MAXIN ADVISORS Weekly Market Review adresses the issues of the moment and our views for the markets ahead.
Happy Easter !
Easter is the most important religious feast in Christianity as it celebrates Jesus’ resurrection from the dead, one of the main tenets of the Christian faith. Christian theology holds that, through faith in the working of God, those who follow Jesus are spiritually resurrected with him so that they receive eternal salvation, and are physically resurrected in the Kingdom of Heaven.
Easter Sunday is the culmination of the Holy Week that starts with Palm Sunday marking the entrance of Jesus in Jerusalem and Good Friday commemorating the Passion of Jesus Christ, his crucifixion by the Roman army at Mount Olivet.
It is a time of hope and Joy after a period of extreme sadness and suffering and the symbol of eternal hope.
In the financial markets, Easter, which always falls in April, often precedes a more negative period – Sell in may and Go Away – after a first quarter that is statistically more favourable.
2023 may not be much different.
As we have detailed at length, the current disconnect between rising equity markets in Europe and the US and strong headwinds ahead calls for a rude awakening in the weeks and months ahead.
As we expected, the March banking crisis that led to the demise of SVB in the US and CREDIT SUISSE in Switzerland to name only the largest, is leading to a major contraction of credit under the combined effects of tightening lending standards and sharp withdrawals of deposits.
US Commercial bank lending dropped nearly $105 billion in the two weeks ended March 29, the most in Federal Reserve data back to 1973. The more than $45 billion decrease in the latest week was primarily due to a a drop in loans by smaller banks. The pullback in total lending in the last half of March was broad and included fewer real estate loans, as well as commercial and industrial loans, inevitably taking a series toll on economic activity ahead.
Friday’s report also showed commercial bank deposits dropped $64.7 billion in the latest week, marking the 10th-
straight decrease that mainly reflected a decline at large firms, as depositors are switching their cash into higher yielding money market funds.
Both find their causes in the sharpest increase in rates in decades to fight the sharpest surge in inflation since the 1980s, itself caused by unorthodox monetary policies pursued for more a decade, themselves being a reaction to the Great Financial Crisis of 2008, itself the result of the greed animal spirit and lax regulation and supervision of America’s liberal system.
Macro-economic and financial chain-reactions are highly predictable, and today, the disconnect between the behaviour of equity markets and economic realities simply reflects the irrational hopes of investors, economists and the Fed itself for a quick end to the inflationary splurge and a miraculous soft landing without recession.
Unfortunately, all the signs of the upcoming recession are already visible for those who look at facts and analyse trends and in 2023 -2024, it may prove to be sharper and faster than most expect.
In an over-leveraged world, following years of zero-interest rate policies, the impact of rising rates is everywhere to be seen and far more damaging than would have been the case in a normal environment.
If there was only one chart to look at, it is the following.
In the US, households consumption represents nearly 70 % of GDP, Investments by corporations and the State representing the rest.
As seen above with the sharpest decline in lending since 1973, companies technology like industrial laying off workers and downsizing like we have not seen since 2008, and the real estate sector falling sharply, Investments are bound to be a drag on GDP already.
But for households, with the cost of carry of credit cards, auto loans and mortgages exploding by 66 % in the past 24 months, a rate of increase never seen before, and savings having been depleted to zero, US consumption is bound to fall off a cliff very soon.
So the upcoming recession It is not a maybe, it is unfortunately a macro-economic mechanical certainty, and its impact on corporate earnings and equity valuations are also a certainty.
Now that Easter is passing, we may well see the Frits signs in the upcoming corporate results of the first quarter of 2023 and will probably see its downward acceleration in the second and third quarter of the year.
But, enough said on the macro front where we have detailed the analysis at length over the past months, having predicted this recession and the timing of its unfolding more than a year ago , as we accurately predicted the return of inflation in previous years and the banking crisis a few months ago.
We will just leave our readers with, to us, the two most significant charts for what is to come ahead:
1. Our roadmap for the SP500 Index, as a general proxy for western equity markets.
We are very close to, or have already topped out, and are soon entering a bear phase that will take the SP500 towards pour ultimate target of circa 3’000. by October / November 2023.
1. Our roadmap for SILVER, as a general proxy for Gold and Precious Metals
We are entering a very positive environment for Gold and precious metals that will see them outperform mots asset classes in the coming five years, with silver itself outperforming Gold.
Last week’s Gold’s quick breakout above 2000 was faster than we expected, but testifies of the strength of the initial move as central banks have become major buyers for their foreign exchange reserves, reducing their Dollar holdings, individuals hedging themselves again not inflation, and geo- political tensions adding another layer of demand.
