MAXIN ADVISORS Weekly Market Review addresses the major issue of the moment, reviews the market moves of the past week and monitors the evolution of the MAXIN GLOBAL FUND
A Time To Be Prudent
After exactly 6 months of a bear market rally in equities that took European equities to 15 year highs and Us equities to record high valuations, despite rising interest rates, declining corporate earnings, a crisis of confidence in the banking system, signs of looming stress in real estate markets, the high probability of an economic contraction and rising geo-political tensions, time has come to be cautious in equities.
Most equity indexes are losing momentum and the preliminary results from the few companies that released their Q1 earnings are confirming an earnings recession that could potentially last for far longer than currently priced in valuations.
A significant development last week has been the sharp turn Chinese and Asian equities, despite surprisingly strong Chinese economic numbers, signs that the real estate downdraft is ending and powerful monetary and budgetary stimuluses in the form of strong bank lending and infrastructure works.
When it comes to US and European equity markets, next week’s earnings release from the leading technology companies such as Apple or Microsoft should confirm the negative trend revealed by Tesla and Netflix earnings.
Tesla reported earnings declines of -21 % despite having sold a record number of cars in the quarter. Engaged in a cutthroat competition in the Electric Vehicle markets against the traditional automakers in Europe and the US, and against strong newcomers in China. It is difficult to see how its margins will expand in the coming years, leaving its current valuations at unsustainable levels.
Netflix also failed to meet expectations of 2 million new subscribers with most of its growth co0ming from Asia and Emerging markets where pricing is cheaper, while competition intensifies in its core US and European markets. With costs rising with inflation, its Q1 earnings were down -18 % when compared to the same quarter of last year. With its share price rising by 100 % since July last year, the stock is trading on an unforgiving 40x earnings.
Apple earnings should suffer from its 40 % decline in sales of notebooks in Q1 2023, and it remains to be seen how sales of smartphones, app-store driven revenues and ancillary services will have fared. But its is hard to see anything but at least a double digit decline in net profits.
Microsoft have also suffered considerably from the 29 % decline in PC sales over the quarter, probable declines in existing licences due to strong layoffs and corporations downsizing, and cloud services, its growth segment of the past, is expected to see a sharp decline in growth rates as well, affecting it and Amazon for which it is the only profit contributor.
The banking system has released mixed results, with some banks faring better than others due to exceptional trading profits in bonds or the windfall coming form the demise of SVB and other smaller banks, but a global analysis of the results of the sector reveals worrying trends, with net interest margins decreasing, a significant increase in non-performing loans, a sharp decline in investment banking and wealth management revenues.
In sum, looking ahead, and as we predicted several months ago, the Q1 earnings releases will globally paint a picture of a sharp earnings recession, that investors must ponder whether it will be lasting or not, and will amplify or not. Moreover, corporate data shows that business conditions are far harsher than currently painted by the aging macro-economic data, even if the trends are clearly pointing downwards, as testified by declining retail sales our the easing in the labor market.
In Europe, the luxury sector, a typical lagging sector of any cycle has propelled indexes much higher thanks to strong earnings and sales, and making LVMH’s Bernard Arnault the world’s richest person. However, and as we advocate a few months ago, we see the luxury sector as one ion the biggest shirt in the Universe with PE rations raging form 40 to 60x at a time where revenues and earnings are bound to experience single digit growth rates ahead. Stocks like HERMES, LVMH, RICHEMONT are all trading in trend ending vertical accelerations that usually lead to sharp declines afterwards, and the lessons of both the 2000 and 2008 recessions show that the sector tends to suffer sharply at times of economic contractions, with stock prices losing between 50 and 80 % of their value.
We see April marking the beginning of a significant decline in equities ahead.
China’s economy should continue to power ahead as domestic consumption accelerates, even if exports may remain a drag overall. However, economist are revising upwards their projections for 2023 which have now been raised to between 5.5 % and 6.5 %. Industrial profits should accelerate as well supporting stock prices.
The main risks are the heightening of tensions between the US and China where America is entering the early stages of the 2024 Presidential elections and where the Chinese issue is taking center stage in domestic politics. Joe Biden is expected to issue an executive decree banning US investors from investing in Chinese corporations linked to technology, semiconductors and telecommunications and the Taiwanese issue is brought back to the fore despite Taiwan’s government calling on the US to tone down its belligerent rethoric.
We cannot exclude a temporary downdraft in Chinese equities but see it limited in scope and duration.
Finally, another major risk for equity markets and te global financial markets in the coming weeks is the intensifying of the haggle between Republicans and Democrats around the rising of the US debt ceiling with a decline around June where the US could default on its financial obligations if an agreement is not reached on the subject.
Lastly, the war in Ukraine could prove to be a joker in the global equation with question marks about the next moves of Vladimir Putin.
After a rally that saw the shares of the high flyers of the period rising by 100 % in the past 6 months to reach unsustainable levels, it is hard to see further advances from here while the downside risk is considerable, calling for prudence for investor that are highly invested.
We have two indicators that are telling us that we may be moving from “Risk-On” to “Risk-Off” mode very soon :
The first one is the SP500 VIX CBOE Volatility Indicator which trades at a record lows, usually an sign that the markets are ready to turn.
The second indicator may be the sharp reversal in the crypto space seen last week after the strong rebound since January 2023. Is this the beginning of a new downtrend or not, only the next few weeks will tell with the confirmation of a SELL signal.
