Anil’s Analysis w/e Sept 01 2023

The week which also saw the close of the month of August trading was crammed with key economic data on the labour market and inflation which will probably be instrumental in shaping the decision of the Fed's monetary policy committee at its meeting later this month.

Majority of the data published suggests that the highly resilient labour market is finally cracking and that the effects of the Fed's aggressive tightening campaign is showing up. This will give the market a much needed boost with investors hoping that the reports have been enough to convince the central bank to stop hiking. The only blip was jobless claims numbers, which fell for a third straight week to 228k and below the forecasted 236k.

We started with the JOLTS reports (Jobs Opening and Labour turnover Survey) which showed the job openings falling below the 9M for the first time since March 2021. This was followed by the ADP’s(Automatic Data Processing) report which showed private sector employment increased at a lower-than-expected rate. The latest Challenger report that followed showed job cuts increased more than three times in August. Finally, Friday's NFP report showed an uptick in the unemployment rate.

The NFP report showed the US economy adding 187k jobs in August, topping expectations for a gain of 170k and the unemployment rate jumping to 3.8% from 3.5% in July.

Data outside of the labour market was also weak: The gauge of consumer confidence fell in August to 106 against a forecast of increase to 116, after back-to-back increases in June and July; the second estimate of U.S. Q2 GDP growth was revised downward by a greater-than-anticipated margin; and finally, the core personal consumption expenditures price index - the Fed's preferred inflation gauge - held steady in July on a M/M basis.

In the housing market the low supply is having an impact as homeowners are hanging onto their low mortgage rates; nearly all homeowners have a rate below 6%, and rates are now hovering around 7%. The median home-sale price in the US rose by 4.8% on a year-over-year basis for the four weeks ended 27AUG amid a severe lack of homes for sale. Home prices notched the biggest uptick in 10 months during the four-week period to $380k.

The total number of homes for sales was down 19%, the biggest annual drop since FEB22. New listings declined 10% year over year and pending sales declined 14% year over year during the four weeks to 27AUG, continuing a more than 15-month streak of double-digit declines.

Personal consumption remained stable to suggest it is on track to drive third quarter GDP growth of perhaps 3-3.5%. However, this is not sustainable. American consumers are running down savings and using their credit cards to finance a large proportion of this. With financial stresses becoming more apparent and student loan repayments restarting, a correction is coming.

On the global front a pleasant surprise emerged early in the week from China where a private-sector survey showed factory activity in the world's second-largest economy ticked back into expansive territory. Chinese markets were further buoyed when the Finance Ministry and the country's stock-market regulator rolled out measures to spark buying interest in stocks, such as halving a tax on stock trades and limiting sales by big shareholders in companies that haven't handed out enough dividends.

China's ongoing economic troubles also prompted three of the country's largest banks to cut interest rates on Friday across a range of deposits in an effort to ease some of the pressure on their margins.

All 3 major indexes posted a green week with both the S&P and Nasdaq doing so for the second week and BO of its respective RN Res. Another strong week for these two and they will have validated the wBuF.

The VIX continued its decline from last Friday posting a daily LLLH to drop its weekly average back below the RN15. Short selling having reached a near 100% last week dropped back with bang to under 70%. Stocks above their DVI finally posted a Green week to BO of the RN50 and halt a 5 week Bear run. The GS Growth fund BO to validate its wBuF and closed at levels not seen since end of Q1’22.

In the UK, we had a short trading week and lets face it, the rest of the week was pretty uneventful. The blue-chip index, FTSE100 posted another green week but remains below a combination of Res of RN7500/DVI/w50MA.

CABLE continue its struggle against the MA Res with having again failed to BO of the WVI/m50MA. In fact apart from a brief affair with the WVI/RN1.3 in early July, the pair has not been over this zone since end of Q1’22. On the daily it is nicely perched on multiple CAT support though I suggest this will be temporary and the pair will soon reach its DVI just below RN1.25. This pair better get its act together and reverse this decline as I am about to spend a large chunk of this month in the US.

In the Crypto space both the Bitcoin and Ethereum posted another Red week and in fact apart from the the false pretense of growth early this month, both have been in steady decline this quarter.

Overall August was a very poor month across all key metrics with both the S&P and Nasdaq posting their only 2nd month of declines this year, with the 1st being February.

For the sector ETF’s we had a strong bullish look with 9 of the sectors posting a green week led by Technology (XLK) and Material (XLB). These two along with Communications (XLC), Energy (XLE) & Discretionary also outperformed the S&P.

Utilities (XLU) and Staples (XLP) were the outliers with both posting a Red week.

Technology (XLK) ended the month with a BuPRI and though it lost small ground on the previous month, it has reached a mDT Res zone.

For the month of Aug, we had a near clean sweep of Red only to be spoilt by Energy (XLE) which is now on a 3 moth Bull run. The months worst performer was by far Utilities (XLU) with nearly twice the decline of its nearest rival to close the month at level not seen since FEB21. On the positive, Communications (XLC), Technology (XLK), HealthCare( (XLV) and Discretionary (XLY) all outperformed the S&P.

As our US colleagues have coasted into the holiday weekend we will have a short trading week light on key economic data.

Key focus next week will be on Services PMI and unemployment data from the US, the CPI/PPI from China; Rate decision from Australia and Canada.

A combination of work and pleasure means I am travelling for all of September. I will try to post even a diluted econ update but no guarantees, apologies in advance if I go missing for the month.

Have a great weekend.

Anil Dala.