In the short term, we could certainly see a bit of a pull back, but any pullback should be taken as an opportunity to add to a strategic long exposure to precious metals.
We Wish all our Christian Friends a Very Happy Easter !
Weekly Market Review
9 Apr 2023
Macro Highlights
Food Prices Fall 20.5% from Record High
The FAO Food Price Index dropped for a 12th month to 126.9 points in March 2023, hitting the lowest level since July 2021, and down 20.5% from the record hit in March 2022. The cost of cereals declined 5.6%, with international prices falling 7.1% for wheat, amid ample global supplies and strong competition among exporters. Prices for vegetable oils went down 3% as lower soy, rapeseed and sunflower oil quotations more than offsetting higher world palm oil prices; and cost of dairy edged 0.8% lower, driven by cheese and milk powders, while butter prices increased. On the other hand, prices rose for meat (0.8%), namely bovine meat, amid rising internal prices in the US, where cattle supply is expected to be lower in the months ahead. Prices also went up for sugar (1.5%), with the index hitting its highest level since October 2016 amid concerns over lower global availabilities in the 2022/23 season, following declining production prospects in India, Thailand, and China.
US Job Cuts Surge in March
US-based employers announced 89.7K job cuts in March of 2023, 319% above 21.387K a year earlier and 77.77K in February as higher interest rates are forcing companies to cut costs. It was the third time this year that cuts were higher than the corresponding month a year earlier. Considering Q1, employers announced 270,416 cuts, the highest first quarter total since 2020, and a 396% increase from the 55,696 cuts announced in the same period one year prior. Technology companies have announced 102,391 cuts so far this year, up 38,487% from the 267 cuts the sector announced in the first quarter of 2022. Financial companies announced the second-most job cuts this year with 30,635, a 419% increase from the 5,903 cuts announced in the sector in Q1 2022. Meanwhile, US employers announced plans to hire 9,044 workers in March, down from 28,830 in February and the lowest total for March since 2015. Considering Q1, there were 70,638 plans to hire, the lowest Q1 total since 2016.
US Initial Jobless Claims Decline sharply
The number of Americans filing for unemployment benefits fell by 18 thousand to 228 thousand in the week ending April 1st. The previous week’s data was revised sharply up to 248K from 196K initially reported reflecting a change in the methodology of adjusting for seasonality by the US Department of Labor. Large revisions since 2018 show that unemployment benefits applications were much higher than previously reported, consistent with other recent jobs data to show some softening in the labor market. The four-week moving average, which removes week-to-week volatility, fell by 4,250 to 237,750. On a seasonally unadjusted basis, initial claims fell by 17,262 to 206,931, with notable decreases in California (-6,337) and Michigan (-3,333)
US Economy Adds Less Jobs than Expected
The US economy created 236K jobs in March, the least since December of 2020, and compared to forecasts of 239K, after unusually mild weather and seasonal factors lead to strong jobs gain in the first two months of the year. Although the reading showed a gradual cooling in hiring as the economy normalizes after the pandemic shocks and as high borrowing costs and prices force companies to cut costs, it still points to a strong labor market. Employment continued to trend up in leisure and hospitality (72K), namely food services and drinking places; government (47K); professional and business services (39K); and health care (34K). Meanwhile, employment edged higher in transportation and warehousing (10K) but fell in retail trade (-15K), namely building material and garden equipment and supplies dealers. Employment showed little change in mining, quarrying, and oil and gas extraction; construction; manufacturing; wholesale trade; information; financial activities; and other services.
US Used Car Prices Rise at Slower Pace
The Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its US wholesale auctions, increased 1.5% month-over-month in March of 2023, the smallest rise in three months, moderated by the seasonal adjustment. It compares with a 4.3% surge in February, which was the biggest gain since October of 2021. Six of eight categories showed gains between 0.5% and 2.1% while vans were flat, and sports cars lost 1.6%. Meanwhile, prices for used cars went down 2.4% year-on-year, the least in six months. Seven of eight major market segments continued to see prices falling: midsize and compact cars lost 1.4% and 2.2%, respectively, while luxury cars lost 8%. Pickups showed a 0.6% increase.
US Hourly Earnings Growth at 2-Year Low
Average hourly earnings for all employees on US private nonfarm payrolls increased by 4.2% year-on-year in March 2023, down from 4.6% in the prior month and slightly below market forecasts of a 4.3% rise. It was the smallest increase in annual average hourly earnings since June 2021.
