Weekend Analysis
Whilst those of us in the UK were spending another long Bank holiday weekend, the US Markets were bracing themselves for the CPI data coupled with the ongoing debacle of the US Debt ceiling. Volumes as expected were fairly thin at the start of the week.
US debt ceiling talks has yielded little results, but White House officials and Republican leaders pledged additional negotiations. Friday’s meeting between President Biden and congressional leaders, including House Speaker McCarthy, was pushed to next week as staff continues to negotiate.
The US Treasury Secretary Janet Yellen was attending the G7 finance Ministers meeting in Japan where she highlighted the three core priorities at the three-day meeting: reining in global inflation, bolstering long-term economic resilience, and redoubling a commitment to Ukraine. However, what almost everyone wanted to hear from her was that the United States can sort out its own debt ceiling conundrum and avoid a potentially disastrous default. The Japanese setting is particularly appropriate, with the host nation being the world's biggest holder of US debt.
The US isn't the only concern, Chinese inflation data showed consumer prices almost flat-lining in April, while factory gate deflation deepened. It adds to worries about flaccid domestic demand, which had already been exacerbated by a shock decline in imports in data earlier in the week, dashing hopes that China's COVID-19 reopening could invigorate global growth.
Prior to the CPI data we had hawkish comments from the Fed Governor Jefferson who said inflation has started to come down, and the US economy has started to slow in an orderly fashion. Also, New York Fed President Williams said that his forecast states the need to keep a restrictive stance of policy in place for quite some time, and doesn't see any reason to cut interest rates this year.
The CPI data when it arrived showed it had eased to a 2-year low of 4.9% y/y from 5.0% y/y in MAR, better than expectations of unchanged at 5.0% y/y. APR CPI ex-food and energy eased to 5.5% y/y from 5.6% y/y in MAR, right on expectations.
And the final-demand PPI eased to a 2-year low of +2.3% y/y from +2.7% in MAR, weaker than expectations of +2.5% y/y. The APR PPI ex-food and energy eased to a 2-year low of +3.2% y/y from +3.4% y/y in MAR, weaker than expectations of +3.3% y/y.
In the other Econ news, the US weekly initial unemployment claims rose 22k to an 18month high of 264k showing a weaker labour market than expectations of 245k. The weakness in the labour market and falling price pressures are dovish for Fed policy.
The US APR monthly budget statement showed a surplus of $176.2 billion, lower than expectations of $235.0 billion. The Fed reported $92.4 billion in emergency bank loans outstanding to financial institutions through two backstop lending facilities in the week through May 10, up from $81.1 billion the previous week.
The end result was another bearish week for the S&P (just) and DoW to make it two on the bounce whilst the Nasdaq posted a Bullish week to mark a 3 week Bull run. Whilst the latter has BO and remained above its Res levels, the other two are struggling with their respective Res barriers. DoW made multiple visits and found support at its d50MA.
The S&P is up more than 7% so far in 2023, after last year's 19.4% slide. The top 10 stocks hold a 29% weight in the index, which in itself is not unusual given over the last 40 years the weight of the top 10 stocks in the S&P has rarely been below 20%. What we should note is that within this years top 10, seven of the leaders are "Big Tech" stocks, including the five largest, with Apple (AAPL) and Microsoft (MSFT) alone accounting for roughly 14% of the entire S&P. The top 10 are responsible for around 70% of year-to-date performance for S&P.
The VIX had remained fairly stable this week remaining below all of its dMA's but above the low of last week. The VIX weekly average has dropped to its lowest point since w/e 19NOV21. There was no material change to Short selling which remains high and stocks above their DVI saw another decline to post a 3 week Bear run.
In the UK as investors returned from a long weekend marked by the coronation of King Charles III, the FTSE100 started the week in Red and then found little to cheer throughout posting another Bearish week to make it 3 on the spin. It has now come to settle with a wDoji on multi Supp of d50MA, wCAT & RN7700.
U.K. house prices dropped in April after three months of growth with prices falling 0.3% month-on-month in April following 0.8% growth in March
The UK Royal Institution of Chartered Surveyors' house price balance climbed to -39 in April from -43 in March, marking the index's highest reading in five months. The latest figure, which tops the consensus estimate of -40, signals a potential stabilisation in the property market as sales pessimism subsides.
The Bank of England (BOE), as expected, raised its official bank rate by +25bps to 4.50% and delivered its biggest upward revision to GDP forecasts in the history of its Monetary Policy Committee, stating that the British economy is no longer expected to fall into a recession. On top of that, the bank prolonged its projections of elevated inflation, strengthening bets of more rate hikes to come. BOE Governor Bailey said, "Inflation remains too high," and the BOE "has to stay the course" to cut CPI to 2%. Whereas Goldman Sachs went further and warned rates may need to increase further to 5% by August amid ongoing inflationary pressures.
The CABLE having had a good Bull run of 8 weeks that saw it BO of its recent nemesis @RN1.25, the pair was finally beaten by the sell off that started with BoE meeting and then gathered pace on Friday to close below the psychological level and its nemesis RN1.25. On closer look the sell off had more to do with the USD than the GBP given the gains put in by sterling against the Euro. CABLE should still be considered in uptrend despite the recent decline as the pair has arrived at LT dCAT support and taking into consideration the profile of Friday where the PoC is in the top quartile of the days bar and above the RN1.25.
Both the Bitcoin and Ethereum have dropped nearly 10% on previous week, arriving at their own wMA supp and posting a BuRPI on Friday.
The Sector ETF's not surprisingly had a Bearish week with 8 sectors posting a Red week led by Energy (XLE) which has BD and closed below the RN80 but remains above previous weeks low. It is also noted that all industry's within this sector also had a poor week. Communications (XLC) was by far the weeks best performer and one could argue was the only good performer given Utilities (XLU) closed at the exact price of previous week and Discretionary (XLY) only posted a small growth.
Communication (XLC) growth was largely down to the Internet industry within with a small support from Media Agencies, given all other industry's within this sector posted a Red week. The sector remains in the Leading quadrant and is turning the corner to start the hook up following recent weeks demise.
Technology (XLK) another of the sectors within the Leading quadrant remains in decline, though it had an indifferent week with the Renewable Energy industry's outstanding performance within negated by the poor performances of most of the others.
For next week we have CPI data from Canada, the Manufacturing Index from New York and Philly together with the unemployment claims and retails sales from the US, Employment change in Australia and UK.
We also have a number of speakers with BoE Governor Bailey speaking at the British Chamber of Commerce, ECB President Lagarde speaking at an awards ceremony in Cologne and then at the central Bank of Brazil, the BoC Governor Macklem holding a press conference on the Financial System Review and Fed Chair Powell (not wanting to miss out) participating in a panel discussion in Washington
Have a great week everyone and enjoy what's left of the weekend.
Let's go trade!