Weekly Market Review
22 Apr 2023
Macro Highlights
IMF Revises Global Growth Forecasts Lower
The IMF revised its global growth forecasts lower to 2.8% from 2.9% for 2023 and to 3% from 3.1% for 2024, citing tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine, and growing geoeconomic fragmentation. In its April World Economic Outlook report, the IMF also mentioned increased uncertainty from the recent financial sector turmoil. The US economy is forecasted to grow 1.6% in 2023, slightly higher than the 1.4% seen in January; China 5.2% (the same); India 5.9% (vs 6.1%); Japan 1.3% (vs 1.8%); and the Euro Area 0.8% (vs 0.7%). However, the GDP in Germany is expected to fall 0.1%, compared to early projections of a 0.1% rise and the British economy will likely shrink 0.3%, compared to a 0.6% drop seen in January. Meanwhile, global inflation is seen decreasing to 7% this year from 8.7% in 2022 on the back of lower commodity prices but core CPI is likely to decline more slowly.
Dollar Set to End Week Higher
The dollar index steadied around 101.8 on Friday and was set to finish the week higher, snapping five straight weeks of losses on firm expectations that the US Federal Reserve will raise interest rates again in May. A slew of Fed officials supported the need for further policy tightening to bring down inflation, with St. Louis Fed President James Bullard favoring a higher terminal rate of between 5.50% to 5.75%. Meanwhile, investors remain cautious as soft economic data pointed to a slowing economy in the US. The latest figures indicated weekly claims rose for the second week, and the Philadelphia Fed report showed business activity in the US Mid-Atlantic region contracted on Friday to gain more insight on the state of the economy.
US Initial Jobless Claims Rise for a Second Week
The number of Americans filing for unemployment benefits rose by 5 thousand to 245 thousand on the week ending April 15th, the most in one month and above market expectations of 240 thousand. The result was in line with a batch of recent data that suggested some softening in the US labor market, breaking the long streak of releases pointing to a tight labor market despite aggressive rate hikes by the Federal Reserve. The four-week moving average, which removes week-to-week volatility, fell by 500 to 239,750. On a seasonally unadjusted basis, claims fell by 7,021 from the previous week to 228,216, with notable decreases in California (-3,732) and Texas (-2,988), while considerable increases took place in New York (+6,703) and Georgia (+3,079).
US Mortgage Applications Fall Sharply
Mortgage applications in the US declined 8.8% in the week ended April 14th, 2023, reversing from a 5.3% rise in the previous week, Mortgage Bankers Association data showed, as higher interest rates impacted demand. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) jumped by 13bps to 6.43%, the first increase in six weeks, and compared to a two-month low of 6.3% in the previous period. Applications to purchase a home sank 10% and those to refinance a home loan went down 5.8%. “Affordability challenges persist and there is limited for-sale inventory in many markets across the country, so buyers remain selective on when they act,” Joel Kan, MBA’s chief economist said.
US 10-Year Treasury Yield Hovers Near One-Month High
The 10-year US Treasury note yield, seen as a proxy for borrowing costs worldwide, consolidated near a one-month high of 3.6% as investors ramp up bets for two more rate hikes while scaling back expectations for rate cuts later in the year. Richmond Fed President Thomas Barkin was among the latest policymakers to warn that more evidence is needed that US inflation is returning to the central bank’s 2% target. Earlier, Governor Christopher Waller echoed a similar view, leaning toward further policy tightening amid still-high inflation. Meantime, concerns about a potential US recession and further stress in the banking sector eased amid better-than-expected results from banking heavyweights, including JP Morgan Chase, Wells Fargo, Bank of American, and Goldman Sachs.
China Keeps LPR Rate Steady for 8th Month
The People’s Bank of China (PBoC) left its key lending rates steady for the eighth straight month at April fixing, as the economic recovery has returned on track after the withdrawal of most anti-COVID measures last December. The one-year loan prime rate (LPR), which the medium-term lending facility uses for corporate and household loans, was kept unchanged at 3.65%; while the five-year rate, a reference for mortgages, was maintained at 4.3%. The move came after the central bank held its medium-term policy rate at 2.75% earlier in the week. The board continued to bolster liquidity support as it rolled over maturing medium-term policy loans with higher cash offerings for the fifth month in April. China’s economy expanded 4.5% YoY in the first quarter of 2023, accelerating from a 2.9% gain in the fourth quarter. The GDP growth reading was the strongest since the first quarter of 2022 and beat market estimates of 4%. China last cut both LPRs in August.
China Economy Expands 2.2% QoQ in Q1
The Chinese economy grew by 2.2 percent on a seasonally adjusted basis in the three months to March of 2023, picking up from an upwardly revised 0.6 percent growth in the fourth quarter and matching market forecasts. This was the third straight quarterly expansion, coming after Beijing lifted COVID curbs last December and eased a three-year crackdown on tech firms and property. That said, recent data showed the recovery remains uneven, with consumption, services, and infrastructure spending perking up but slowing inflation and soaring bank savings raising doubts about demand. Meantime, the central bank cut lenders’ reserve requirements for the first time this year in March while Beijing pledged to launch more fiscal stimulus.
