Thursday's Markets Update (23 May, 2024)

23 May 2024 by rate3

On Thursday, stocks dropped as strong economic data fueled worries about continued high interest rates. Despite the broader sell-off, Nvidia continued to soar on impressive earnings and a stock split announcement. Boeing, however, plunged on production woes. In world markets, gold is sharply down on new dollar strength propelled by the unexpectedly hawkish tone of the FOMC minutes. Crypto prices plunged, with BTC leading the decline by nearly 3% and touching 67K. The broader market mostly followed BTC, with the exception of ETH, which held above 3.7K.

Details

The Chicago Fed Index dipped to a 3-month low in April, with production, employment, and consumption all declining. Despite this, the sales and inventories category showed slight improvement. (ChFed)
Jobless claims dropped below expectations to 215K for the week ending May 18th. This suggests some improvement in the labor market. However, a rise in continuing claims and the 4-week average indicates a slowdown in the job market recovery. Trend: Bearish (DOL)
Business activity reached a 25-month high. The service sector led the charge, while manufacturing also expanded. Businesses are feeling more optimistic despite job cuts, and prices are rising but haven't hit concerning levels yet. Trend: Bullish(PMI)

Crypto

Investment in BTC ETFs hits a new high. Holdings in U.S. funds surpassed 850B for the first time, exceeding the previous record earlier this year. Grayscale and BlackRock lead the pack, holding 289,300 tokens worth more than $20 billion and 283,200 and $19.6B, accordingly. (source)

World Markets

Eurozone May's PMI at a 1-year high (52.3) shows faster growth and rising business confidence. Inflation eased but remains elevated. Services lead the charge, while manufacturing stabilizes after months of decline. Trend: Bearish (PMI)
Germany's manufacturing sector still contracting, but the decline in factory activity slowed significantly in May. New export orders are stabilizing, and business sentiment is at a 26-month high. However, job cuts and falling prices remain concerns. Trend: Bearish (PMI)
UK business activity grew slower than expected in May (52.8 vs 54 forecast). Manufacturing remained steady, but service sector growth eased. Despite this, new orders and exports kept rising, suggesting a continued expansion. Businesses reported slower price increases, likely due to lower input costs and a slowdown in wage growth. Trend: Bearish (PMI)
France's business activity unexpectedly contracted in May (PMI 49.1 vs expected 51). Service industries led the decline, while manufacturing remained weak. Despite the downturn, new orders rose for the first time in a year, suggesting some internal strength. Employment also continued to grow. Trend: Bearish (PMI)
Japan's manufacturing rebounds after a year. Their PMI rose above 50 (50.5) in May, indicating slight growth for the first time this year. Prices rose, but output and orders are shrinking less, suggesting a potential turnaround. Trend: Bearish (PMI)
India's business activity is up. A key index hit a near 14-year high in May, fueled by surging services and strong exports. Even though manufacturing slowed, it's still growing faster than services. Companies are hiring at record rates to keep up, and future expectations are the strongest in over a decade. Trend: Bullish
Taiwan's retail sales growth slowed in April 2024, dropping to 1.6% year-on-year. This is the weakest performance since December 2023, with spending down in clothing, leisure goods, and some other categories. Sales growth also decelerated for most sectors, while electronics and vehicles saw a slight uptick. Monthly sales also dipped after a strong March. Trend: Bearish (Moea)
Argentina's economy took a nosedive in March, contracting 8.37% compared to last year. This is much worse than expected and the steepest decline since 2020. Most sectors fell, especially construction and manufacturing. There were some bright spots in agriculture and mining, but overall, it's a worrying sign for the country's economy. Trend: Bearish (Indec)
Mexico's economic growth slowed to 1.6% in Q1, the weakest in 3 years. Historically, Mexico's GDP growth has swung wildly, from a high of 21.9% in 2021 to a record low of -20.7% in 2020. Trend: Side (Inegi)

Currencies

The Japanese yen is weakening to 157 due to a strong dollar and the Fed's hawkish stance on inflation. Despite some Japanese firms wanting a rate hike, the Bank of Japan seems unlikely to follow suit, keeping the yen attractive for carry trade investors. Meanwhile, Japan's private sector showed surprising strength in May with expanding manufacturing.

Commodities

Brent oil prices are sinking for four days straight (below $82/barrel). The Fed might tighten policy, hurting demand. Oil stockpiles unexpectedly grew, adding to the pressure. Russia plans to fix its production overshoot, while OPEC+ might extend output cuts at their June 1st meeting to prop up prices.

Comment: World's PMI Update

This week's world's PMIs confirmed what we have already known.

North America is showing large corporate services sector expansion with manufacturing and SMEs doing otherwise under heavy pressure from high Fed rates. With that, the overall PMI still results in slight growth, which, however, serves as a basis for upbeat over-exaggerated political rhetoric and the Fed continuing its restrictive policies for an indefinite time.

At the same time, the EU economic dynamic is opposite. Although PMI data from the major economies of Germany, Britain, and France continues to fluctuate up and down on both services and manufacturing sides, the general trend is down. However, ECB politicians keep changing their stance with more regard to the Fed than to their own local economic conditions.

On the other hand, Asian economies, which largely depend on their exports to America and the EU, are mixed. Indian PMI is growing steadily as more enterprises re-shore from neighboring China, while Chinese economic prospects go up and down depending on news from the CPC, which periodically pledges government support for the country's bi and still struggling construction and private equity sectors.

The two biggest South American economies, those of Brazil and Argentina, are going in separate directions, with the former growing from 2021 lows on increasing demand and prices for its staple exports - food and energy - while the latter contracts, battling record-high inflation.

The situation in Africa's leading economies of Nigeria, South Africa, and Egypt, stringent in their food supplies and heavily dependent on world resource pricing, is not looking good on the inflation side and widely fluctuating on the resource side, leading to generally not optimistic outlooks for this continent.

Overall, the world's production and services picture remains mixed with the EU visibly underperforming, which puts pressure on Asia, South America and Africa, while North America is incapable of dragging the rest of the world without substantial growth in the Chinese economy.