Canadian Economic Activity Growth Accelerates
The Ivey Purchasing Managers Index in Canada jumped to 58.2 in March of 2023 from 51.6 in February, beating market forecasts of 56.1, indicating that purchases were greater than in the previous month. Employment (60.3 vs 59.4) and inventories (54.5 vs 53.7) rose faster, price pressures eased (62 vs 65.3) and the supplier deliveries index declined (54.1 vs 55.8).
Canada Jobless Rate Below Forecasts at 5%
The unemployment rate in Canada was at 5% for a fourth consecutive month in March of 2023, remaining close to the record-low of 4.9% observed in June and July 2022, and compared to market forecasts of 5.1%. Most unemployed people had been unemployed for 13 weeks or less (63.4%) and 16% were unemployed for 27 weeks or more. The unemployment rate fell 0.8 percentage points for male youth to 9.9%, and fell 0.6 percentage points for female youth to 8.5%. The unemployment rates for core-aged women (4.2%) and men (4.4%) have hovered around historical lows in the past 12 months, and were both little changed in March. Meanwhile, the Canadian economy added 35,000 jobs in March, total hours worked rose 0.4% and average hourly wages went up 5.3% year-on-year.
China Services PMI Climbs to 28-Month High
The Caixin China General Services PMI increased to 57.8 in March 2023 from 55.0 in February, pointing to the largest expansion in activity since last November 2020, boosted by a sharp rise in new orders and employment after the easing of COVID-19 measures. New orders advanced the most in 28 months, with new export business growing at the quickest rate since the series began in September 2014. Employment rose at the fastest pace since November 2020, while the accumulation rate added on the month but was mild overall. On the price front, input cost inflation accelerated to a seven-month record due to higher wage costs and raw material prices. At the same time, output cost inflation picked up marginally as firms’ abilities to pass on higher cost burdens to clients were limited. Finally, business sentiment deteriorated to a three-month low.
China Composite PMI Rises to 9-Month High
The Caixin China General Composite PMI increased to 54.5 in March 2023 from 54.2 in the prior month. It was the third straight period of growth in private sector activity and the strongest pace since last June amid the removal of strict pandemic measures. An accelerated rise in services activity offset a softer upturn in manufacturing output. New orders advanced at a rapid rate that was only fractionally slower than February’s 21-month record. Growth in new orders picked up at services firms, while manufacturers noted weaker sales. At the same time, export orders fell slightly due to a drop in foreign demand for manufactured items. Employment added modestly for the second month, and inflationary pressures were broadly stable and mild. “… the foundation for economic recovery is not yet solid,” said Dr. Wang Zhe, an economist at Caixin Insight. “Looking forward, economic growth will still rely on a boost in domestic demand, especially an improvement in household consumption.”
Hong Kong Private Sector Growth Stays Robust
The S&P Global Hong Kong PMI edged down to 53.5 in March 2023 from the 9-month high of 53.9 in February. It was the third consecutive period of growth in private sector activity, as the economy resumed normal operations after the city removed all pandemic restrictions. Output and demand, including those from the mainland and other regions, rose, prompting a further increase in employment. Meanwhile, incomplete business accumulated for the third month running. Inventory levels also expanded for the third time, accompanied by higher buying levels. Vendor performance improved for a fifth month as firms continued to enjoy efficiencies from the recent relaxation of COVID measures. On the cost side, input cost inflation climbed on elevated purchase prices and the fastest wage rise in a decade. Consequently, firms lifted their charges to the 12-year peak. Finally, sentiment eased from February’s series record but stayed well above average.
China Forex Reserves Rise on Weaker Dollar
China’s foreign exchange reserves rose to USD 3.184 trillion at the end of March 2023, up from USD 3.133 trillion in the prior month and above market expectations of USD 3.149 trillion, as the US dollar fell against other major currencies. The yuan appreciated 0.86% against the USD in March, while the dollar fell 2.3% against a basket of other major currencies amid expectations the US Federal Reserve will soon pause its rate-hike cycle. At the same time, the value of the gold reserves increased to USD 131.65 billion at the end of March from USD 120.68 billion at the end of February.
UK House Price Growth Slows to 3-1/2 Years
The Halifax house price index rose by 1.6 percent from a year earlier in March 2023, easing from a 2.1 percent increase in the previous month. This was the weakest rate of annual growth in since October 2019, having fallen markedly since June 2022’s peak of 12.5 percent. However, overall these latest figures continued to suggest relative stability in the housing market at the start of 2023, amid a partial recovery in activity and transactions due to easing of mortgage rates, especially when compared to the significant drops seen at the end of last year. Still, the housing market is expected to slow further this year on the back of higher borrowing costs and lower housing demand, and as the increased cost of living continues to put significant pressure on personal finances.
