SVET Reports
SVET Markets Weekly Update (July 3–7, 2023)
In Week 27, the unemployment rate, Manufacturing PMI, and JOLTs all decreased, while Service PMI continued to improve. NASDAQ (open: 13,798, close: 13,660) went volatile, while BTC (open: 30,653, close: 30,166) ticked down. Traders were uncertain about the market direction due to conflicting macroeconomic data.
Notable Macroeconomic Updates:
Manufacturing PMI (June): 46 (fact), 47 (previous); 46.9 (consensus);
Services PMI (June): 53.9 (fact), 51 (previous); 50.3 (consensus);
JOLTs Job Openings (May): 9.8M (fact), 9.935M (previous); 10.32M (consensus);
Unemployment Rate (June): 3.6 percent (fact), 3.7 percent (previous); 3.6 percent (consensus).
World’s Updates
Australia: RBA kept cash rate at 4.1%;
Brazil: Industrial production rose 0.3% in May;
Angola: GDP growth slowed sharply in Q1, contracting to 0.3%;
Qatar: The Qatar Financial Center PMI fell to 53.8 in June;
Brazil: Private sector activity expanded for the fourth consecutive month in June;
UK: Private sector output growth slowed in June;
France: Private sector business activity contracted in June;
Germany: Country’s construction PMI fell to 41.4 in June;
Malaysia: Central bank kept its policy rate steady at 3%;
Philippines: The unemployment rate in the Philippines fell to 4.3% in May.
Commodities
Corn: Futures fell to $5.5 per bushel in July;
Coffee: Arabica coffee futures fell to $1.65;
Coal: Newcastle coal futures hit a 1-month high of $145 per tonne in July;
Soybean: Prices hit a 1-year high of $15.5 per bushel in July;
Silver: Prices rose past $23 per ounce;
Uranium: Prices fell below $56 per pound;
Steel: Steel rebar futures edged higher;
Oil: Prices held near $72 per barrel;
Gold: Prices fell on Friday to USD 1,910 an ounce.
On Monday, Manufacturing PMI decreased, but NASDAQ (open: 13,798, close: 13,816) held its ground largely thanks to Tesla (+6%) beating production estimates. BTC (open: 30,653, close: 31,255) added +2.0% on bulls using technicals to drive it further up.
Details
The ISM Manufacturing PMI decreased to 46 in June 2023, from 46.9 in May. The reading pointed to a sharper rate of contraction in the manufacturing sector since May 2020. Demand is weak, production is slowing, and suppliers have capacity. There are signs of more job cuts in the near term. Price pressures eased, and supplier deliveries improved. Customers’ inventories dropped into too low territory, a positive for future production.
Notable Macroeconomic Updates:
Australia: RBA kept cash rate at 4.1%, said inflation passed peak but still too high. Inflation in Australia was at 7.0% in Q1. May CPI -5.6%, further tightening may be needed to bring inflation to target.
Brazil: Industrial production rose 0.3% in May from April, beating expectations and recovering from a 0.6% decline in the previous month. Output expanded in 19 of 25 industrial branches, led by petroleum derivatives and biofuels, auto vehicles, and machinery and equipment. However, food and chemical and pharmaceutical products declined. On a yearly basis, industrial production rose 1.9%, rebounding from a 2.7% decline in April.
Angola: GDP growth slowed sharply in Q1, contracting to 0.3% from 2.6% in the previous quarter. The oil sector was the main drag, contracting 8% due to lower prices and production. Transportation (+27.1%) and diamonds & other minerals (+22.1%) were the main drivers of growth. On a seasonally adjusted basis, GDP shrank 1.1%, the first drop since Q2 2021.
Qatar: The Qatar Financial Center PMI fell to 53.8 in June, the softest growth in the non-energy sector since March. However, business conditions still improved, with new business rising strongly due to tourism, competitive pricing, and marketing initiatives. Output has risen every month for more than three years, and employment also increased. Suppliers’ delivery times continued to improve, despite an increase in demand for inputs. The non-energy private sector remains optimistic, citing new projects, company development plans, and marketing campaigns.