China Q1 GDP Growth Rate Beats Estimates
The Chinese economy advanced 4.5% yoy in Q1 of 2023, accelerating from a 2.9% growth in Q4 and topping market estimates of 4%. It was the strongest pace of expansion since Q1 of 2022, amid efforts from Beijing to spur the post-pandemic recovery. Retail sales growth was at a near 2-year high in March, industrial output rose the most in 5 months, and the surveyed jobless rate fell to its lowest in 7 months. Data released earlier showed exports from China unexpectedly rebounded in March, and the trade surplus came larger due to efforts to deepen trade with developed countries and explore new possibilities with emerging economies. However, the statistics agency mentioned in a statement that a complex global environment and insufficient domestic demand mean the foundation for the country’s recovery is “not yet solid.” China set a modest GDP target of around 5% for 2023. Last year, the economy added 3%, missing the government’s goal of about 5.5%.
China New Home Prices Fall the Least in 9 Months
Average new home prices in China’s 70 major cities dropped by 0.8 percent year-on-year in March 2023, after a 1.2 percent fall in the previous month. This was the 11th straight month of decrease in new home prices but the softest pace since June 2022, amid efforts from Beijing since last year to speed up policy measures to support a recovery of the ailing property sector. Among the Chinese biggest cities, prices fell in Tianjin (-1.6% vs 2.2% in February), Shenzhen (-1.5% vs -1.1%), and Guangzhou (-0.2% vs -0.6%). Meantime, prices in Chongqing were flat after declining 0.4% previously, while those in Beijing (4.6% vs 4.7%) and Shanghai (4.1% vs 3.9%) increased further. On a monthly basis, new home prices rose by 0.5 percent, the most in 21 months, after a 0.3 percent gain in February, as the Chinese government moved to reopen the economy from strict pandemic curbs.
EU Car Registrations Jump 28.8% in March
Passenger car registrations in the European Union surged 28.8% y/y to an over-three-year high of 1,087,939 units in March 2023, marking the eighth consecutive month of rise. However, the increase was largely due to the low base of comparison in 2022 during the semiconductor shortage crisis. All EU largest markets showed double-digit growth, led by Spain (66.1%) and Italy (40.7%). Meanwhile, battery electric car registrations in the EU jumped by 58% to 151,573 units in March, accounting for 13.9% of the market. In the first quarter of 2023, EU car registrations grew by 17.9% from the same period in 2022 to almost 2.7 units.
Eurozone Government Debt to GDP Continues to Fall
The government debt to GDP ratio in the Euro Area fell to 91.5 percent at the end of 2022 from a downwardly revised 95.4 percent in 2021. Considering the European Union as a whole, the government debt to GDP decreased to 84% from 88%. The highest ratios of government debt to GDP were recorded in Greece (171.3%), Italy (144.4%), Portugal (113.9%), Spain (113.2%), France (111.6%) and Belgium (105.1%), and the lowest in Estonia (18.4%), Bulgaria (22.9%) and Luxembourg (24.6%). Four Member States registered an increase in their debt to GDP ratio and twenty-three Member States a decrease. The increases in the ratio were recorded in Czechia (+2.1 pp), Estonia (+0.8 pp), Finland (+0.4 pp) and Luxembourg (+0.1 pp), while the largest decreases were observed in Greece (-23.3 pp), Cyprus (-14.7 pp), Portugal (-11.5 pp), Ireland (-10.7 pp), Croatia (-10.0 pp), Denmark (-6.6 pp), Italy (-5.5 pp), Lithuania (-5.3 pp), and Spain (-5.0 pp).
ECB to Continue Tightening
Most European Central Bank policymakers agreed to raise key interest rates by 50 basis points last month, though some members would have preferred not to increase them until the financial market tensions had subsided, the accounts of the central bank’s March policy meeting showed. Still, ECB officials widely concurred on the resilience of the euro area banking system, noting that the central bank had further ground to cover in adjusting the monetary policy stance to ensure a timely return of inflation to target. Looking ahead, the bank assessed risks to the inflation as tilted to the upside over the entire horizon, with some policymakers arguing that there was only a small probability that the CPI rate would fall back to low levels as quickly as suggested in the March ECB staff projections. The ECB is set to deliver a 25 bps rate increase in May and other two are expected by mid-year after raising borrowing costs at the fastest pace on record to combat inflation.
Germany Producer Inflation at 22-Month Low
The annual producer inflation in Germany slowed for the sixth consecutive period to a 22-month low of 7.5% in March 2023, down from 15.8% in February and below forecasts of 9.8%. The energy cost rose by 6.8%, easing sharply from a 27.6% jump in the previous month, with the distribution of natural gas up 19.1% while electricity prices remained flat. However, the results were preliminary and would require revision because a price brake on electricity and gas, coming into effect in March, distorts calculations. Excluding energy, producer prices grew by 7.9% yoy. Other cost increases were seen in intermediate goods (4.7%), particularly cement (52.3%), wood chips (30.7%), and household & sanitary goods (27.8%); non-durable goods (15.4%), such as food (19.2%); durable goods (10.0%); and capital goods (7.5%), mainly machinery (9.4%) and vehicles (5.9%). On a monthly basis, producer prices fell 2.6%, the sixth straight decline and the steepest pace in four months.
German Investor Morale Unexpectedly Sinks
The ZEW Indicator of Economic Sentiment for Germany declined for a second month to 4.1 in April of 2023, the lowest so far this year, from 13 in March and well below market forecasts of 15.3. The reading now points to unchanged economic situation for the next six months, with experts expecting banks to be more cautious in granting loans while high inflation and the internationally restrictive monetary policy are also weighing on the economy. On the other hand, the current conditions index improved to -32.5 compared to -46.5 in March and forecasts of -40. Despite the improvement, the economic situation is still considered relatively negative. At the same time, earnings expectations for banks and insurance companies have improved and are once again clearly in positive territory, according to ZEW President Achim Wambach.