UK Construction Growth Eases in March
The S&P Global/CIPS UK Construction PMI dropped to 50.7 in March 2023, down from 54.6 in the previous month and well below market consensus of 53.5. The latest reading signaled a marginal overall increase in total construction output, with civil engineering works leading the growth. At the same time, commercial building work growth slowed from a nine-month high and housing activity contracted the most since May 2020, with firms citing fewer tender opportunities due to rising borrowing costs and a subsequent slowdown in new house building projects. Still, total new work rose the most since last July and the rate of job creation accelerated to its fastest since last October. On the price front, input cost inflation eased to the second-slowest since November 2020, but remained high overall. Finally, business sentiment hit an over one-year high in March, recovering further from the two-and-a-half year low seen in December.
German Industrial Production Tops Estimates
Industrial production in Germany surged 2% month-over-month in February of 2023, beating market forecasts of a meagre 0.1% gain. Production in the automotive sector/vehicle manufacturing, which is the largest one in Germany, increased 7.6% and construction rose 1.5%. Industrial output went up for capital (3.4%), intermediate (1.8%) and consumer goods (1.4%). On the other hand, energy production fell 1.1%. Figures for January were also revised higher to show a 3.7% increase compared to an initial estimate of 3.5%. With the revision, industrial production since December 2022 rose by 5.8%, which more than compensated for the significant decline of 2.4% in December.
Eurozone Construction Falls the Most in 3 Months
The S&P Global Eurozone Construction PMI dropped to 45.0 in March 2023, down from 47.6 the month before, indicating an 11th consecutive monthly contraction in activity levels across the sector that was the sharpest in three months. At the sector level, the decline in construction activity in the bloc was led by housing, followed by civil engineering and commercial activity. New business declined for a 12th consecutive month, at a rate that was the fastest since December, while the rate of job shedding quickened to the strongest recorded since last September. At the same time, the rate of deterioration in vendor performance was the weakest recorded since October 2019. On the price front, input cost inflation was the lowest since December 2020. Finally, sentiment among eurozone construction companies remained downbeat at the end of the first quarter of the year.
Germany Construction Shrinks at Faster Pace
The S&P Global Germany Construction PMI fell to 42.9 in March of 2023 from 48.6 in February, pointing to another month of sharp contraction in the construction sector, and the biggest so far this year. Housing activity was the weakest performer while commercial activity fell at a faster rate and work on civil engineering returned to contraction. Total activity and new orders both went down at quicker rates, leading building companies to cut back on purchasing activity and scale down workforce numbers. Firms remained pessimistic towards the outlook. On a brighter note, the cost of building materials and products rose at the slowest rate for almost two-and-a-half years in March, which coincided with the most marked improvement in supplier delivery times since March 2010.
French Construction Sector Contracts for 10th Month
The S&P Global France Construction PMI increased fractionally to 45.3 in March 2023 from 45.2 in the previous month. Still, the latest reading pointed to the tenth consecutive month of contraction in France’s construction sector which was strong overall. The volume of new construction projects fell at a sharper rate, linked to budget constraints at clients due to higher interest rates and elevated inflation. All three broad types of construction activity shrank during March, mostly residential projects, although solid decreases were also recorded for commercial and civil engineering work. Also, employment levels decreased, although purchasing activity was broadly unchanged. Average lead times continued to lengthen markedly, however, in part due to strikes and a shortage of workers at vendors. On the price front, input price inflation slowed to a 25-month low but remained steep overall. Lastly, construction companies turned pessimistic regarding activity over the next 12 months.
France Trade Deficit at 1-Year Low
France’s trade deficit narrowed to EUR 9.9 billion in February of 2023, the lowest in nearly a year, following a downwardly revised EUR 12.5 billion in the previous month. Imports fell 1.9 percent month-over-month to a ten-month low of EUR 60.9 billion, as falling prices led to a decline in energy imports although volumes purchased also dropped. Meanwhile, exports rose 2.6 percent to EUR 50.9 billion. The energy gap narrowed to EUR 6.9 billion from EUR 7.9 billion in January. Excluding energy, the trade deficit declined to EUR 5.1 billion from EUR 6.8 billion. As regards manufacturing industry, the balance of trade in intermediate goods and that of capital goods each improved by 0.2 billion and that of consumer goods by 0.1 billion.
France Current Account Deficit Smallest in Nearly a Year
France’s current account deficit fell slightly to EUR 3 billion in February 2023 from a downwardly revised EUR 3.3 billion in the previous month. This was the smallest current account gap since March last year, as the goods shortfall shrank to EUR 8.6 billion from EUR 9.9 billion and the secondary income deficit was unchanged at EUR 3.5 billion. In the meantime, the primary income surplus decreased to EUR 6.3 billion from EUR 6.5 billion in the prior month and the services surplus also went down to EUR 2.7 billion from EUR 3.5 billion.