Commodities
Corn: Futures fell to $5.5 per bushel in July, after the USDA’s Acreage report showed a 6% increase in planted acres and a 9% increase in harvested acres. Some rain in the Midwest eased drought concerns, but 65% of the region is still in moderate drought. The US is the world’s largest producer and exporter of corn.
Ethanol: Futures fell to $2.3 per gallon, their lowest level since March 31st, due to increased production, lower blending mandates, and rising stocks. The ethanol industry is recovering from the enclosure, with production up 400 million gallons in 2022. The share of ethanol in gasoline also reached a record high of 10.4%. However, the government has reduced the blending mandate for 2024–2025 from 15.25 billion gallons, and stocks have risen.
Coffee: Arabica coffee futures fell to $1.65 per pound in July, near the lowest level since late January, as favorable weather in Brazil and a forecast for higher production weighed on prices. Brazil’s coffee crop is expected to be strong, and the USDA forecast that global production will rise 2.5% in 2023/24.
Coal: Newcastle coal futures hit a 1-month high of $145 per tonne in July 2023, driven by rising demand from China. The country imported 182 million tons of coal in the first 5 months of the year, up 90% from 2022. However, industrial activity remains subdued and stockpiles are growing, so prices are expected to fall to $120 per tonne by 2025.
Soybean: Prices hit a 1-year high of $15.5 per bushel in July, on concerns over supply shortages. The USDA cut its soybean plantings estimate by 4.5% to 83.5 million acres, due to dry weather in major producing states. Soybean stocks fell 18% year-on-year to 796 billion bushels, and some analysts say the US could run out of soybeans before the next harvest.
Palm oil: Futures held above MYR 3,900 amid concerns of low supply. Rain in the US Midwest failed to improve soybean crops, while sunflower and rapeseed output prospects were pressured. Demand for palm oil as a feedstock for biodiesel rose as Saudi Arabia and Russia extended crude oil output cuts. Indonesia plans to raise its mandatory palm oil-based biodiesel blending to 40%. Exports of Malaysian palm oil products fell 6.9% in June.
On Wednesday, FOMC minutes hinted at more rate hikes ahead. However, NASDAQ (open: 13,772, close: 13,791) persisted in closing higher on Meta’s Threads rollout. BTC (open: 30,321, close: 30,431) followed with a minor uptick during the daily session, followed by a roller coaster ride in after-hours trading.
Details
According to the FOMC minutes Fed left the fed funds rate steady in June, as they wanted to assess the economy’s progress. However, most officials still anticipated raising rates this year. Some favored a 25bps hike, but most favored a more moderate pace of tightening. Powell and some of his cronies have reinforced the need to raise rates further this year.
Notable Macroeconomic Updates:
Brazil: Private sector activity expanded for the fourth consecutive month in June, but at a slower pace. The S&P Global Brazil Composite PMI fell to 51.5 from 52.3 in May, below market expectations. The services sector led the growth, while manufacturing contracted for the eighth consecutive month. Input cost inflation eased to the lowest level in three years. Both sectors are optimistic about incoming business.
UK: Private sector output growth slowed in June, as manufacturing production fell for the second consecutive month. However, the services sector continued to expand at a solid pace. New orders grew only marginally, employment rose, and backlogs of work fell. Input cost inflation was the lowest since February 2021, while prices charged increased at the slowest pace in 26 months.
France: Private sector business activity contracted in June, with the composite PMI falling to 47.2, the lowest level since February 2021. The services sector saw a renewed downturn, while manufacturing activity continued to plunge. Overall new orders declined at the fastest pace since November 2020, and backlogs of work fell. However, solid growth in services employment supported hiring during June. Price pressures abated, with rates of input cost and output price inflation easing to 27- and 25-month lows, respectively. Looking forward, business confidence slipped to a 32-month low.
Commodities
Silver: Prices rose past $23 per ounce, outperforming gold prices as low supply and strong industrial demand outweighed pressure from the Fed’s hawkish outlook. Regulatory changes in Mexico and declining silver production in Peru are expected to further tighten supply. Meanwhile, growing demand for solar panels is boosting industrial demand for silver (14% of a global demand, compared to 5% in 2014).