UK Private Sector Output Rises the Most in a Year
The S&P Global/CIPS UK Composite PMI rose to 53.9 in April 2023 from 52.2 in the previous month, easily beating market consensus of 52.5, a preliminary estimate showed. The latest reading pointed to the fastest pace of expansion in the country’s private sector since April 2022 helped by a robust and accelerated increase in service sector output that was the quickest in a year. On the other hand, manufacturing production decreased for the second month running and by the most since January. Overall new orders rose at a strong rate and the pace of job creation accelerated to a six-month high. On the price front, input cost inflation eased to the lowest since March 2021, while prices charged inflation accelerated slightly as firms once again sought to defend margins from increasing costs. Finally, business confidence eased, but was still the second-highest since March 2022.
UK Inflation Remains Above 10% for 7th Month
The consumer price inflation rate in the United Kingdom eased to 10.1% year-on-year in March 2023, down from 10.4% in February but more than market expectations of 9.8%. The rate remained above the 10% mark for a seventh consecutive period and the Bank of England’s 2% target for almost two years, suggesting policymakers might continue to raise borrowing costs. Main upward pressure came from food and non-alcoholic beverages (19.1% vs 18.0% in February), recreation and culture (4.6% vs 4.0%), and miscellaneous goods and services (6.7% vs 6.6%). The cost of housing and utilities has also increased at a solid pace (26.1% vs 26.6%). Meanwhile, inflation slowed for both transport (0.8% vs 2.9%) and restaurants and hotels (11.3% vs 12.1%). The core inflation rate, which excludes volatile items such as energy and food, was unchanged at 6.2% in March, not far from September’s record of 6.5%.
France Business Confidence Falls
The manufacturing climate indicator in France fell for a second month to 101 in April of 2023 from 104 in March, compared to market forecasts of 103. The balance of opinion on the expected trend has folded back for selling prices (13 vs 28) and production (5 vs 10). Business sentiment also deteriorated for expected work size (11 vs 16) and overall order books (-17 vs -13), while was unchanged for foreign order books (-9) and past production (10). By contrast, an improvement was seen in the current level of the inventories of finished-goods (22 vs 13). Overall, economic uncertainty slumped (31 vs 33).
Italian Construction Growth Falls to 2-Year Low
Construction output in Italy increased by 1.6% year-on-year in February of 2023, the least since January 2021, and slowing from the downwardly revised 3.2% increase in the previous month. The downward trend resumed as higher borrowing costs in the Eurozone dented demand for new housing and retail space, while the end of selected tax breaks for sustainably labeled construction since the start of PM Meloni’s government also pressured activity. On a seasonally adjusted monthly basis, construction edged 1.5% higher.
Spain Inflation Rate Confirmed at Over 1-1/2-Year Low
Spain’s annual consumer price inflation was confirmed at 3.3% in March 2023, down for a second consecutive month, from 6% in February. It was the lowest reading since August 2021, mainly due to falling prices of housing (-16.2% vs -6.2% in February), of which electricity, gas (-35.6% vs -17.2%) and transportation (-4.8% vs 1.9%). At the same time, prices slowed down for food & non-alcoholic beverages (16.5% vs 16.6%); furnishings & household equipment (7.3% vs 7.7%); restaurants & hotels (7.8% vs 7.9%); clothing & footwear (3.2% vs 3.9%). Conversely, faster increases were seen mostly for alcoholic beverages & tobacco (8.6% vs 8.4%) and recreation & culture (4.4% vs 3.2%), namely tourist packages (20.1% vs 10%). The annual core inflation, which excludes volatile items such as unprocessed food and energy, eased to 7.5% in March, from a peak of 7.6% in February. On a monthly basis, consumer prices increased by 0.4%, matching an earlier estimate, after a 0.9% rise in February.
Swiss Producer and Import Prices Edge Down to 2.1%
eSwitzerland’s producer and import prices rose 2.1 percent year-on-year in March of 2023, edging lower from a 2.7 percent increase in the prior month. Still, it was the lowest producer and import price inflation since April 2021, as both import prices (1 percent vs 2.3 percent in February) and producer prices (2.7 percent vs 3 percent) eased. On a monthly basis, producer and import prices advanced 0.2 percent, rebounding from a 0.2 percent drop in February, with upward pressure coming mainly from the cost of food products. In contrast, petroleum products became cheaper.
Swiss Franc Eases from 2-Year High
The Swiss franc weakened to 0.9 per USD from the two-year high of 0.89 touched on April 13th amid expectations that the Swiss National Bank is approaching the end of its tightening path. The SNB is seen delivering one final 25bps rate increase in June. Such a move would cap the bank’s tightening at 225bps since June 2022, less than that by the US Fed and the ECB due to Switzerland’s relatively low inflation. The Swiss inflation rate peaked at a 29-year high of 3.5% in August compared to 9.1% in the US in June and 10.6% in the Eurozone in October.
Austria Inflation Rate Eases from Record High
The annual inflation rate in Austria eased to 10.9 percent in February 2023, from a record high of 11.2 percent in the previous month, as prices slowed for housing & utilities (16.5% vs 19.3% in January), which include an 89.2% surge in district heat, 76% increase in solid fuels and 63.5% rise in gas. At the same time, costs eased for both food & non-alcoholic beverages (16.2% vs 17%), and transport (10.9% vs 11.1%), reflecting a 13.6% increase in fuel prices. On a monthly basis, consumer prices increased 0.9 percent in February, the same pace as in the previous month. Additionally, the harmonized index rose by 11% on the year and by 0.8 percent over the previous month.
