SVET Reports
SVET Markets Weekly Update (June 12–16, 2023)
Week 24 was a volatile one. The Fed left its rate unchanged, as anticipated, and the Nasdaq Composite Index (open: 13,326, close: 13,689) added 2.7%, while Bitcoin (open: 25,933, close: 26,382) increased by 1.7%.
Notable Macroeconomic Updates:
Fed Interest Rate Decision: 5.25 percent (fact), 5.25 percent (consensus), 5.25 percent (previous);
Core Inflation Rate (May): 5.3 percent (fact), 5.3 percent (consensus), 5.5 percent (previous);
Inflation Rate (May): 4 percent (fact), 4.1 percent (consensus), 4.9 previous (previous);
PPI (May): -0.3 percent (fact), -0.1 percent (consensus), 0.2 percent (previous);
Michigan Consumer Sentiment (June): 63.9 (fact), 60 (consensus), 59.2 (previous).
World’s Updates
India: in May, country’s annual inflation rate fell to 4.25%;
Australia: in June, the Westpac-Melbourne Institute Consumer Sentiment Index rose by 0.2%;
UK: the unemployment rate declined to 3.8% in April;
Spain: the core inflation rate fell to 6.1% in May;
Germany: the ZEW Economic Sentiment Index rose to -8.5 in June;
South Africa: the retail trade fell 1.6% in April;
Argentina: the annual inflation rate hit 114.2% in May;
China: the industrial production grew 3.5% in May;
Japan: The Bank of Japan (BOJ) kept its key interest rate at -0.1%;
Italy: the annual inflation rate slowed to 7.6% in May.
On Monday, the NY Fed reported a decrease in inflation expectations, with traders expecting the FOMC to pause. As a result, the NASDAQ (o: 13326, c: 13461, +1.0) rose, while BTC (o: 25933, c: 25894) remained stagnant due to a lack of liquidity.
At the one-year forecast horizon, the median expectations for inflation decreased by 0.3 percentage points to reach 4.1%, marking the lowest level since May 2021. However, at the three-year and five-year forecast horizons, the median expectations for inflation rose by 0.1 percentage points to reach 3.0% and 2.7% respectively.
Other Markets Updates:
India: In May, Country’s annual inflation rate fell to 4.25%, the lowest since April 2021. This was below market expectations of 4.42% and well within the Reserve Bank of India’s (RBI) target range of 2% to 6%. The decline in inflation was driven by a slowdown in food inflation, which fell to 2.91% from 3.84% in the previous month. Inflation for other categories also slowed, including transport and communication (1.1%), housing (4.84%), and fuel and light (4.64%). On a monthly basis, consumer prices rose at a steady pace of 0.51%.
Australia: In June 2023, the Westpac-Melbourne Institute Consumer Sentiment Index rose by 0.2% month-over-month (mom), unexpected beating market expectations of a flat reading. The index has steadied near recession lows after plunging by 7.9% in May. The significant difference in the index’s performance before and after the Reserve Bank of Australia (RBA) raised cash rates by 25 basis points (bps) in early June suggests that the rate hike has had a positive impact on consumer sentiment.
On Tuesday, inflation notably slowed, meeting traders’ expectations. This resulted in NASDAQ (open: 13,566, close: 13,573) and BTC (open: 26,082, close: 25,902) ranging.
Details: Inflation slowed in May, with the core CPI (excluding food and energy) falling to 5.3% from 5.5% in April. Energy prices fell 11.7%, while food prices rose 6.7%. New vehicles, apparel, shelter, and transportation services all saw smaller price increases.
Other Markets Updates:
UK: the unemployment rate declined to 3.8% in April, but still below market expectations. Employment levels rose by 250,000 to an all-time high. Wages excluding bonuses rose 7.2%, the largest increase outside of the enclosure.
Spain: The core inflation rate fell to 6.1% in May, from 6.6% in April. This is the lowest level since May 2021.
Germany: The ZEW Economic Sentiment Index for Germany rose to -8.5 in June, from -10.7 in May. The index is still in negative territory, indicating that financial markets do not foresee an improvement in the economic situation during the second half of the year.
On Wednesday, Powell left the rate unchanged, as was anticipated by the majority of market analysts. NASDAQ (open: 13,570, close: 13,626) rose slightly in response, while BTC (open: 26,022, close: 25,874) continued to decrease due to weak demand, as investors reallocated funds to tech stocks.
Details: The Fed left rates unchanged at 5–5.25%, but signaled more hikes are possible if the economy and inflation don’t slow down. The fund’s rate is now seen at 5.6% this year, up from 5.1% in March. GDP is seen rising 1% this year, up from 0.4% in March. Also, the inflation estimates for 2024 and 2025 were raised to 4.6% and 3.4%, respectively, from 4.3% and 3.1%. PCE inflation is seen at 3.2%, down from 3.3% in March. The Fed said it will assess the economy and adjust rates if needed.