Italy Construction Activity Contracts the Most in 3 Months
The S&P Global Italy Construction PMI fell to 47.4 in March 2023 from 48.9 in February, pointing to the sharpest rate of contraction seen in the past three months as ongoing uncertainty, in part related to the government’s suberbonus scheme, continued. Firms also reported that new orders were again diminished, falling for a fourth month in a row. That said, employment growth was sustained, and confidence in the future picked up. Input price inflation softened again, and supply-side constraints continued to show a relative improvement with average lead times lengthening only modestly.
Austria Wholesale Prices Fall for 1st Time in Over 2 Years
Wholesale prices in Austria were down by 0.4% from a year earlier in March 2023, after a 10.2% surge in the previous month. That was the first drop in wholesale prices since January of 2021, mainly on lower prices for waste and scrap (-34.4%), iron and steel (-29.4%), plastics and rubber in primary forms (-26.9%) and other liquid and gaseous fuels and related products (-22.1%). Significant price reductions were also recorded for motor spirit (-15.4%), grain, seeds and animal feeds (-14.1%), fertilisers and agrochemical products (-12.3%) and non-iron metals (-6.3%) as well as hides and leather (-4.4%). Conversely, sharp increases were recorded for industrial chemicals (+41.6%), dairy products, eggs, edible oils and fats (+30.0%), sugar, chocolate, sugar confectionary (+25.2%), other food (+24.8%), solid fuels (+22.5%), stationary (+22.3%) and coffee, tea, cocoa and spices (+21.4%). Compared to the prior month, the wholesale price index decreased by 0.8% in March.
Austria Industrial Output Growth Quickens to 9-Month High
Industrial production in Austria surged by 8.5% year-on-year in February 2023, after a revised 1.% rise in the previous month. It marks the fastest growth in industrial activity since May last year, boosted by energy (+22.6%), capital goods (+11.2%), notably the manufacture of machinery and equipment (+17%); consumer durables (+13.1%) and consumer non-durables (+4%). On the other hand, output fell for intermediate goods (-2.8%). On a seasonally adjusted monthly basis, industrial production rose by 5.7% in February, after an upwardly revised 2% increase in the prior month.
Austria Posts Widest Trade Gap in 5 Months
Austria’s trade deficit rose to EUR 2.10 billion in January 2023 from EUR 1.56 billion in the same month of the previous year. It was the largest monthly trade shortfall since August last year, driven partly by price developments. Imports jumped 10.7% year-on-year to EUR 17.52 billion, boosted by purchases of machinery and vehicles (+15.7%); chemical products (+11.1%) and fuels and energy (+8.2%). Within the fuels and energy group, the gas subgroup recorded an increase of 2.7% in value, while at the same time, volumes declined by 11.3%. Imports grew from the EU (+7.7%) and non-EU countries (+15.6%). Meanwhile, exports rose at a slower 7.6% to EUR 15.43 billion, boosted by shipments of machinery and vehicles (+12.6%) and processed goods (+5.8%). Exports increased to the EU (+7.8%) and non-EU countries (+7.1%).
Greece Trade Gap Smallest in 1-1/2-Years
Greece’s trade deficit fell to EUR 2.26 billion in February 2023, the smallest since September 2021, from EUR 3.34 billion in the same month a year ago. Exports jumped 19% year-on-year to EUR 4.40 billion, boosted by shipments to the EU (+27.1%), primary mineral fuels, lubricants; manufactured goods; food & live animals and chemicals & related products. Dispatches also increased to non-EU countries (+10.6%), mostly mineral fuels, lubricants; manufactured goods; food & live animals and machinery & transport equipment. Conversely, imports dropped 4.9% to an over one-year low of EUR 6.66 billion, weighed down by lower arrivals from non-EU countries (-13.6%). On the other hand, imports increased from the EU (+6.2%), mostly machinery & transport equipment and chemicals and related products.
Dutch Manufacturing Output Grows in February
The manufacturing production in the Netherlands rose by 0.4% month-over-month in February 2023, swinging from a 2.6% fall in the previous month which was the steepest decline since February 2021. Output rebounded for rubber & plastics (0.8% vs -1.2% in January), metal products (5.0% vs -3.0%), electronics (1.8% vs -10.2%), and repair and installation (0.1% vs -3.7%). Also, production in the machinery industry grew further (0.4% vs 0.4%). By contrast, output fell for food (-0.5% vs 1.2%), chemicals (-5.0% vs -1.2%), and transport & equipment (-0.4% vs 5.2%). On a yearly basis, it dropped by 2.0 %, the second straight month of fall, after a 2.3% decline in January.
