Weekend Analysis

The week started with the Market having had the weekend before it could react to Fridays NFP data. Add to this we had a number of reports on the Global economy for Investors to digest. According to the IMF, the U.S. and global economies are likely to struggle to grow over the next few years as countries fight to reduce high inflation and cope with rising interest rates. It also believes central banks have made less progress towards disinflation than they had hoped. Inflation is likely to remain sticky and will still sit above central bank targets at year-end. It also stated that whilst the global inflation is moderating, so far this deceleration has been largely driven by last year's energy price spike unwind. Core inflation remains uncomfortably high and, in some economies, continues to rise. 

IMF went on to state that the recent stress in the banking sector could reduce the ability of U.S. banks to lend over the next year, and materially lower U.S. economic growth. It estimated that lending capacity in the U.S. could fall by almost 1% in the coming year. That would reduce U.S. real gross domestic product by 44 basis points over that time frame, all else being equal. (that by the way is what I'd call a big caveat 😄) 

The March employment report released on Good Friday showed a steady pace of job creation but with no great sign of accelerating wage inflation, which helped calm fears of a sharp economic slowdown and faster Fed interest rate hikes. This was further helped by the FOMC minutes which showed several Fed policymakers had considered pausing interest rate increases after the failure of two regional banks. The minutes also suggested the FED staff are forecasting that the banking sector stress could tip the economy into recession. The Markets had already been losing steam early in the week in anticipation of the CPI data and the FOMC minutes which also projected a mild recession starting later in 2023 helped to accelerate the stock losses. 

To make matters worse, Warren Buffett decided to wade in and kick a sector already down by stating that more U.S. banks are likely to fail and that troubled bank stocks aren’t value investments because shareholders are likely to be wiped out even if the government moves to protect depositors.

A barrage of mixed economic data further dampened the investors enthusiasm with the March CPI rising +0.1% m/m and +5.0% y/y, a slightly smaller increase than expectations of +0.2% m/m and +5.1% y/y. However, Mar CPI ex-food and energy rose to +5.6% y/y from +5.5% y/y in Feb, right on expectations. 

The weekly report from the Mortgage Bankers Association showed mortgage applications for home purchases climbed +7.8% w/w to a 2-month high. Also, the U.S. 30-year fixed mortgage contract rate dropped -10 bp to a 2-month low of 6.3% in the week ended 07APR, the fifth straight week the mortgage rate has declined. And finally the U.S. retail sales fell more than expected in March to suggest the economy was losing steam at the end of the first quarter.

Investors have been eagerly anticipating results from banks following the collapse of two regional banks in March. The season kicked off Friday with mostly upbeat results from JPMorgan (JPM) and other major U.S. banks, while regional bank PNC Financial (PNC) posted a quarterly profit beat but missed expectations on net interest income. 

All three major indexes ended the week in Green with both the S&P and Nasdaq posting a fourth green week in the last five where as the DoW is now on a four week bull run. The weekly range bars for all three were relatively small. Both the S&P and Nasdaq seem to have posted a C&H pattern on the daily and are at the Res of this pattern needing to BO of 4200 & 12300 respectively to continue their move up. On the weekly both these indexes are in a recent squeeze of LH and HL above their wMA's. 

S&P is now only 1% away from its 2023 closing high having closed on Friday at the fifth highest value this year. The index is up nearly 8% since the start of this year, though it is still nearly 14% down from its record close of 4796.57 on 03JAN2022.

The Volatility index weekly average dropped a little further to post a four week bear run. The index has just posted its lowest weekly close since 08NOV21. Short selling has maintained its alternate weeks of Green/Red by posting a Red week and stocks above their DVI posted a small increase but remains below the median. 

In the UK the like-for-like retail sales advanced 4.9% from a year earlier in March, the same as in February and above the 12-month average of 2.1%. Meanwhile, the IMF forecasted UK GDP would shrink by 0.3% in 2023, worse than other G7 countries. The FTSE took no notice of the IMF predictions and posted another Green week to establish a four week Bull run and post the largest four week point and percentage gain since 01APR22.  The index is up nearly 6% this year and is now just under 2% from its ATH close on 20FEB2023. 

The Cable is becoming too predictable in its inability to BO of major Res, failing at the RN1.25 for fourth time since DEC22 and has returned back to the d20MA supp. During this time the Cable's 21 period ATR has dropped from c165 pips down to nearly a 100. This pair is now on a five week bull run though last week it had outdone itself by posting a mighty 1pip gain for the week. This however, hides the fact that it ranged over 200 pips during the week to present a number of intraday trading opportunities. Long term the pair appears to be stuck in-between the support at RN1.18 and Res above at RN1.25. The USD basket continues its march down toward the RN100 and is now on a five week Bear run.

Having posted indecisive candles for the last 3 weeks, Bitcoin finally managed to move up to BO and close above the RN30k to post its highest daily close since 07JUN2022 and its highest weekly close since 09MAY2022. However its was outperformed this week by Ethereum which also BO and closed above its RN Res at 2k to post its highest daily close since 15MAY2022 and its highest weekly close since 09MAY2022. Both these Cryptos have now posted 4 Green weeks in 5 moving up c36% in this period. 

In the Sector ETF we had a bullish bias with 7 sectors posting a green week led by Finance (XLF) and Energy (XLE) with the former on a four week and the latter a 5 week bull run with both posting a growth in excess of 12% in their respective run. 

Utilities (XLU), Material (XLB) and Healthcare (XLV) all currently have the momentum as they move towards the Improving quadrant. 

For next week the first-quarter earnings season will hit full stride, with results expected from several high profile companies including Goldman Sachs (GS) , Morgan Stanley (MS),  Bank of America Corp (BAC), Netflix (NFLX) and and a long list of regional banks and industrials.

Analysts have lowered expectations, forecasting aggregate S&P 500 earnings having fallen by 4.8% from a year ago, a reversal of the 1.4% year-on-year gain seen at the beginning of the quarter. The markets are currently pricing a 74% chance of a 25bps rate hike at the May 2-3 FOMC meeting.

On the Econ data front we have Inflationary data being published for Canada and UK. We also have a Manufacturing and Service PMI being published for major European countries and the US. 

Have a great week everyone!

Anil