MOEX Rallies 3.7% on the Week
The ruble-based MOEX Russia index closed marginally above the flatline at 2,640 on Friday, the highest in one year and notching a 3.7% jump on the week with support from a batch of dividend announcements. Lukoil shares closed flat and held the 5% advance from yesterday as investors continued to digest the dividend payout of RUB 438 per share for the record-setting 2022, yielding 9.2% at current share prices. On the other hand, Rosneft closed 2% down after announcing that it aims to increase output by 2-4% annually over the next five years. The developments are joined by scrutiny in the energy sector as higher oil prices drove Russian benchmarks dangerously close to the EU’s $60/barrel price ceiling, driving many Asian financial institutions to claim they will refuse to process payments. In the meantime, Seligdar jumped 4.5% after announcing higher gold output in 2022, while MMK edged downwards after divulging operational results.
Japan Core Inflation Unchanged at 3.1%
The core consumer price index in Japan, which excludes fresh food but includes fuel costs, rose 3.1% in March 2023 from a year ago, matching the consensus forecast and the previous month’s figure, which was the lowest in five months. Still, the core inflation print exceeded the central bank’s 2% target for the twelfth straight month, supporting market expectations that the Bank of Japan could normalize monetary policy later this year. The BOJ left its policy of ultra-low interest rates unchanged at the March fixing, while new central bank governor Kazuo Ueda vowed to maintain ultra-easy policies until there is more evidence that the rise in inflation has become more sustainable and driven by a strong demand rather than supply pressures.
Japan Imports Rise the Least in 2 Years
Imports to Japan increased 7.3% yoy to JPY 9,578.8 billion in March 2023, below estimates of 11.4% and a rise of 8.3% in February. It was the 26th straight month of growth but the slowest pace since March 2021, as a stronger yen and easing commodity prices, including oil, reduced the cost of imports. Purchases of mineral fuels jumped 13.3%, boosted by petroleum (8.6%) and LNG (4.5%), while those of electrical machinery grew 8.6%, led by semiconductors (2.1%). Also, imports rose for clothing & accessories (22.0%), machinery (17.2%), power-generating machines (57.6%), and transport equipment (17.7%). By contrast, they fell for manufactured goods (-6.6%), chemicals (-15.0%), and raw materials (-0.3%). Among trading partners, imports advanced from China (12.3%), the US (9.6%), Hong Kong (274.6%), Taiwan (6.6%), Thailand (9.3%), Indonesia (19.2%), and Australia (15.6%) while decreasing from South Korea (-5.9%), Singapore (-2.8%), India (-9.6%), and Germany (-5.5%).
South Korea Inflation Slows to 1-Year Low
The consumer price index in South Korea rose 4.2% in March 2023 from a year ago, decelerating from February’s 4.8% and hitting the lowest in a year. March’s inflation rate was also lower than market expectations of 4.3%, supporting the central bank’s decision to pause its interest rate hikes at the February meeting. The Bank of Korea is scheduled to hold its next policy meeting this April where it is expected to stand pat again, as it balances the fight against inflation with keeping the economy from slowing too much given weakening external demand and sluggish domestic consumption. The bank lifted its policy rate by an aggregate of 3 percentage points from August 2021 to combat inflation, bringing borrowing costs to a 14-year high of 3.5%, before pausing its rate-increase campaign in February this year.
The Week Ahead
Next week, US earnings season will kick into a higher gear as several big names are set to report including Microsoft, Alphabet, Facebook, Amazon, Coca-Cola, Visa, Boeing, Mastercard, and Exxon Mobil. It will be also a busy week in terms of macro data with the GDP growth and PCE price index taking central stage. The US economy is estimated to have grown an annualized 2.0% in the first quarter of 2023, slowing from a 2.6% percent expansion in the fourth quarter of 2022. The Fed’s preferred inflation gauge is expected to have cooled in March, yet, core PCE inflation likely rose 0.4% over the previous month. At the same time, the Commerce Department will also release March durable goods orders that are likely rebounded by 0.9% over the previous month. Additionally, investors will pay close attention to personal spending and income data, projected to show that higher interest rates continued to dent demand, the final reading for the University of Michigan’s consumer sentiment, and inflation expectations. Finally, building permits and new home sales will offer further clues into the real estate.
In Europe, preliminary estimates are set to show the Euro Area, Germany, France, Italy, and Spain grew between 0.2%-0.3% in the first quarter, helped by lower energy prices and recovery fund spending. Flash HCPI reports will probably reveal inflation in Germany and France eased further to a 13-month low and a 7-month low, respectively. Meanwhile, Germany’s GfK Consumer Climate Indicator is seen increasing for a seventh consecutive period to the highest since June, and the Ifo Business Climate indicator is seen rising to a 14-month peak. Other data to follow is the Eurozone’s business survey; Germany’s unemployment; Switzerland’s KOF Leading indicators, retail sales and foreign trade; Turkey’s business morale and interest rate decision. In the United Kingdom, important releases cover public sector net borrowing, Nationwide house prices, and CBI gauges for factory orders, business optimism, and distributive trades.
