the economy grew by 1.3% in Q1 2023, higher than the expected 1.1%. Consumer spending increased by 3.8% despite high inflation, while residential fixed investment declined at a faster pace. Exports surpassed imports. Nonetheless, Q1 2023 GDP growth remains the weakest since Q2 2022.
Other Markets Update:
UK: The retail sales balance, indicated by the CBI distributive trades survey, dropped sharply to -10 in May 2023 from the previous month’s +5. It fell short of expectations, which anticipated +10. This suggests a contraction in trade due to high inflation. Retail employment declined for the third consecutive quarter, dropping to -48 in the year ending in May, the largest decline since February 2009. However, retailers remain optimistic for June, expecting sales volumes to stabilize with improved consumer confidence and lower energy prices.
On Friday, personal consumption statistics were released, showing a surprising increase in inflation. However, traders remained engulfed by bullish momentum and pushed the NASDAQ (o:12736, c:12975) higher by 1.9 percent. BTC (o:26440, c:26767) increased by 1.2%.
In April, the PCE Index exceeded expectations, increasing 0.4 percent instead of 0.3 (MoM). The core PCE, which excludes food and energy, saw a 0.2 percent rise in April (expected: 0.15). Also, monthly personal spending surged 0.8 percent in April, well above market forecasts of a 0.4 and the most in three months.
On a yearly basis, prices for goods increased 2.1% (from 1.6) and prices for services increased 5.5%. Meanwhile, food inflation eased to 6.9 percent from 8% and energy prices decreased 6.3%, following a 9.8% fall.
New orders for durable goods rose by 1.1% in April, following a revised 3.3% growth in March, surpassing expectations of a 1.0% decline. Demand for transport equipment increased by 3.7%, driven by a surge in defense aircraft orders (+32.7%), offsetting declines in civilian aircraft (-8.3%) and vehicles (-0.1%).
Other Markets Update:
France: In April, the count of individuals registered as unemployed in mainland France increased by 10.8K (MoM), reaching 2.800M. This rise comes after a continuous decline in unemployment for seven consecutive months.
Week 22 brings JOLTs April report on Wednesday (previous: 9.59M, expected: 9.35M), May’s Manufacturing PMI on Thursday (previous: 47.1, expected: 47), and the Unemployment Rate data on Friday (previous: 3.4%, expected: 3.5%). Stock markets are likely to be volatile while staying on the bullish side, absent fundamental reason. At the same time, crypto traders, stuck in the correction without retail support, will be waiting for a surge signal from adventurous whales.