Uranium: Prices fell below $56 per pound, but remained 14% higher year-to-date. The decline was driven by macroeconomic headwinds, but longer-term demand and supply risks supported prices. The US and Europe approved bans on Russian uranium imports, which could tighten global supply. Major economies are also increasing nuclear power capacity, which could boost demand for uranium in the long term.
On Thursday, with ADP Employment and Services PMI higher and job vacancies lower, NASDAQ (open: 13,653, close: 13,679) managed to close the day in the green while still keeping its morning downside gap open. Meanwhile, BTC (open: 30,600, close: 30,309) stumbled on technicals, still below 31K.
Details
The ISM Services PMI jumped to 53.9 in June, the highest level in four months. Production and new orders rose sharply, while employment and price pressures eased. Supplier deliveries improved and inventories rose for a second month. However, businesses remain cautious about inflation and the future economic outlook.
Private businesses in the US added 497K jobs in June, the most since Feb 2022. Services added 373K jobs, led by leisure/hospitality, trade/transportation/utilities, and education/health. Goods-producing added 124K jobs due to construction and mining, while manufacturing lost 42K jobs. Small and medium-sized establishments created 299K and 183K jobs, respectively. Wage growth slowed for both job changers and job stayers.
Also, the unemployment benefits rose to 248,000, but remained well below historical averages.
Notable Macroeconomic Updates:
Germany: Country’s construction PMI fell to 41.4 in June, the lowest level since February 2021. Activity and new orders contracted at a faster pace, employment fell for a 15th straight month, and input costs fell the most in 14 years. Housing activity was the worst-performing construction category.
Malaysia: Central bank kept its policy rate steady at 3%, saying the stance is slightly accommodative and supportive of the economy. Inflation is easing, but core inflation remains elevated. Growth is likely to be driven by resilient domestic demand.
The Malaysian Central Bank’s reasonable policy of very moderate rate hikes while waiting for inflation to subside as a result of the market’s natural adjustment and self-regulatory mechanisms confirms how misinformed the Fed’s current stance on inflation is.
Commodities
Steel: Steel rebar futures edged higher on supply concerns, but demand worries capped gains. Extreme heat in Sichuan and deteriorating air quality in Tangshuan forced capacity cuts. However, slowing economy and sinking new yuan loans weighed on demand. Beijing considers reducing steel output by 2.5%.
Lumber: Futures dipped below $550 per thousand feet, after a nearly 10% rally in June. Concerns about policy tightening and housing demand weighed on prices. Supply disruptions and a slowdown in European shipments are expected to support the market.
Oil: Prices held near $72 per barrel on Thursday, supported by supply cuts from major producers and a drawdown in US crude stockpiles. Saudi Arabia and Russia extended production cuts, while US inventories fell by 4.382 million barrels. However, PMI data pointed to weakening manufacturing activity, clouding the outlook for global growth.
On Friday, with unemployment steady, NASDAQ (o: 13,668, c: 13,660) was volatile, while BTC (open: 30,203, close: 30,166) was stable as traders being uncertain after Thursday’s dump.
Details
The unemployment rate edged down to 3.6% in June, as expected. The jobless rate has remained between 3.4% and 3.7% since March. Employment levels rose by 273,000. The labor force participation rate was unchanged at 62.6%.
Notable Macroeconomic Updates:
Philippines: The unemployment rate in the Philippines fell to 4.3% in May, the lowest since December 2022. The number of unemployed persons decreased to 2.17 million, while the number of employed persons increased to 48.26 million. The services sector accounted for the largest share of employment (58.8%). The labor force participation rate increased to 65.3%.
Commodities
Gold: Prices fell on Friday to USD 1,910 an ounce as strong US jobs data boosted expectations of further interest rate hikes by the Federal Reserve.
On Week 28, investors will closely watch the start of the Q2 earnings season, the June inflation report (previous: 4 percent, consensus: 3.1 percent), June’s PPI (previous: -0.3 percent, consensus: 0.2 percent) and speeches from several Fed officials. Other important releases include China’s trade data, the German ZEW Economic Sentiment Index, UK’s May GDP growth, and Australia’s business and consumer sentiment.