In Asia, all eyes will be on the Bank of Japan’s first monetary policy decision under Governor Kazuo Ueda and the accompanying Quarterly Outlook Report for hints on a potential policy pivot. Japan will also post its unemployment rate, retail sales, and industrial production for March. At the same time, GDP data from South Korea is anticipated to indicate economic activity remained pressured amid weak semiconductor demand. Traders also await April consumer and business confidence from the country. Elsewhere, Taiwan will release growth figures, and Singapore will share inflation numbers.
In Australia, the week will be headlined by the inflation print for the first quarter. The country’s inflation rate is expected to have dropped from the 23-year record from the last quarter due to base effects of the Russian war. Apart from that, the market will monitor March’s credit data and producer prices for the first three months of 2023.
Calendar
Inflation
Bonds
USA
US 2 Year Treasury
US 10-Year Treasury Yield Consolidates Around 3.6%
The 10-year US Treasury note yield, seen as a proxy for borrowing costs worldwide, consolidated around 3.6% as investors parsed through new economic data while assessing the impact of the Federal Reserve’s rate-hiking path. US business activity accelerated to an 11-month high in April, easing concerns that the world’s largest economy is on the brink of a recession but throwing cold water into expectations that the central bank will soon end its historic tightening campaign. It contrasted with data released on April 20th which showed the Philadelphia Fed manufacturing index sank more than expected while initial jobless claims unexpectedly rose for the second week and continuing claims hit the highest since November 2021. Money markets priced in a 25bps increase in the fed funds rate next month, while a cut is likely by the end of the year.
US 30 Year Treasury
Europe
Asia
Currencies
Dollar Ends Week Higher
The dollar index steadied around 101.8 on Friday and finished the week higher, snapping five straight weeks of losses on firm expectations that the US Federal Reserve will raise interest rates again in May. A slew of Fed officials supported the need for further policy tightening to bring down inflation, with St. Louis Fed President James Bullard favoring a higher terminal rate of between 5.50% to 5.75%. Meanwhile, investors remain cautious as soft economic data pointed to a slowing economy in the US. The latest figures indicated weekly claims rose for the second week, and the Philadelphia Fed report showed business activity in the US Mid-Atlantic region contracted on Friday to gain more insight on the state of the economy.
Euro Remains Close to 1-Year High on Expectations of Tighter Policy
The euro held above the $1.09 mark, close to an over-12-month high of $1.1075 touched on April 14, as European Central Bank policymakers called for a tighter policy. ECB chief economist Philip Lane on Tuesday joined a chorus of Eurozone central bankers supporting an interest rate increase at the May meeting but said the size would depend on incoming data. Earlier this month, ECB’s Klaas Knot had already stated it was unclear whether 50 bps or 25 bps would be needed. At the same time, Robert Holzmann backed another 50 bps move, while Peter Kazimir considered a slowdown in the pace of tightening. Markets are now pricing in a 25 bps rate hike next month, with around a 20% chance of a larger 50 bps hike. Last week, ECB President Christine Lagarde said the central bank stood ready to respond as necessary to combat inflation, with the latter projected to remain high for a long period.
Sterling Eases at End of a Busy Week
Sterling eased below $1.24, down from an over-10-month high of $1.2546 on April 14, as Britain’s latest reports painted a mixed picture of the country’s economy. Data from the ONS showed the UK retail sales fell more than expected in March amid the rising cost of living and poor weather conditions. Meanwhile, the latest Markit PMI survey suggested the Britain’s GDP expanded to a one-year-high in April, adding to signs that the economy might avoid a recession in 2023. Earlier this week, the highly-anticipated CPI report revealed Britain’s inflation rate remained above the 10% mark for a seventh straight month in March, supporting bets on a 25 basis point rate hike from the Bank of England in May. At the same time, Tuesday’s jobs report indicated total pay growth was unchanged at 5.9%, beating forecasts of 5.1%. Markets have priced in a few BoE interest rate increases this year that will push up Bank Rate to around 4.9% by September from 4.25% currently.
Crypto – Currencies
Equities
World Indices
USA
Wall Street Edges Up
All major US stock indexes finished slightly above the flatline on Friday amid mixed corporate earnings results. Meanwhile, investors were cautious about the future of the Federal Reserve’s policy path. Procter & Gamble gained 3.5% on upbeat profit results, while HCA Healthcare jumped 3.9% after raising its guidance forecast. CSX added 3.3% after the company’s first-quarter results topped expectations. Still, this week, dismal quarterly results from Tesla and AT&T and data pointing to a further slowdown in the labor market continued to weigh on investor sentiment. On the macro front, US business activity accelerated to an 11-month high in April, easing some concerns that the world’s largest economy is on the brink of a recession. Considering the week, the Dow lost 0.3% and snapped its four-week win streak, while the S&P 500 and the Nasdaq were down by 0.1% and 0.4%, respectively.
Americas
Canadian Shares Book 5-Weekly Gains
The S&P/TSX Composite index closed 0.3% higher around the 20,690 mark on Friday, snapping the slight losses from the prior two sessions boosted by tech shares. Rate-sensitive technology stocks rallied 1.4% as shares of e-commerce company Shopify advanced 2.7%.On the other hand, a drop in precious and base metal prices pressured miners to send base metals 2.7% lower. First Quantum Minerals sank 5.9% and Hudbay Minerals lost 4.5% and marked the laggards in the session. Meantime, energy shares were marginally lower and halted their recent selloff. On the data front, preliminary estimates showed that retail sales contracted significantly in March. On the week, the Canadian index was up by 0.4% marking the fifth straight week of gains.
