Weekend Analysis

Weekend analysis table
Weekend analysis table

This has been a busy week with a number of interventions and speeches from Market movers. Even before the week had started, we saw the most dramatic state intervention since the 2008 global financial crisis, with UBS buying Credit Suisse for 3 billion francs ($3.2 billion) in a takeover backstopped by unlimited funding pledges from the world's top central banks.

The Swiss Government engineered a forced takeover of Credit Suisse by UBS amid client outflows and minimal confidence in the former, which wrote off $17 billion worth of AT1 bonds and magnified fears over the stability of other European Banks.

In response, the Federal Reserve and five other central banks announced coordinated action to improve liquidity in US dollar swap arrangements to maintain stability in the global financial system.

This led to a jump in the indexes at the start of the week as the market was coming to a recognition that the banking crisis wasn't a crisis after all, and was isolated to a handful of banks. Alas, this was short lived, as the market gave up their gains when Fed Chair Powell said we still don't have inflation progress in non-housing service prices and Fed officials "just don't" see any Fed interest rate cuts this year. The markets have recently been expecting the Fed to start cutting rates late this year.  The market was encouraged when it heard that the Fed had considered pausing completely and then it was disappointed when Powell clarified that their hands weren’t tied and that they can keep raising rates if they need to.

To make matters worse, we had further confusion from the Treasury Secretary Janet Yellen who on Wednesday said U.S. regulators aren’t looking to provide “blanket” deposit insurance to stabilize the U.S. banking system to then within 24 hours attempted to limit the damage and give assurances that measures will be taken to keep Americans' deposits safe, there was little positive effect . 🤔

We follow the market and watch it change direction in a short period of time and it’s based on some market participants’ interpretation over what someone said and how it affects their trading. The market as a whole is telling us there are a lot of different ways to interpret all the things people are saying. 

On Wednesday the Fed raised is rates by 25bps and which was in line with Market expectations. However, more of note was that the Fed kept its dot-plot of interest rate forecasts for a peak fed funds rate of 5.1% for the end of 2023, unchanged from December, signalling only one more 25 bps rate hike this year. Also, the Fed cut its U.S. 2023 GDP forecast to 0.4% from 0.5% in Dec and raised its 2023 core PCE forecast to 3.6% from 3.5% in Dec

In economic data there was a 14.5% jump in existing home sales, blasting past expectations and snapping a 12-month losing streak. The weekly unemployment claims unexpectedly fell -1,000 to 191,000, showing a stronger labour market than expectations of an increase to 197,000.

The week ended with Treasury Secretary Yellen convening an unscheduled meeting of the Financial Stability Oversight Council (FSOC), which initially sparked short covering in bank stock. However, following the statement issued by the FSOC saying “the U.S. banking system remains sound and resilient despite the fact that some institutions are under stress.” the bank stocks recovered. 

And despite on the noise, we had a Green week across all major indexes. Both the Nasdaq and the S&P built on last weeks recovery whilst the DoW reversed a 2 week Bear run. Nasdaq has found support at its w50/VI just shy of the RN12k whereas the DoW and the S&P are both hindered by the w50MA Res above with the latter also having the small issue of the RN4k Res as a barrier. 

The VIX weekly average dropped by over 10% and has closed below both its WVI and DVI. Stocks above their DVI continues its recent decline to post six Red weeks in the last Seven. 

In the UK investors digested data showing Britain posted the largest-ever budget deficit for the month of February due largely to substantial spending on energy support schemes. The UK's annual inflation rate unexpectedly climbed to 10.4% in February from 10.1% in January, defying analysts' expectations of a decline to 9.9%. The surprise inflation growth was mainly attributed to higher alcohol prices in pubs and restaurants after the prior month's discounting, further exacerbating the continued increase in the costs of food and non-alcoholic beverages. The annual rate for food and non-alcoholic beverage price growth stood at 18.2% in Feb23, the highest since Aug77.

In good news, for a country where an ordinary persons largest asset is their residential home, the average price of houses in the UK grew 6.3% year over year in January, compared with a revised 9.3% jump in the previous month. Data also showed consumer confidence in the UK improved to a one-year high in March, while retail sales unexpectedly grew in February.  The FTSE followed its US counterpart to post a Green week and halt a two week Bear run. 

Alongside the increase in the US Rate, we also had the BoE, as expected, raising its key rate by 25bps to 4.25%, the Swiss National Bank raised its interest rates by 50bps and the Bank of Norway raised its rates by 25bps. Both the BoE and the SNB said it cannot rule out additional rate increases to ensure price stability, whereas the the BoN already signalled another rate hike in May. 

The Cable posted another Green week and more importantly provided decisive intraday trading opportunities. The pair has posted an inverted hammer on the weekly so you may want to consider  tightening SL on long positions. 

In the Sector ETF's we had a good Bullish week with 9 of the 11 sectors posting a Green week led by Discretionary (XLY) and Communications (XLC).  The decliners were Real Estate (XLRE) and Utilities (XLU) with the former now in danger  of dropping out of the Improving quadrant and into the Lagging. Dictionary (XLY) maintains its momentum towards the Leading quadrant. 

For next week we have the Consumer confidence, unemployment data and PMI in the US. Though given her performance this week, the more interesting would be when the Treasury Secretary Yellen speaks on Thursday. 🤪

In the UK we have BoE Governor Bailey speaking on Monday evening after UK close but US will be open and listening. He also speaks again on Tuesday morning so expect the UK market to react in early trading on Tuesday. 

And finally, remember our clocks go forward tonight (we all lose an hours sleep) so we will be back to the normal 5 hour time difference between UK and US. 

Have a great trading week. 

Anil

Let's go trade!

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