SVET Reports
SVET Markets Weekly Update (July 10–15, 2023)
On Week 28, NASDAQ added 3.7 percent, energized by surprisingly low inflation data, smashing through an important resistance level. BTC managed to stay under 31K despite a breakthrough following the XRP groundbreaking ruling.
Notable Macroeconomic Updates:
NFIB Business Optimism Index (June): 91 (fact), 89.9 (previous); 89.4 (consensus);
Inflation Rate YoY (June): 3 percent (fact), 4 percent (previous); 3.1 percent (consensus);
Core Inflation Rate YoY (June): 4.8 percent (fact), 5.3 percent (previous); 5 percent (consensus);
PPI MoM JUN (June): 0.1 percent (fact), -0.4 percent (previous); 0.2 percent (consensus);
Michigan Consumer Sentiment (June): 72.6 (fact), 64.4 (previous); 65.5 (consensus).
On Monday, the Nasdaq (o:13645, c:13685) edged up a bit. Mega-cap names underperformed as investors rotated out of growth and into cyclical stocks. Traders are now awaiting consumer inflation data on Wednesday and producer inflation figures on Thursday for fresh insights into the economy. At the same time, BTC (o:30161, c:30837) speculatively rose by 2.2% during the daily session, only to slide back during after-hours.
Details
NY Fed reported that consumer inflation expectations for the year ahead fell for a third consecutive month to 3.8% in June, the lowest since April 2021. This is a decline of 3 percentage points from the series high of 6.8% in June 2022. Expected price changes declined for gas and food, but increased for college education, medical care, and rent. Home price growth expectations increased for the fifth consecutive month. The decline in inflation expectations suggests that consumers are becoming more optimistic about the future.
Notable Macroeconomic Updates:
Germany: The ZEW Indicator of Economic Sentiment for Germany fell to -14.7 in July 2023, the lowest level since December 2022. Investors expect the economic situation to deteriorate further by year-end due to rising interest rates and weak export markets. Profit expectations for export-oriented industries fell again. The assessment of the economic situation also declined to -59.5.
On Tuesday, the NASDAQ (o:13709, c:13760) added a bit, closing the day in a green. Traders were processing comments from Fed officials which continued to stress the need of further tightening this year. At the same time BTC (o:30433, c:30581) continued to edge up, preparing to storm 31K, again.
Details
The NFIB Small Business Optimism Index rose to a seven-month high of 91 in June 2023, beating market expectations. Inflation was the top concern for 24% of owners, down 1 point from last month. Net 29% reported higher selling prices, the least since March 2021. The percentage of owners who expect real sales to be higher improved by 7 points to -14%. Fewer firms expect worst business conditions over the next six months (+10 points to -40%). Fewer reported job openings were hard to fill (-2 points to 42%). The index remained below its 49-year average of 98 for the past 18 months.
Currencies
Pound: The pound rose above $1.29 on Tuesday, its highest level since April, as hotter-than-expected wage growth put pressure on the BoE to keep raising rates. Excluding bonuses, UK wages rose 7.3% in the three months to May, the biggest increase outside the pandemic and above forecasts. BoE Governor Andrew Bailey said policymakers needed to “see the job through” on inflation, suggesting the central bank will maintain its tightening campaign.
Euro: The euro hits 17-month high and consolidated its gains above $1.10 on Tuesday, reaching its highest level since May 4 as investors expect ECB tightening policy to continue. Inflation in the Eurozone has decreased to a 17-month low of 5.5% in June, but the core rate remained significantly above the ECB’s target of 2%. However, traders anticipate rates peaking at just below 4% by year-end. The ECB is expected to raise interest rates by 25 basis points in July and September, and by a larger increment in October.
On Wednesday, NASDAQ (o: 13,915, c: 13,918) surged on the opening as inflation fell, then fluctuated and closed at its highest since April 2022. Traders are currently pricing in a high chance for a 25 basis point increase in the fed funds rate this month. The odds for another quarter-point hike in September fell. At the same time, BTC (o: 30,721, c: 30,287) corrected a bit on technicals.
