Weekend Analysis

This week, economic reports have largely pointed to a slowing U.S. economy, although comments from a host of Fed officials have indicated the central bank is still likely to hike by 25bps at its May meeting.

We have a lot of corporate earnings ahead of the Fed rate decision in a couple of weeks and the corporate profits are emerging as the big driver of what the market is likely to do in the near term with the investors wanting to see what those look like before placing bets. As a result the Markets is in a bit of a wait-and-see mode. 

Whilst the earnings are expected to decline 4.7% from the year-ago period, an improvement from the 5.1% decline recorded on April 1. Of the 88 S&P 500 companies that have reported quarterly earnings through Friday, 76.1% have topped expectations, well above the 66% average since 1994 and slightly better than the 74% over the past four quarters. However, if the earnings continue to impress then too much of a good thing will ultimately prove to be inflationary and that will likely mean more Fed tightening.  

And as if things weren't bad enough already for the markets, the U.S. debt-ceiling brinkmanship threatens market calm after bout of 'intense volatility' on bank fears.  McCarthy and his fellow Republicans have demanded spending cuts in exchange for raising the ceiling for federal borrowing, while Biden and his fellow Democrats have said the lift should be made without conditions. It amazes me that the the worlds largest economy and leader of the free world can have such a binary political system 🤷‍♂️

China's post-Covid recovery is firmly on track, according to a barrage of data on Tuesday. The economy expanded 4.5% in the first quarter year-on-year, accelerating from the previous 2.9% reading and handily outstripping forecasts for 4% growth. Retail sales surged more than 10%, giving hope that hitherto flaccid domestic demand could also turn around. But market reaction was fairly muted and the yuan was little changed. That's perhaps a sign traders are worrying this could be a one-off and are bracing for more subdued data for the rest of the year. And the ongoing tensions between Washington and Beijing will continue to give investors cause for concern.

We also had the Fed mouth pieces in the form of St Louis's Bullard and Atlanta's Bostic who both went on to contradict each other with Bullard being more hawkish and suggesting the Fed should keep raising interest rates after recent data showed inflation remains persistent whereas Bostic said he favors going on hold after delivering one more rate hike and then holding rates above 5% for quite some time. Bostic's sentiment was shared by Cleveland's Mester who stated her anticipation for the rate to remain above the 5% mark and for the monetary policy to move somewhat further into restrictive territory this year. So that's the Fed's position made crystal clear then 🤦‍♂️

US economic concerns continues to weigh on the market after weaker than expected economic reports signaling the slowdown is broadening. 

The initial unemployment claims rose 5k to 245k, showing a weaker labour market against expectations of 240k. Likewise, weekly continuing claims rose 61k to a 16-month high of 1.865 million, showing a weaker labour market than expectations of 1.825 million.

The U.S. Apr Philadelphia Fed business outlook survey unexpectedly fell -8.1 to a nearly 3-year low of -31.3, weaker than expectations of an increase to -19.3.

U.S. Mar existing home sales fell -2.4% m/m to 4.44 million, weaker than expectations of 4.50 million.

U.S. Mar leading indicators fell -1.2% m/m, weaker than expectations of -0.7% m/m and the biggest decline in nearly 3 years.

For the Markets all 3 major indexes posted a Red week, although the declines are relatively small with all three posting a narrow range for the week. If we consider the markets attempt at recovery (however slow) which started in early March then all three indexes are up: S&P above 4%, DoW above 3.5% and Nasdaq above 5.5%; although Nasdaq appears to be the one struggling the most this month. 

The volatility index has continued its recent decline to post a 5 week Bear run. Stocks above their DVI and the GS Growth fund remain relatively unchanged. 

In the UK the econ data was somewhat more positive despite the IMF report last week suggesting UK would be the worst performing within G7. The UK retail price index was up 13.5% in March, compared with a 13.8% jump in February, and above the consensus estimate of 13.3%. On a monthly basis, the index grew 0.7% after a 1.2% increase, also above the market forecast of 0.6%. The UK's FTSE defied its US counterpart's to post a 5 week Bull run and close above the RN7900- though the weeks move up was relatively small for this year.  

Cable continues its struggles to BO of the  RN1.25 despite its recent resurgences which has seen the pair post a 5 week Bull run. The pair has benefited from the UK data showing bigger-than-expected pay rises that strengthened expectations for the Bank of England to lift rates next month and to continue doing so thereafter.  Also the sheer size of the Bank of England's task of reining in inflation has been supportive for sterling, which hit a 10-month high last week. 

Having BO of their respective major RN's, both Bitcoin and Ethereum have PB below these to retest their WVI/d50MA Support.  

In the Sector ETF's we had a mixed week with the Bulls just edging out with 6 of the 11 sectors posting a Green week led by Staples (XLP) and Real Estate (XLRE). The weeks worst performer tag was a battle between Communications (XLC) and Energy (XLE) with the former just winning out to take the wooden spoon. Both halted a respective 5 and 4 week Bull run in the process. 

Utilities (XLU) and Staples (XLP) have continued their recent moves and entered the Improving quadrant with a trajectory towards the Leading. Healthcare (XLV) declined a smidge to halt a 5 week Bull run but this ETF will soon join the other two in the Improving quadrant if it maintain its recent performances. 

The market is likely to remain in a holding pattern ahead of big tech earnings next week Earnings from megacap names such as Microsoft Corp (MSFT) and Google parent Alphabet (GOOG) are scheduled for next week. 

Have a great weekend everyone!

Anil

Let's go trade!