Weekend Analysis
The week was besieged with mixed economic data, weak corporate results and ongoing debt ceiling negotiations in Washington.
After weeks of back and forth, Biden reducing the itinerary of his Asia trip and abandoning his posh dinner with G7 leaders half way through to help with negotiations - in the end there was nothing. The Republicans who had earlier thrown their toys out of the pram and left the meeting accusing Biden's Democrats of being 'unreasonable' did however return in the evening with a number of them suggesting a deal is not expected this weekend - so that's all clear then. The Republicans like Democrat's in the past when it was out of the White House are using the debt ceiling to have conditions placed on Biden which effectively leaves him as a sitting duck for the next election.
A group of senators led by Bernie Sanders are urging Biden to invoke the 14th Amendment of the Constitution to overrule the Republicans - a suicidal move perhaps but an option nevertheless.
Until Friday things were looking very positive with expectations of a deal this weekend which in turn meant the Market had taken a very positive stride upwards until they saw the toys on the white house lawn in the afternoon, after which the market gave up the gains from the morning.
Recent Econ data has indicated some slowing in the U.S. economy following a string of Fed rate hikes to fight high inflation. But while the market is pricing in a rate cut by the end of the year, comments from Fed officials throughout the week suggested they are not yet ready to cut or even pause hiking rates soon.
Fed comments during the week were hawkish for Fed policy and bearish for stocks. Dallas Federal Reserve Bank President Lorie Logan and Fed Governor Philip Jefferson said the economy does not appear to be softening fast enough for the central bank to pause its rate hike cycle. Chicago Fed President Goolsbee said service inflation is more persistent than thought and it's "far too premature" to be talking about interest rate cuts. Also, Richmond Fed President Barkin said he was still looking to be convinced that inflation has been defeated and that he would support raising interest rates further if needed.
And finally Fed Chair Powell came out to state that while the financial stability tools helped to calm conditions in the banking sector, developments there on the other hand are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring, and inflation. As a result, interest rates may not need to rise as much as they would have otherwise to achieve the Fed goals. Powell also signaled he is inclined to pause rate increases at the June FOMC meeting by saying that policymakers can afford to look at the data and the evolving outlook to make careful assessments.
In Econ data a core measure of retail sales suggested the American consumer continues to bolster the economy as APR retail sales rose +0.4% m/m, weaker than expectations of +0.8% m/m. However, APR retail sales ex-autos rose +0.4% m/m, right on expectations. The APR manufacturing production rose +1.0% m/m, stronger than expectations of +0.1% m/m. And the MAY housing market index unexpectedly rose +5 to a 10-month high of 50, stronger than expectations of no change at 45.
Elsewhere, Asia stocks mostly held firm despite weaker-than-expected Chinese economic data, with investors expecting the world's second-biggest economy to provide policy support. China's industrial output grew 5.6% in April from a year earlier, accelerating from the 3.9% pace seen in March and marking the quickest growth since September 2022, well below expectations for a 10.9% increase.
Despite the retreat seen on Friday, all major indexes posted a Green week with the S&P and the DoW halting a 2 week Bear Run whereas the Nasdaq is now on a four week Bull run.
Nasdaq has now held its longest weekly run of close above the RN12K since first BD this RN over a year ago and is now very close to dropping out of the Bear territory and into the correction zone. It has also posted its highest week close since AUG22.
S&P has remained wedded to the wCAT Res above though it did close above this on Thursday. DoW on the other hand seems to be more comfortable with its w50MA supp below.
The volatility index has settled somewhat in recent weeks struggling to BO of the RN18 above. The weekly average has dropped below RN17 - the stock above their DVI have had a jolt up to close above the RN40 - the GS growth funds is slowly creeping up to the RN80/WVI Res above with the w50MA turned Green in support.
In the UK, we actually had a full working week after the recent series of Bank holidays. Though I did take Friday off as couldn't face working for five days😄.
The UK's unemployment rate climbed to 3.9% in the first quarter from 3.8% in the previous quarter and its employment rate increased 0.2 percentage points to 75.9% in the first quarter.
Britain's output per hour worked fell 1.4% quarter on quarter in the first three months of 2023, compared with a 0.4% rise in the prior quarter. On a yearly basis, output per hour worked declined 0.6% after flatlining in the previous three months. Meanwhile, UK output per worker slumped 0.4% on a quarterly basis and 0.9% on a yearly basis in the first three months, compared with decreases of 0.1% and 0.2%, respectively, in the previous quarter.
The FTSE100 has been riding its d50MA for several days and worryingly this MA is red with a downward trajectory. The Index did however post a Green week (just!) to halt a 3 week Bear run.
CABLE seems to have run out of steam at the RN1.25 having briefly spent 2 weeks above this zone. The pair had a five day run of its value migration overlapping to the lower side and has settled to rest at its d50MA/h50MA support. A dBuRPI early next week would be a good sign for this pair to return to its upward momentum, however with an inverted wDoji, I suspect the pair still has some stops to take out first before it moves up.
For Sector ETF's we had a Bullish feel to the week with 7 of the Sectors posting a Green week led by Technology (XLK) which moved up over 4% following a sustained downward spiral in the Leading quadrant and now has all of its dMA/wMA's aligned upwards.
Finance (XLF) and Industrial (XLI) both had a reverse in fortune to halt a 3 week Bear run with the latter now faced with its RN100 Res. Materials (XLB) posted a wBuRPI at its w50MA supp to halt a four week Bear run and has BO of the DVI Res in the process.
And like Technology (XLK), Discretionary (XLY) has also turned a corner within the Leading quadrant after weeks of downward momentum.
Healthcare (XLV) a sector in our corsshairs seems to be losing momentum after a surge up into the Improving quadrant. The sector has PB to retest its w50MA/DVI and has posted a wDoji at this support.
Communications (XLC) has quietly reversed its fortunes within the Leading quadrant and BO of its RN60 but now faces the WVI Res above. A BO of this Res and only the RN's remain as its challenger.
Next week aside from the ongoing saga of the US debt ceiling, we have a number of regions posting their Service and/or Manufacturing PMI data; France, UK, Germany and the US.
Wednesday will be a busy day for Cable as UK has the CPI data being published followed by the BoE governor Bailey speaking at 2 different events on the same day. We then have the FOMC minutes later that evening but before that we will have the pleasure of hearing the words of wisdom from US Treasury Secretary Yellen.
Enjoy the rest of the weekend
Anil Dala
Let's go trade!