Dutch Household Spending Rises the Least in 3 Months
Household consumption in the Netherlands increased 2.6 percent year-on-year in February 2023, slowing from a downwardly revised 6.1 percent rise in the previous month. It was the lowest reading since last November, amid much softer rises in spending on services (7.4 percent vs 11.4 percent in January). In addition, spending on durable goods fell (-2.0 percent 5.4 percent), mainly home furnishing and clothing. Also, spending dropped further for both food, drinks & tobacco (-3.8 percent vs -5.6 percent) and other goods, such as natural gas (-5.2 percent vs -2.5 percent). The household spending declined mainly for energy consumption. However, spending on motor fuels increased further.
Swedish GDP Contracts in February
Sweden’s gross domestic product shrank by 1.0 percent from a month earlier in February 2023, following an upwardly revised 2.2 percent expansion in January, mainly due to decreasing household consumption. Households’ finances have been squeezed due to the combination of high inflation and rising interest rates. On a yearly basis, the economy grew by 0.8 percent in February, slowing from a 2.3 percent expansion the month before.
Swedish New Orders Drop 4.7% YoY in February
Total orders received by Swedish industries fell 4.7% year-on-year in February of 2023, following a 10.5% plunge in the previous month. Orders for other electrical equipment registered the biggest fall (-50.2%), followed by machinery and equipment (-20.6%), textile and leather products (-20.6%), and mines and quarries (-17.4%). Orders received from customers in Sweden decreased 0.3% and orders received from customers abroad dropped 7.5%. On a seasonally adjusted monthly basis, orders grew 3.6%
Japan Coincident Index Rises from 8-Month Low
The index of coincident economic indicators in Japan, which covers a range of data, such as factory output, employment, and retail sales, climbed to 99.2 in February 2023 from January’s 8-month low of 96.4, flash data showed. The upturn was supported by a surge in the number of foreign visitors to the country after the Japanese government significantly eased pandemic border controls last autumn. Local media also said that Tokyo plans on May 8th to reclassify the COVID virus, from a disease category II disease (like tuberculosis) to category V (like the seasonal flu).
Japan Leading Index Highest in 4 Months
The index of leading economic indicators in Japan, which is used to gauge the economic outlook for a few months ahead on data such as job offers and consumer sentiment, increased to 97.7 in February 2023 from 96.6 in the previous month, a preliminary reading showed. It was the highest reading since last October, due to further recovery in the economy, with the service sector growing the most in over nine years, while manufacturing activity shrank at the softest pace in five months.
Japan Personal Spending Rises Less than Expected
Household spending in Japan increased in real terms by 1.6% yoy in February 2023, reversing from a 0.3% fall in the prior month but falling short of market estimates of a 4.3% growth. This was the first rise in personal spending since last October, as expenditures bounced back for housing (2.2% vs -12.1% in January), medical care (1.1% vs -7.1%), and transportation & communication (4.0% vs -1.0%). Also, spending grew further for clothing & footwear (10.4% vs 5.1%), fuel, light & water charges (13.2% vs 5.3%), and culture & recreation (10.8% vs 18.6%). On the flip side, expenditures continued to fall for both furniture & household utensils (-1.4% vs -9.1%) and education (-15.9% vs -9.6%), furniture & household utensils (-1.4% vs -9.1%).
South Korea Current Account Deficit Widens
South Korea’s current account recorded a deficit of $0.52 billion in February 2023, compared to a current account surplus of $6.42 billion in the same month of the previous year. The balance of goods recorded a deficit of $1.3 billion compared to a surplus of $4.35 billion in the same month of the previous year. The balance of service swings to a deficit of $2.03 billion from $ 90 million surplus in the same month of the previous year mostly due to a gap in the transport and travel account. In the meantime, the secondary income deficit widened to $310 million from $140 million. In contrast, the primary income account surplus increased to $3.12 billion from $1.56 billion in the same month of the previous year.
S&P Cuts Ukraine’s Credit Rating to ‘CCC’
S&P Global Ratings lowered on April 6th 2023 Ukraine’s sovereign credit rating to ‘CCC’ from ‘CCC+’ and changed its outlook to ‘negative’ from ‘stable’. The rating action follows Ukraine’s official announcement that it will restructure its foreign currency external debt to restore public debt sustainability by midyear 2024, as part of the recently agreed, four-year, $15.6 billion Extended Fund Facility arrangement with the IMF. The country is suffering from significant macroeconomic and fiscal pressures triggered by the ongoing war with Russia. S&P’s move reflects concerns about an issuer’s ability and willingness to meet its commercial, nonofficial financial obligations in full and on time if the commercial debt restructuring takes place in 2024, in light of protracted balance-of-payments and fiscal challenges. Moody’s credit rating for Ukraine was last set at Ca with stable outlook. Fitch’s credit rating for Ukraine was last reported at CC with n/a outlook.