Brazilian Equities Edge Higher Ahead of Holiday
tBrazil’s Ibovespa index added 0.4% to close at 104,300 on Thursday, adjusting the loss of 2.1% in the previous session ahead of Friday’s national holiday. Brazil’s government announced today a package of 13 measures to ease consumer access to credit and reduce associated costs in the capital and insurance markets in a bid to revitalize the economy. Traders also followed the reception of the text of the new fiscal framework in Congress, after analysts pointed out flaws in the mechanism for controlling spending and the lack of punishment in case of non-compliance with the rules. On the corporate front, Hapvida (+9.7%), Grupo de Moda SOMA (+5.9%), and Pet Center Comercio e Participacoes (+5.4%) booked the top gains of the session, while Embraer (-2.5%) and Braskem (-2.4%) underperformed. Despite the positive performance in the session, the Ibovespa closed the week in the red.
Europe
Stocks in Euro Area Hit 15-year High
EUROSTOXX 50 increased to a 15-year high of 4417
CAC 40 Breaks Another Record High
The CAC 40 hit another record high at 7,577 on Friday, with shares of LVMH and Hermès also topping record levels of €901.1 and €2,003.5, respectively. Essilor was the top performer (+6.3%), after the company reported a better-than-expected 9.7% revenue growth in Q1. Shares of L’Oréal also surged 3% and hit a near 23-year high of €442.6, extending a 2.1% surge on Thursday, after reporting a 13% growth in Q1 sales. Stocks of Veolia gained 1.1% after a Deutsche Bank analyst upgraded the company to ‘Buy’ from ‘Hold’. On the other hand, shares of ArcelorMittal dropped 3.8%, as iron ore prices were at their lowest level since December amid weak demand in China and still ample supply. Traders were also digesting fresh PMIs for the current month: the services sector grew more than expected in April, but manufacturing continued to contract in France, Germany and the Euro Area. The major stock index in France was up 0.8% in the third week of April, notching its fifth weekly gain in a row.
Spain Stocks End in Red
The Ibex 35 dropped by nearly 0.4% to 9,415 on Friday, extending the falls from the previous session and underperforming its European peers as investors digested latest PMI figures and corporate results amid economic growth concerns. The biggest laggard on the corporate was ArcelorMittal (-3.68%) after the CCOO encouraged all unions and workers to join the strike next Monday. Financials also recorded considerate losses, dragged by Bankinter (-2.57%) and Sacyr (-2.04%). Meanwhile, Logista ended as the top performer, up by 2.44%. The index managed to close the fifth week in green, with a 0.56% gain.
Italian Shares Close Week Higher
The FTSE MIB index closed 0.4% higher at 27,645 on Friday, enough to notch a slight increase on the week with gains from banks and utilities as investors digested the latest economic data for hints on the extent of remaining tightening by the ECB. Private business activity in the Eurozone expanded at the fastest pace in 11 months according to PMI data, raising hopes that firms can weather the current high-interest rate environment. Banks extended their volatile momentum amid merger talks between key Italian lenders after the European Union proposed alternative banking resolution rules to prevent runs. Banco BPM added 4.3% while Finecobank and Banca Monte Paschi Siena advanced 1.8% each. On the other hand, Telecom Italia sank 4.3% amid speculation of disagreements with major shareholder Vivendi on the sale of its fixed-line assets to private equity firms.
FTSE 100 Ends Flat, Still Posts Fifth Weekly Gain
Equities in London finished Friday’s session virtually flat, with the benchmark FTSE 100 closing slightly above the 7,900 mark, as gains in the healthcare and utilities sectors offset losses in the heavyweight materials. Investors continued looking to this earnings season for signs about the global economy’s health while contemplating the future path of interest rate rises. On the macro front, discouraging retail sales data showing a bigger-than-expected slowdown in consumer spending by 0.9% in March rattled investors. On the corporate side, Dowlais Group rallied more than 4% to be among the top gainers. On the other hand, Anglo American and Rio Tinto plunged almost 6% each. Still, the export-oriented index gained nearly 1% this week, posting a fifth consecutive weekly gain.
Japan
Japanese Shares Fall on Weak Global Sentiment
The Nikkei 225 Index fell 0.33% to close at 28,564 while the broader Topix Index shed 0.23% to 2,035 on Friday, with the former retreating from eight-month highs, as heightened global economic uncertainties and the prospect of further interest rate rises in the West continued to weigh on sentiment. Meanwhile, investors digested data showing Japan’s core inflation came in at 3.1% in March, unchanged from February which was the lowest in five months. Manufacturing activity in the country also improved in April amid further economic recovery. Notable losses were seen from index heavyweights such as Mitsubishi UFJ (-2.2%), SoftBank Group (-1.9%), Toyota Motor (-0.6%), Fast Retailing (-1.8%) and Oriental Land (-2.1%). Still, the Nikkei 225 and Topix indexes gained 0.25% and 0.81% this week, respectively, for their second consecutive weekly advance.
China
China Stocks Decline for Third Session
The Shanghai Composite tumbled 1.95% to close at 3,301 while the Shenzhen Component plunged 2.28% to 11,450 on Friday, with both benchmarks sliding for the third straight session, as heightened global economic uncertainties and the prospect of further interest rate rises in the West continued to weigh on sentiment. An uneven domestic economic recovery and dimming hopes that the central bank would ease policy further also prompted caution among investors. Notable losses were seen from heavyweight technology firms such as iFLYTEK (-9.2%), 360 Security Technology (-5%), Dawning Information Industry (-2.5%), Semiconductor Manufacturing (-5.3%) and East Money Information (-5.3%). For the week, the Shanghai Composite fell more than 1% for its first weekly decline in six, while the Shenzhen Component dropped 3% for its second straight weekly loss.