Details
Annual inflation in the US slowed to 3% in June, the lowest since March 2021. Energy prices fell 16.7% in June, led by a decline in fuel oil prices. Food prices rose 5.7%, while shelter prices rose 7.8% (accounted for over 70 percent of the increase). Core inflation, which excludes food and energy prices, fell to 4.8%, the lowest since October 2021.
Notable Macroeconomic Updates:
Mexico: Country’s industrial production surged 3.9% in May from the previous year, the most since August 2022. This marked the 19th consecutive increase in industrial production, reflecting the Mexican economy’s resilience to high interest rates. Output accelerated for mining, manufacturing, and energy and its transmission.
India: Country’s industrial production rose 5.2% in May from a year earlier, accelerating from 4.2% in April and beating market expectations of 4.8%. Mining activities surged 6.4%, after a 5.1% rise in April. Factory activity increased 5.7%, while electricity generation rebounded.
India: Consumer inflation accelerates in June (the first time in five months) to 4.81%. Food prices increased to 4.99% (2.91% in May). The main drivers of inflation were an increase in prices of spices, cereals, pulses, and milk. The cost of vegetables declined, but not as much as in May. The cost of fuel and light, housing, miscellaneous goods and services, and clothing and footwear also rose The Reserve Bank of India targets inflation at 2–6%, but aims to bring it to the mid-point at 4%.
On Thursday, initial jobless claims unexpectedly pointed to the tight labor market, while producer prices surprised on the downside. NASDAQ (o: 14,021, c: 14,138) responded with steady growth throughout the day. Meanwhile, BTC (o: 30,520, c: 31,606) jumped 3.5%, dragging with it several major coins (including ETH, MATIC, and Cardano), propelled by a ruling regarding XRP (which added more than 70% in a few hours).
Jobless claims pointed to the tight labor market. Producer prices surprised on the downside. NASDAQ responded with steady growth. Meanwhile, BTC jumped 3.5%, propelled by a ruling regarding XRP. Argentinian monthly inflation eased to 6%.
Details
According to BLS statement producer prices rose 0.1% in June, below expectations. service prices experienced a slightly higher increase of 0.2%, primarily driven by deposit services. On the other hand, goods prices remained unchanged overall. However, within the goods category, gasoline prices saw a notable rise of 3.4%, while iron and steel scrap prices declined by 10.8%. The statement also mentions that year-on-year, producer prices increased by 0.1%. This is the smallest increase since 2020, indicating a slowdown in price growth compared to previous years.
Comment: Overall, these figures suggest a relatively stable pricing environment for producers, with only a marginal increase in prices in June. The varying price movements within goods and services categories reflect specific factors impacting those sectors. The year-on-year data indicates a moderation in inflationary pressures compared to previous periods, which may have implications for the overall economic outlook.
Notable Macroeconomic Updates:
Argentina: The monthly inflation rate eased to 6% in June 2023, from 7.8% in May. This is the lowest monthly inflation rate since January 2023. The slowdown in monthly inflation was driven by a number of factors, including softer price increases for food, clothing, and transportation. However, prices for education and communication rose at a faster pace in June. Despite the slowdown in monthly inflation, Argentina’s annual inflation rate skyrocketed to 115.6% in June 2023. This is the highest annual inflation rate since 1991.
Comment: The high inflation rate in Argentina is a symptom of the country’s economic problems. The economy is struggling with high levels of debt, unemployment, and poverty. These problems are likely to continue to plague Argentina in the near future.
On Friday, NASDAQ (o:14166, c:14113) increased 3.5% on the opening, putting it on track for its best week since March 17, despite a latter day dip. BTC (o:31126, c:30115) corrected sharply on traders rushing to fixate their profits.
Details
The University of Michigan consumer sentiment rose to 72.6 in July, the highest since Sept 2021. Current conditions and expectations improved, largely due to slowing inflation and stable labor market. Inflation expectations edged up to 3.4% and 3.1% for 1 year and 5 years.