Russia GDP GDP Shrinks 2.1% in 2022
Russia’s economy contracted by 2.1% in 2022, after a 5.6% expansion in 2021, mainly due to unprecedented international sanctions and direct-war costs due to its invasion of Ukraine. Also, deepening labour shortages due to partial mobilization and the exodus of Russian citizens from the country weighed on the country’s economic activity. It was still a much softer contraction than an earlier prediction of over 12%. Although wholesale & retail trade (-12.7%), manufacturing (-2.5%) and transportation (-1.8%) were some of the sectors which saw a decline in 2022, agriculture (+6.7%), construction (+5%), hospitality (+4.3%), public administration (4.1%) and financial services (+4.1%) advanced the most. On the expenditure side, private spending (-1.4%) and net external demand contributed negatively to the GDP, amid steep declines in exports (-13.9%) and imports (-15%). By contrast, fixed investment (+3.3%) and government spending (+2.8%), likely boosted by military spending, increased.
Lithium Plummets 60% Year-to-Date
Lithium carbonate prices plummeted by nearly 60% year-to-date to under CNY 215,000 in early April, the lowest in 16 months, as robust output and low demand continued to raise expectations of a supply surplus this year. The Chinese government ended cash subsidies for households purchasing new energy vehicles, magnifying downward pressure on lithium through abundant stocks. The overproduction of batteries at the end of 2022 to take advantage of subsidies drove battery producers to have unsustainably high inventories and prompted the sale of goods at a steep discount, with sharp capacity cuts in all streams of the supply chain. The bearish pressure in the near term persisted due to the EU’s decision to phase out carbon-emitting cars by 2035. In China, reports by Reuters indicated that top lithium producers agreed on a price floor of CNY 250,000 per tonne to combat the slump.
The Week Ahead
In the US, the Bureau of Labor Statistics consumer and producer prices index will fuel the debate on whether inflation peaked or could still surprise on the upside. Headline inflation likely rose 0.3% month-on-month in March, pushing the annual rate to 5.2% from 6%. Meanwhile, core inflation probably increased 0.3% over the previous month, with the annual rate reaching 5.6%. Producer prices were likely flat month-on-month, resulting in the yearly rate easing to 3.1% from 4.6%, which could mark the lowest reading since March/February 2021.
The week will also release the retail sales report, with forecasts pointing to an 0.4% month-on-month decline and a preliminary reading for the University of Michigan’s consumer sentiment and inflation estimates for April. Finally, the FOMC will release its meeting minutes. With the US central bank anticipated to end its tightening cycle in May, economists and traders are awaiting the minutes for further clues into the terminal level.
The Bank of Canada is expected to leave interest rates unchanged.
In the United Kingdom, the ONS will be publishing monthly GDP figures, alongside industrial production, construction output, and trade balance. Britain’s economy most likely grew by 0.2% in February, following a 0.3% expansion in January and industrial production rebounded.
In the Euro Area, industrial production is set to grow for the second month in February while retail sales are seen falling after a small recovery in January. At the same time, updated CPI reports are expected to confirm a slowdown in inflation across the board, particularly in Germany, Spain, and France. Investors will also keep an eye on Germany’s wholesale prices and current account; Italy’s industrial activity, and Turkey’s unemployment rate and industrial output.
China’s trade balance, inflation rate, and loan growth for March will be released. Key Chinese data is expected to move markets as recent PMI figures raised uncertainty over the impact of the country’s economic reopening on growth.
In Japan, consumer confidence figures for March will be published. Asia’s second-largest economy will also unveil industrial production for February. South Korea will release fresh unemployment figures and decide on its monetary policy, while Singapore’s GDP growth is expected to have moderated in Q1.
CALENDAR
Inflation
Bonds
USA
US 10-Year Treasury Yield at 7-Month Low
The yield on the US 10-year Treasury note fell for a seventh straight session to 3.28% on Thursday, holding at low levels not seen since September last year, as worries over the health of the US economy mount. Both initial and continuing jobless claims came higher than expected at 228K and 1823K respectively, adding to other data released during the week including the ISM PMIs, ADP and the JOLTS report which showed tighter financial conditions are already hurting the US economy. Most investors now see the Fed leaving the fed funds rate steady next month, with less than 40% expecting a 25bps rate hike. Meanwhile, the yield on the two-year note declined for a fifth day to 3.74%, its longest streak since July 2022, and also the lowest rate since September.
