Anil’s Analysis for w/e Jun 02 2023
Better late then never - sorry for delay and short summary as had been travelling this weekend.
A short week this may have been, but an uneventful one it wasn't. And no, I don't mean the frail 80 year old leader of the free world unable to walk more than 2 steps without falling over. And yet he wants a second term🤔
The Markets had spent the entire week waiting for when the debt deal would be concluded. The deal was always based on which party was prepared to concede the most. What was surprising was that Opposition controlled House voted with such large majority in favour of the bill (314-117) and even more surprising was that the Senate took very little time in approving the Bill. It required 60 votes within the Senate and was passed with support from 44 Democrats and 17 Republicans, plus two independents. Though I suspect the Republican party's leader in the chamber, John Barrasso is feeling a little bruised given he opposed the Bill when so many in his party supported it. I guess reading the room is not his strong leadership skillset 🤣
The agreement suspends the debt ceiling, the spending limit set by Congress that determines how much money the government can borrow, until 1 January 2025, allowing the Treasury to sell debt to pay its obligations. The legislation will result in $1.5tn in savings over a decade. The last time the US came this close to overshooting its debt ceiling, in 2011, the credit agency Standard & Poor's downgraded the country's rating, a move that has yet to be reversed. And so, the US averts what would have been a first-ever and catastrophic default.
Whilst the legislation obviously removes one potential obstacle, the markets though immediately moved on to focus on what the Fed will do in two weeks as US economic data bolstered the case for the Fed to stand pat.
US job openings unexpectedly rose in April, reflecting persistent labour market strength that suggests pressure on wages and inflation. This unexpectedly strong labour market data will further rattle the investors who fear the Fed might hike interest rates again in June.
The week ended with the May NFP report which showed an astonishing rise in nonfarm payrolls well-surpassing expectations. Nonfarm payrolls surged by 339k in May, against the consensus for 190k. To make matters worse, April's gain was revised upward by 41k to 294k, while March payrolls were revised up by 52k to a 217k rise. I guess someone had used the wrong calculator - should we now expect the May numbers to be revised upwards in the June NFP report?
Private payrolls rose by 283k last month following a 253k increase in April, topping the 165k gain analysts were expecting.
NFP's continued strength in hiring will further complicate the outlook for the monetary policy later this month where the Fed has increased rates by 500 basis points since the beginning of last year to control inflation.
All three major indexes closed strongly this week posting a wBuRPI in the process. The Nasdaq is now on a strong 6 week Bull run and the S&P has posted a 3 week Bull run.
The S&P has achieved it highest weekly close since APR22 when it started it downward spiral and is very near to exiting the Bear market, a close above 4303 would mark a 20% rally off the bear-market closing low of 3,585 set w/e 30SEP22. That would meet a widely used definition of the end of a Bear market.
In the UK the FTSE continues to buck the trend and has posted another Red week, thats 5 from 6 weeks. An entry/exit to/from the highly capitalized FTSE100 is very binary, where company that falls to 111th and below is automatically ejected from the top-flight index, while any firm that rises to 90th or above is automatically promoted. This weeks casualty was British Land (BLND), which has seen its share price fall 13% for this year to date which was ousted from the exclusive club by IMI Plc (IMI), whose shares are up 24% over this year so far.
After hitting a low last week, the Cable recovered to gain over 100pis on the week and halt a 3 week Bear run. The value for this pair had started to migrate upwards.
In the Sector ETF, we had a clean sweep of Green led by Distortionary (XLY) which is on a 4 week Bull run and has now posted 10 Green weeks out of the last 12. Communications (XLC) another sector within the Leading quadrant is now on a 4 week Bull run and has also matched Distortionary to post 10 Green weeks from 12.
Hope you all had a pleasant weekend
Anil Dala
Let's go trade!