SVET Markets Weekly Update (June 5–9, 2023)

11 Jun 2023 by rate3

During Week 23, with the absence of significant macroeconomic news, both NASDAQ (o: 13,238, c: 13,259) and BTC (o: 26,690, c: 26,407) experienced sideways drifting, as anticipated. Traders took the opportunity to readjust their positions in preparation for the upcoming FOMC meeting next week.

Notable Macroeconomic Updates:

ISM Services PMI (May): 50.3 (fact), 52.2 (consensus), 51.9 (previous);
Initial Jobless Claims (Jun/03): 261K (fact), 235K (consensus), 233K (previous);
IBD/TIPP Economic Optimism (June): 41.7 (fact), 45.2 (consensus), 41.6 (previous);
Balance of Trade (April): $-74.6B (fact), $-75.2B (consensus), $-60.6B (previous).
World’s Updates

Australia: The Central Bank hiked the base rate to 4.1% in June;
Russia: In May, the overall sales of automobiles skyrocketed by 112% (YoY)
Brazil: In May, the production of cars surged by 27.4%;
South Africa: GDP growth decelerated;
Japan: Economy grew by 2.7% (YoY);
India: The RBI left rate unchanged at 6.5%;
Brazil: Annual inflation rate fell to 3.94%;
Argentina: Industrial production rose by 1.7%;
South Africa: Manufacturing output rose 3.4% YoY;
Mexico: Inflation rate slowed to 5.84%;
Russia: Inflation rate rose to 2.5%.
On Monday, The Services PMI declined, and the NASDAQ (o: 13,238, c: 12,229) corrected based on technicals. BTC (o: 26,690, c: 25,629) dropped due to news about the Binance persecution.

The ISM Services PMI decreased to 50.3 in May from 51.9 in April, indicating a slower pace of the fifth consecutive month’s growth in the services sector. Data came below predictions of 52.2, amidst a deceleration in business activity while employment shrank. With that the majority of respondents indicated that current business conditions are stable with concerns regarding the slowing economy.

Other Markets Updates:

Australia: The Central Bank surprisingly hiked the base rate by 25bps to 4.1% in June, following a similar increase in May. This represents the 112th occasion of rate hikes by the bank in the previous year, contrary to market expectations of a pause, thereby elevating borrowing expenses to their highest point since April 2012.

El Salvador: It’s been two years since Bitcoin was made a legal tender in the country on June 5, 2021. The national treasury department has allocated a cumulative amount of $103,233,360 for its BTC acquisitions since 2021, with an average purchase price of $43,357. Presently, considering the prevailing prices, El Salvador’s collection of BTC is valued at approximately $61.3 million. Consequently, the country is currently facing a loss of around $40 million on its BTC investment.

There were protests about the use of BTC as a legal tender, citing security and economic risks of using a volatile digital asset as a legal tender. A bill called the Accountability for Cryptocurrency in El Salvador Act has been introduced to assess the risks for cybersecurity, economic stability, and democratic governance in El Salvador related to the adoption of BTC.

On Tuesday, the Confidence Index did not perform as expected. NASDAQ (o: 13,199, c: 13,276, +0.5%) corrected slightly upward based on technicals, while BTC (o: 25,533, c: 27,080, +6%) surged due to aggressive entries by whales, despite the SEC pursuing CoinBase.

Details:

The US Economic Confidence Index, as measured by IBD/TIPP, saw a slight uptick in June, moving to 41.7 from 41.6 in May. Market forecasts was 45.2. However, it still remained significantly below the optimism benchmark of 50. Around 51% of respondents believed that the economy was in a recession, the lowest figure since May 2022, but only 25% anticipated an improvement.

Moreover, the support for federal economic policies plummeted by 3.5% to 38.6, reaching its weakest level since last August’s eight-year low. This decline could be attributed to the recent debt-ceiling deal, which included an agreement to end the moratorium on most student-loan payments later this summer, after a period of over three years. Concerns about inflation were expressed by 89% of respondents, while only 22% believed that wages were keeping up with inflation.

Other Markets Updates:

Russia: In May of 2023, the overall sales of automobiles in Russia skyrocketed by 112% compared to the previous year, reaching a total of 51,466 units. This substantial surge can be attributed to the impact of the reference year, which coincides with the commencement of the Russian military intervention in Ukraine. Nonetheless, it is worth noting that even with this impressive growth, the current sales volume represents less than half of the comparable figures observed prior to the aggression initiated by Moscow, thereby underscoring the enduring consequences of economic penalties imposed by Western nations on the Russian economy.

Brazil: In May 2023, the combined production of cars, light commercial vehicles, trucks, and buses surged by 27.4% compared to the previous month, reaching 227.9 thousand units. This marked the highest level for May since 2020. Year-to-date, auto production grew by 6.2%, with 942,800 vehicles manufactured from January to May. Annually, auto production experienced a growth rate of 10.7%. May’s surge can be partially explained by the announcement of a temporary program by the federal government. The program offered direct discounts to consumers. It aims to reduce car prices by up to R$ 8,000.

South Africa: The economic expansion in the Country experienced a significant deceleration, with year-on-year GDP growth slowing down to 0.2% in the first quarter of 2023. This marked a decline from a downwardly revised growth rate of 0.8% in the preceding three-month period. The growth rate observed in the first quarter of 2023 was the slowest since a contraction was recorded in the first quarter of 2021. The deceleration can be largely attributed to the adverse impacts of extensive power cuts implemented by the state power utility Eskom, which reached record levels.