Hang Seng Slumps to End at Over 3-Week Low
Hong Kong’s equities tumbled 321.24 points or 1.57% to finish at 20,075.73 on Friday, its lowest close since March, 28th, sinking by 2% for the week, pressured by mounting concerns about Sino-US tensions. President Biden reportedly aims to sign an executive order in the coming weeks that will limit investment in key parts of China’s economy by US businesses. Meantime, Beijing plans to conduct intensive military drills in areas that include waters off its coast and in the South China Sea amid strains with Taipei and Washington. A fall in US futures also rattled market sentiment, as caution grew after existing home sales dropped more than expected in March while initial jobless claims rose for the second week. Losses were broad-based, with tech (-3.3%), consumers (-2.2%), and financials (-1.3%,) among bottom movers. SenseTime Group slipped 11.7%, followed by BYD Electronic (-5.8%), China Hongqjao (-5.2%), Country Garden Services (-5%), China Feihe (-4.1%), and Yadea Group (-3.6%).
Asia
India
Indian Shares Close Flat on Friday
The BSE Sensex closed flat for a second session on Friday, extending last session’s muted momentum as tech shares gained some respite from recent selloffs and offset losses for auto manufacturers and raw-material stocks. Tech giant HCL Technologies added 1% after it reported a rise in net profit for the quarter ending in March. Still, the firm forecasted a weak outlook for the coming financial year, in line with its tech counterparts, as higher borrowing costs limit consumer spending. TCS extended yesterday’s rebound with a near 2% jump. On the other hand, Infosys closed near the flatline to mark a 12% slump on the week, pressured by projections of weak revenue growth. On the week, concerning outlooks for the tech sector pressured the Sensex to notch a 1.5% decline.
Middle East
Commodities
Energy
Oil Heads for Sharp Weekly Fall
WTI crude futures steadied above $77 per barrel on Friday but were still on track to lose more than 6% on the week, erasing most of the OPEC-driven rally amid lingering concerns about higher interest rates, slowing global growth, and softening energy demand. The US Federal Reserve will likely deliver another 25 basis point rate hike in May, while the European Central Bank is expected to raise borrowing costs at least two more times this year. A key Fed report also signaled that the US economy has stalled in recent weeks, weighing on risk assets and energy demand prospects. Moreover, the market shrugged off the comments of a US official who said the government could start to replenish the Strategic Petroleum Reserve in the third quarter. Investors remain cautious ahead of OPEC+ reduction output next month, with hopes for a rebound in Chinese demand supporting oil prices.
US Natural Gas Futures Extend Losses after EIA Report
US natural gas futures fell to $2.2/MMBtu on Thursday, moving closer to the key $2 mark, on a bigger-than-expected storage build and forecasts for milder weather and weaker-than-anticipated heating demand this week. The latest EIA report showed US utilities added 75 bcf of gas into storage last week, more than market projections of a 69 bcf increase, as warmer temperatures kept heating demand low. US gas demand, including exports, is estimated to rise from 95.6 bcfd this week to 96.8 bcfd next week, according to Refinitiv forecast.
32 hours ago
Copper
Copper Retreats Toward $4
Copper futures in the US fell near the $4 per pound mark, retreating from the seven-week high of $4.12 touched on April 13th as the dollar rebounded from its recent lows and investors weighed near-term demand concerns against evidence of tight supply. The stability of US banks added leeway for the Federal Reserve to hike rates further and destroy demand, while lower-than-expected industrial production in China heightened doubts over the economic recovery of the world’s top copper consumer. Still, data from the London Metal Exchange showed inventories fell to 56,000 tonnes, the smallest amount since 2005. To add, Chile’s state-owned Codelco said the output in 2023 is estimated to sink as much as 7% after the 10.6% decline in 2022. Depleting stocks worldwide drove Trafigura to forecast copper prices at a record high this year, while Goldman Sachs projected a global shortage of visible copper inventories by September.
Precious Metals
Gold Retreats to $1,980
Gold prices sank to $1,980 on Friday, falling further from a 13-month high of $2,040 hit on April 13th as strong PMI data from major economies backed expectations for rate increases from central banks in May. Private sector activity in the United States, the Eurozone, and the UK beat consensus estimates and rose at the fastest pace in 11 months in April, pointing to resilience in the services sector despite elevated borrowing costs. At the same time, several Fed officials supported the need for further policy tightening to bring inflation down, with St. Louis Fed President James Bullard favoring a higher terminal rate of between 5.50% to 5.75%. Also, some ECB policymakers called for more rate hikes in upcoming meetings to tame the record-breaking core inflation. Higher interest rates raise the opportunity cost of holding non-interest-bearing assets, impacting demand for bullion.
Soft Commodities
Corn Pulls Back from 2-Month High
Corn futures fell to $6.6 per bushel from the two-month high of $6.8 touched on April 18th, as projections for faster planting in the US briefly outweighed concerns for low supply from Argentina and Ukraine. Favorable weather in the American Midwest ramped up expectations that farmers could accelerate planting activity. At the same time, producers in Brazil were forced to sell corn for lower prices to quickly empty inventories ahead of a record-high crop. On the other hand, the USDA downwardly revised projections for global corn production by 3.3 million tonnes for the current marketing year due to historical droughts in Argentina.
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