Producer prices in the US decreased 0.3% in May, following a 0.2% rise in April. Goods prices fell 1.6%, the largest decrease since July 2022. Services prices edged 0.2% higher. Year-on-year, producer prices rose 1.1%, the least since December 2020.
Other Markets Updates:
South Africa: the retail trade fell 1.6% in April YoY, the fifth consecutive month of decline. The drop was led by general dealers (-2.8%), food, beverages and tobacco in specialised stores (-6.2%) and all other retailers (-4.2%). On a monthly basis, retail sales rose 0.4%.
Argentina: the annual inflation rate hit 114.2% in May, up from 108.8% in April. This is the highest level since 1991.
China: the industrial production grew 3.5% in May 2023, down from 5.6% in April. This was the softest pace in three months, mainly due to a slowdown in manufacturing and mining. Within manufacturing, production grew most notably for electrical machinery (15.4%) and automotive (23.8%). Production decreased for agriculture (-1.3%), coal mining (-1.6%), non-metallic mineral products (-2.6%), and textile (-1.8%).
On Thursday, Retail sales unexpectedly increased and the NY Manufacturing Index improved, driving NASDAQ (open: 13,570, close: 13,782, +1.6%) and BTC (open: 24,954, close: 25,455, +2.0%) higher.
Retail sales in the US rose 0.3% in May, beating forecasts. The biggest increases were seen in building materials (2.2%), motor vehicles (1.4%), food services (0.4%), general merchandise stores, furniture, food and beverages, sporting goods, and electronics. Sales were flat at health, clothing, and fell at gasoline stations (2.6%).
New York manufacturing activity unexpectedly improved in June. The Empire State Manufacturing Index climbed 38 points to +6.6, from a four-month low of -31.8 in May. Inventories and unfilled orders remained negative. Delivery times were little changed. The number of employees and average workweek remained negative. Input and selling price increases slowed considerably. Planned capital spending remained weak. Firms were more optimistic about the six-month outlook.
At the same time, Philadelphia manufacturing activity slowed in June. The Philadelphia Fed Manufacturing Index decreased to -13.7, from -10.4 in May. The general activity and new orders indexes remained negative.
Additionally, unemployment claims rose to 262K in the week ending June 10th, above expectations. This was the highest level since October 2021 and aligns with other recent data that suggests some softening in the labor market. The Fed’s aggressive tightening campaign is likely to continue to put pressure on the labor market, which could lead to further increases in unemployment claims.
Overall, we see a growing dichotomy between consumers’ and businesses’ optimistic expectations, which are reinforced by a tech market short-term rally and driven by “soothing” messaging from corporate medias, which still refuse to directly confront Powell as did crypto-medias with Garry Gensler, and the increasingly grim macroeconomic reality, artificially created by the Fed’s unwise rate policy.
Other Markets Updates:
Japan: The Bank of Japan (BOJ) kept its monetary policy unchanged in its June meeting, with the key short-term interest rate remaining at -0.1% and the 10-year bond yield capped at 0%. The BOJ also said it would continue to patiently pursue monetary easing in response to uncertainties in the economy and financial markets.
The BOJ’s decision contrasted with those of other central banks, such as the European Central Bank (ECB) and the Fed, which have raised interest rates in an effort to combat inflation. The BOJ expects Japan’s economy to recover in the middle of fiscal 2023, supported by pent-up demand.
On Friday, the Michigan consumer sentiment rose. However, NASDAQ (open: 13859, close: 13689, -1.2%) corrected on technicals after reaching a 12-month high. BTC (open: 25570, close: 26382, +3.2%) increased notably on whales buying from an important resistance level.
Details: The University of Michigan consumer sentiment index increased to 63.9 in June, the highest in four months. This is 28% above the historic low from a year ago. The improvement was driven by easing inflation and the resolution of the debt ceiling crisis. Current economic conditions and consumer expectations also improved. Year-ahead inflation expectations fell for the second consecutive month to 3.3%. Long-run inflation expectations were little changed at 3%.
Other Markets Updates:
Italy: the annual inflation rate slowed to 7.6% in May, from 8.2% in April. The deceleration was driven by lower energy and food prices. Core inflation, which excludes volatile items, slowed to 6%.
On Week 25, traders might try to push both NASDAQ and BTC higher, using technical momentum and a pause in macroeconomic news releases, with the exception of May’s Building Permits on Tuesday (previous: 1.417M, consensus: 1.425M) and Powell’s speech on Wednesday and Thursday.