On Wednesday, the trade deficit widened, reaching 6-months high, and NASADAQ (o:13295, c:13104, -1.4%) as well as BTC (o:26802, c:26482, -1.2%) declined on technicals.

In April, the US trade deficit reached $74.6 billion, a six-month high, compared to March’s $60.6 billion reading. Exports fell 3.6% to $249 billion, while imports increased 1.5% to $323.6 billion. The largest deficits were with China ($24.2 billion), the EU ($17.3 billion), Mexico ($13 billion), and Vietnam ($8.5 billion). Surpluses were seen with the Netherlands ($4.2 billion), South and Central America ($4.1 billion), Belgium ($1.9 billion), and Hong Kong ($1.6 billion).

The government has been able to sustain a high trade deficit and a strong dollar exchange rate, largely thanks to the dominance of the US dollar in global markets. The dollar’s reserve currency status and its widespread use in international trade have provided stability, demand, and investment flows that support the country’s economic conditions. However, maintaining this equilibrium might be tricker in the future as more and more countries start to reduce their dependence on the greenbuck in the international commerce.

Other Markets Updates:

Japan: Country’s Q1 2023 economy grew by 2.7% on an annualized basis, surpassing the preliminary 1.6% rise. It exceeded market expectations of a 1.9% expansion. Increased private consumption, a strong business rebound, and rising government spending supported the upturn. However, net exports had a negative impact due to global trade uncertainty.

India: The RBI left its policy repo rate unchanged at 6.5% during the June 2023 meeting. India’s annual inflation dropped to 4.7% in April, reaching an 18-month low and staying within the RBI’s target range of 2%-6%. The RBI had previously raised rates by a total of 250 basis points since May 2022, bringing borrowing costs to levels last seen in January 2019. The growth forecast for fiscal year 2024 remained at 6.5%, with quarterly estimates of 8% in Q1, 6.2% in Q2, 6% in Q3, and 5.7% in Q4. The inflation forecast was revised down slightly to 5.1% from 5.2%.

Brazil: May 2023 annual inflation rate fell to 3.94% from the previous month’s 4.18%, hitting a 2-year low and below the forecast of 4.04%. It marked the 3rd consecutive month below the central bank’s 4.75% target. The 13.75% Selic rate, one of the world’s highest, aided this. Transportation prices dropped faster at -4.75% versus April’s -2.92%, driven by a sharp decline in gasoline prices (-25.85%). Food inflation slowed to 5.54% from 5.88%, while housing and utilities rose to 4.03% from 1.59%. Monthly consumer prices increased by 0.23%.

On Thursday, jobless claims climbed for the third week in a row. NASDAQ (o:13113, c:13238, +0.9%) and BTC (o:26462, c:26539, +0.3%) rose slightly in response.

Details: Jobless claims rose to 261K in the week ended June 3rd, highest since Oct 2021, above forecasts of 235K — 3rd consecutive week of increasing initial claims, sign of labor market strength fading. Largest claim increases in Ohio (6.345K), California (5.173K), Minnesota (2.746K); decreases in Connecticut (-2.35K) and NY (-1.243K).

Other Markets Updates:

Argentina: Country’s industrial production rose by 1.7% in April, slower than the revised 3.5% increase in the previous month. Lower production in motor vehicles and auto parts (+4.7% vs +17.4% in March) and oil refining, coke, and nuclear fuel (+11% vs +17.2%) caused the slowdown. However, basic metals experienced a faster growth. Conversely, machinery and equipment, food and beverages, and chemical substances and products saw output declines.

South Africa: Country’s manufacturing output rose 3.4% YoY in April 2023 — the first annual gain in six months, beating forecasts of 2.5%. Major contributors were basic iron and steel production, non-ferrous metal goods, metal products, and machinery (5.3%); food and beverages (4.6%); petroleum, chemical products, rubber, and plastics (2.8%); and motor vehicles, parts, accessories, and other transport equipment (5%).

Mexico: In May, Country’s inflation rate slowed for fourth straight month, reaching 5.84%, the lowest since August 2021. Food and tobacco inflation decreased to 11.44%, while energy costs fell faster to -5.48%. Housing (3.67%) and education (4.88%) inflation remained steady.

On Friday, traders refrained from taking significant positions in anticipation of the FOMC and played volatility shifting NASDAQ (o:13312, c:13259, -1.0%) and BTC (o:26673, c:26407, -1.0%) lower.

WASDE (World Agricultural Supply and Demand Estimates) Report was published showing that the worldwide forecast for wheat in 2023/24 indicates greater availability, increased demand, expanded trade, and larger inventories. Projected supplies are expected to grow by 10.8 million tons, reaching a total of 1,066.9 million tons. This increase is primarily attributed to higher production levels in Russia, India, the European Union, and Ukraine. Specifically, Russia’s production estimate has been raised by 3.5 million tons to 85.0 million.

Other Markets Updates:

Russia: The annual inflation rate in May 2023 rose to 2.5% from 2.3% in April, showing acceleration after 12 months of decline, exceeding expectations of 2.4%. Services inflation increased to 11% from 9.4% the previous month, non-food prices rose 0.2% after a 0.3% decrease. Food costs went down 1% after remaining unchanged. Core consumer prices rose faster at 2.1% compared to 2%. On a monthly basis, consumer prices increased by 0.3% as expected.

Week 24 is anticipated to be volatile, again, as traders will be expecting the Fed Interest Rate (previous: 5.25%, consensus: no change) decision on Wednesday preconceived by the inflation rate (previous: 4.9%, consensus: 4.1%) published by BLS on Tuesday.