Comment: The increase in consumer sentiment could boost economic growth in the US. Consumers are more likely to spend money when they are feeling confident about the economy. The increase in consumer sentiment could also lead to higher inflation. If consumers are more willing to spend money, businesses may raise prices in order to keep up with demand. The increase in consumer sentiment could also lead to higher interest rates. The Federal Reserve may need to raise interest rates in order to keep inflation under control. Overall, the increase in consumer sentiment in July is a positive sign for the economy. However, there are still some concerns about inflation, which could weigh on consumer confidence in the future.
Notable Macroeconomic Updates:
Ukraine: Country’s trade deficit widened in May 2023. Imports rose 35%, led by machinery, chemical prods. Exports up 7.6%, led by food, base metals. Deal with Russia to guarantee safe corridors could help.
Comments: The widening of Ukraine’s trade deficit is a sign that the country’s economy is still struggling. The war with Russia has disrupted trade and caused economic hardship for Ukraine. The country is heavily dependent on imports, and the rising cost of imports is putting a strain on the economy.
Brazil: Country’s retail sales fell 1% in May, the first contraction in 6 months. The decline was driven by weakness in clothing, furniture, and electronics stores. However, sales of fuel and pharmaceuticals rose. Year-on-year, retail sales fell 1%, the first contraction in 10 months.
Comment: The decline in retail sales is a negative sign for the Brazilian economy. It suggests that consumers are feeling less confident and are spending less money. This could lead to a slowdown in economic growth in the coming months. However, it is important to note that the decline in retail sales was not uniform across all sectors. Sales of essential items, such as fuel and pharmaceuticals, rose in May 2023. This suggests that the Brazilian economy is not in a recession, but it is slowing down. The central bank of Brazil is expected to cut interest rates in the coming months in an attempt to stimulate economic growth. This could help to boost retail sales in the second half of 2023.
Next Week (29)
Here are some of the key economic data releases to watch next week:
US earnings: Major US companies will report earnings next week, including Bank of America, Morgan Stanley, Goldman Sachs, IBM, Netflix, Tesla, and Johnson & Johnson. These reports will provide investors with an update on the state of the US economy and corporate profits.
US retail sales: Retail sales data for June will be released on Tuesday, July 18. This report will be closely watched for signs of consumer spending, which is a major driver of economic growth.
US industrial production: Industrial production data for June will be released on Tuesday, July 18. This report will show how manufacturing and other industrial activity has been performing in recent months.
US housing data: Housing data for June will be released on Wednesday, July 19. This report will include data on existing home sales, housing starts, and building permits. Housing data is a leading indicator of economic activity, so it will be closely watched for signs of a slowdown in the housing market.
China economic data: China will release data on Q2 GDP growth, retail sales, industrial production, and fixed asset investments on Monday, July 17. This data will provide an update on the state of the Chinese economy, which is the world’s second largest economy.
Inflation data: Inflation data for the United Kingdom, Canada, Japan, New Zealand, and South Africa will be released next week. This data will show how inflation has been trending in these countries. Inflation is a major concern for central banks, so this data will be closely watched for signs of rising inflation.
Monetary policy decisions: The central banks of Turkey and South Africa will make decisions regarding monetary policy next week. These decisions will be closely watched for signs of how these central banks are responding to rising inflation.
Unemployment rate: Australia will release the unemployment rate for June on Thursday, July 20. This report will show how the labor market has been performing in recent months.
These are just some of the key economic data releases to watch next week. Investors will be closely watching these reports for signs of how the global economy is performing and how central banks are responding to rising inflation.
Bulls and Bears are currently engaged in a tug-of-war, with each side trying to gain the upper hand. Bulls are hoping that technical indicators will continue to point to higher prices, while bears are concerned about the macroeconomic outlook and the possibility of further rate hikes from the Fed.
It is difficult to say who will ultimately prevail in this contest. The market could go either way, and it is likely to remain volatile in the near term.