Weekend Analysis

This was a key week for the Markets to shedding light on what's going on with the US economy.  Investors were already cautious ahead of the Fed Char Powell's testimony and the closely watched Job reports.

Even before the week had started we had Mary Daly, the San Francisco Federal Reserve Bank President on Saturday saying that if inflation and labour market data continue to come in hotter than expected, interest rates would need to go higher and stay there longer than Fed policymakers had projected in December.

And then came the Powell show, whose testimony in front of the Senate ended up bulldozing the markets with a surprisingly hawkish tone of higher and potentially faster interest rate hikes. Its not really like Mr P to wreck everyone's day, is it? 😂 and just in case the message had not landed, Mr P reaffirmed his message during his second day of testimony to Congress and also signposted to the upcoming data on which the next rate hike decision will hinge.

Data released on Wednesday did little to ease concerns about higher rates as it showed that US private payrolls increased more than expected in February. 

The jobless data that followed showed the number of US workers submitting a first-time application for unemployment cheques jumped to 211k last week, far beyond forecasts of 195k. Were jobless claims data a blip or the first cracks in an otherwise resilient labour market?

The week ended with the NFP Data that showed the US economy adding 311k jobs in February, landing 106k to the north of consensus. It marked the tenth straight month of above-expectations job growth, which has been above the 200,000 mark every month since January 2021. The pace of job growth is still too rapid for the Fed's liking and leaves the Fed on track to raise rates at each of the next three meetings. The closely-watched hourly wage growth element of the report provided a dose of good news by cooling on a monthly basis, falling to 0.2% from January's 0.3%. On an annual basis, wage inflation heated up nominally to 4.6%, but that number was a shade cooler than the anticipated 4.7%. 

As the Fed examines the data, where the underlying inflation indicators were more muted, they will be encouraged with wages rising at a slower pace and the participation rate ticking higher. On balance, the employment report doesn't feel strong enough to put a 50 basis point hike back on the table. 

For the week, all three major US Indexes took a beating with the the DJI losing 4.4% for its worst week since JUN22, the S&P falling 4.5% for its biggest weekly decline since SEP22, and the Nasdaq losing 4.7% for its worst week since early NOV22. All three have BD of its MA/RN support zones with an above average range wBrRPI. 

The weekly average VIX nudged up a little to near 21, however this masks the spike seen during the last 2 trading days which resulted in the actual VIX closing above all of its W/DMA's, an area that has been a strong Res zone this year. Much of the volume on Friday could be linked to traders booking profits and adjusting positions to account for the recent market moves. Short selling spiked to close in the top quartile where as the stocks above their DVI moved in the opposite direction to close below its median and the lowest point for 2023. 

In the UK, investors had been keeping a close eye on the goings on in the US both for its economic data and the Mr P's testimony, neither did anything to instil any confidence. Additionally, Investors were also digesting the implications of China’s growth goal of around 5%, which put pressure on commodity prices amid concerns about weak demand and prompted bearish bets on the export-oriented FTSE 100. By the end the UK Index declined more than 2.5% this week, the sharpest weekly drop since SEP22. It has come to rest at the dCAT Supp for now. 

Cable and the US Basket did little during the week, both barely making a dent in the previous weeks close. Though Cable did briefly pop its head below the MA's support, it has swiftly returned back to its recent comfort to be stuck between the d50/VI zone. Hopefully, those Intraday traders amongst you will have enjoyed the opportunities Cable presented on Tuesday and Friday. 

Both the Ethereum and Bitcoin are now on a 3 week Bear run, though both found support at their respective DVI posting a BuRPI yesterday. 

In the Sector ETF's we had a clean sweep of Red led by the Finance (XLF) sector, which had been dragged down by over 8%, its biggest weekly loss since JUN20 and was largely due to the Banking industry taking repeated hits during the week with investors worried that NFP report could spur aggressive interest rate hikes by the Fed, though the pace of the Bank stock bleed did slow on Friday. Overall the Bank Index within Finance (XLF) fell over 11% during the week to post its biggest weekly drop since MAR20.

The best of the worst was Consumer Staples (XLP) which only dropped just under 2% for the week, though this is now on a 3 week Bear run, the longest amongst the Sectors alongside Utilities (XLU). 

Earnings talk will soon turn to reports on Q1 2023, with 497 S&P 500 companies now having reported on the fourth quarter of 2022, and estimates continuing to decline for upcoming earnings periods. Analysts at this point are expecting S&P 500 first-quarter earnings to fall 4.6% compared with the year-ago period. The next reporting period is not expected to really heat up until mid-April, when big financial companies are due to begin reporting on the current quarter.

In the meantime or now we look forward to the latest CPI data on Tuesday of next week and PPI and retail sales reports on Wednesday.

Have a great week

Anil

Let's go trade!