SVET Markets Weekly Update (May 29 - June 2, 2023)

05 Jun 2023 by rate3

In Week 22, job openings increased, but the unemployment rate experienced a jump. AI follies, along with renewed expectations of the Fed not raising rates, helped drive tech stocks higher, and NASDAQ (o:13109, c:13240) managed to close the week with gains. Meanwhile, BTC (o:27919, c:27239) continued its downward drift amid a shrinking money supply.

Notable Macroeconomic Updates:

Unemployment Rate (May): 3.7 percent (fact), 3.5 (consensus), 3.4 (previous);
JOLTs Job Openings (April): 10.103M (fact), 9.375M (consensus), 9.745M (previous);
ISM Manufacturing PMI (May): 46.9 (fact), 47 (consensus), 47.1 (previous);
Case-Shiller Home Price MoM (March): 1.5 percent (fact), 0.4 (consensus), 0.3 (previous);
Dallas Fed Manufacturing Index (May): -29.1 (fact), -25 (consensus), -23.4 (previous).

World’s Updates:

Spain: The country’s consumer price inflation dropped;
Italy: Producer Price Inflation for April decreased;
Russia: In April, the country’s economic performance showed positive growth;
Germany: Country’s consumer price inflation in May dropped;
France: In May, consumer price inflation fell;
India: Country’s economy expanded;
South Korea: In May 2023, the consumer price index in the country saw an increase;
Mexico: In April, the unemployment rate increased.
On Tuesday, the Shiller Home Index jumped to a one-year high, the Dallas Fed Index sunk, NASDAQ (o:13109, c:13017) corrected, and BTC (o:27919, c:27861) ranged.

The Dallas Fed Business Activity Index for manufacturing decreased to -29.1 in May, the lowest since Q2 of 2020. The production index turned negative, while the employment situation improved, reflecting managers’ upbeat optimism. Meanwhile, the March Case-Shiller Home Price Index rose 1.5 percent MoM, the highest increase since May of 2022, with house prices increasing by 0.5%.

Other Markets Updates:

Spain: The country’s consumer price inflation dropped to 3.2 percent in May (previous: 4.1, consensus: 3.5) — the lowest level since July 2021. This decline was primarily driven by a decrease in fuel and food prices.

Italy: Producer Price Inflation for April decreased to -4.80 percent from -1.50 percent in March.

On Wednesday, NASDAQ (o: 12,968, c: 12,935) and BTC (o: 27,072, c: 27,010) continued to drift sideways on technicals, additionally suppressed by unexpectedly improved job openings.

BLS reported a surprising rise in job vacancies in April, reaching 10.1M, surpassing expectations of 9.375M. This rebound from the previous month’s low of 9.745M suggests a tight labor market, potentially leading to more interest rate hikes by the Fed. Job increased in a retail (209K) and transportation (154K). Regionally, job openings increased in the West (236K), Midwest (137K), and South (20K), but declined in the Northeast (-34K).

The Beige Book came out, indicating an uneven distribution of economic conditions. Some sectors, such as commerce, showed a contraction of activities, while others, like airlines, continued to expand with higher wage being requested by new candidates.

Details: Labor market conditions in some sectors are improving, with better success in hiring seasonal workers in agriculture and hospitality sectors. However, labor constraints and worker shortages are still present in other sectors, including healthcare and retail. Wage pressures remained elevated, with some industries continuing to pay above-average salary increases to attract and retain qualified workers.

Manufacturing output growth in Texas experienced a lull in April, with new orders continuing to fall. Airlines reported high ticket prices amid strong demand and constrained supply. Firms in infrastructure and other heavy construction reported generally stronger activity, while firms in industrial and commercial construction reported some softening.

Other Markets Updates:

Russia: In April, the country’s economic performance showed positive growth, increasing by 3.3% compared to the same period last year. This follows a revised contraction of 0.7% in the previous month. Notably, it represents the first monthly expansion in the economy after experiencing 12 consecutive months of decline, partly influenced by the comparison to a low base effect from the previous year.

Germany: Country’s consumer price inflation in May dropped to 6.1% YoY, down from 7.2% the previous month, and below the expected 6.5%. This marks the lowest rate since March 2022, primarily driven by slower increases in energy and food prices.

France: In May, consumer price inflation fell to 5.1% YoY — lowest level since April 2022 — down from 5.9% the previous month, and below the expected 5.5%.

India: Country’s economy expanded by 6.1% YoY in Q1 (expectations was 5%), and higher than 4.5% in Q4 2022. This growth was primarily driven by private consumption, services exports, and manufacturing, benefiting from reduced input costs.

On Thursday, NASDAQ (o:12944, c:13100) rose by 1.2 percent due to Representatives passing the ceiling bill and Fed members hinting at a pause. BTC (o:26947, c:26867) followed suit during the after-market.

At the same time, fundamentals continued to worsen. In May, the Manufacturing PMI dropped to 46.9 from April’s 47.1, below the predicted 47, marking the seventh consecutive month of decline in the manufacturing industry. New orders and inventories contracted, while production saw a rebound and employment increased at a faster rate. Additionally, there was a significant decrease in price pressures.

Philadelphia Fed President Patrick Harker suggested that the central bank might forgo a rate increase in the upcoming meeting. However, he emphasized that the choice to maintain current interest rates should not be interpreted as the conclusion of the tightening phase.

Other Markets Updates:

South Korea: In May 2023, the consumer price index in the country saw a 3.3% year-on-year increase, compared to a 3.7% rise in April, showing a continued easing for the fourth consecutive month. This marks the lowest level since October 2021. The Korean central bank halted its interest rate hikes at the April meeting after raising rates by a total of 3 percentage points.

On Friday, NASDAQ (o:13190, c:13240, +0.3) experienced an increase fueled by an ongoing micro-rally in tech stocks, supported by the BLS reporting rising unemployment and diminishing concerns over the Fed raising rates. BTC (o:27095, c:27239, +0.5) followed suit, although it remained constrained by a tight money supply and low demand from retail buyers.

In May 2023, the unemployment rate rose to 3.7 percent, reaching its highest level since October 2022 and exceeding market expectations of 3.5 percent. Despite this increase, the jobless rate remained historically low, indicating a tight labor market. The number of individuals who were unemployed increased by 440 thousand to reach 6.10 million, while employment levels saw a decline of 310 thousand to 160.72 million.

Other Markets Updates:

Mexico: In April, the unemployment rate saw a rise to 2.80 percent, up from 2.40 percent in March.

In Week 23, apart from the Services PMI for May published by ISM on Monday, not much macroeconomic data is released. Markets are expected to be volatile as traders adjust and readjust their positions before the June 14th FOMC rate decision. Additionally, technical indicators’ leading algorithms will react to the proximity of major index prices to important resistance levels.