Europe
Asia
Currencies
Dollar Rises to Highest Level so Far this Month
The dollar index extended gains to approach 102.2 in thin Good Friday trade, hitting the highest level so far this month, after the NFP report renewed bets the Fed could move on with another 25bps hike next month. Prior to the release, the odds of a rate hike were falling and most investors were expecting the Fed to halt the increases. However, the payrolls report showed NFP near expectations at 236K, while the jobless rate unexpectedly fell and the annual pay growth slowed more than expected. However, the economic outlook for the US remains challenging, with data released during the week including jobless claims, ISM PMIs, ADP and the JOLTS report showing tighter financial conditions are already hurting the economy.
Euro Eases from 2-Month High
The euro eased back below $1.09, as investors remained cautious ahead of the highly-anticipated US jobs report due Friday. US data released earlier pointed to a mixed picture, with both private employment growth and job openings coming in below forecasts, while the level of jobless claims fell sharply last week. Still, the common currency remained close to a two-month high of $1.0973 touched on April 4th, amid expectations the European Central Bank will keep raising interest rates in the coming months to combat inflation. Data this week showed a strong comeback for German industry, with both factory orders and activity rising firmly in February. Last week, the latest CPI report showed the Eurozone inflation slowed in March to an over-year low of 6.9% as energy prices dropped for the first time in two years, but the core index accelerated to a fresh all-time high of 5.7%.
Sterling Eases from 10-Month High
The British pound was slightly down at $1.24, as investors turned to the US dollar following the release of mixed economic data from the US, while awaited Friday’s keenly eyed nonfarm payrolls report. Numbers for both US private employment and job openings came in below expectations, while weekly jobless claims declined sharply. In other economic news, Britain’s house prices rose for a third month in a row in March in a sign of “resilience” in the market. Still, sterling remained close to a ten-month high of $1.2525 touched on April 4th, as investors assessed views on the Bank of England’s policy path. Chief Economist Huw Pill said on Tuesday the central bank still could not be sure that it has raised interest rates enough to tame inflation, Governor Andrew Bailey said last week that the central bank might need to hike rates again after UK inflation unexpectedly rose to 10.4% in February and food inflation rose to a record high in March.
Crypto – Currencies
Equities
World Indexes
USA
Wall Street Turns Green Ahead of Holiday
US Stocks finished a choppy trading session on Thursday, the last trading day of the week, as investors awaited fresh jobs data due tomorrow following recent signs of a slowing economy. The Dow pared it early losses to finish slightly above the flatline, while the S&P 500 and Nasdaq 100 held on gains and added 0.3% and 0.7%, respectively. Revisions to the Department of Labor’s seasonality models showed that claims for unemployment benefits have been considerably higher than initial reports in the latest months. Other data this week also suggested some softening in the labor market, driving the yield on the 10-year Treasury note to a seventh-month low and supporting tech shares, with considerable gains for Alphabet (+3.7%) and Meta (+2.1%). Despite mounting evidence of a slowdown in the economy, Cleveland Fed President Mester was among the latest officials to warn that the fund’s rate should rise above 5% this year to quell inflation.
For the week, the Dow Jones outperformed, rising +1.91 % against 0.62 % for the Nasdaq.
Americas
Canadian Shares close the week higher
The S&P/TSX Composite index closed almost 0.2% higher around the 20,190 level on Thursday, snapped two-session losses as investors digested the latest economic data for hints on Canada’s growth outlook and the BoC’s incoming policy decisions. The national unemployment remained near its record low at 5% in March, underscoring tightness in the labor market and adding leeway for the Bank of Canada to increase rates. On top of that, Ivey PMI data showed that Canada’s economic activity expanded for a third straight month in March. Gains in technology (+0.3%) and industrials (+0.6%) shares offset the losses by energy producers (-0.7%). Meantime, financial sector booked 0.1% led by marginal gains from banks despite being pressured by turmoil for TD Bank as the lender’s exposure to US regional banks and Canada’s housing market make it the world’s most shorted banking stock. Shares for the giant lender dropped by 1.3% since Monday.
For the week, Canadian shares rose +1.28 %
Brazilian Equities Fall on the week
Brazil’s Ibovespa index ended 0.1% lower around the 100,800 level on Thursday, as investors awaited on the Brazilian fiscal scenario and the US interest rate outlook ahead of the Easter weekend. The focus now turns to the crucial monthly US jobs report for more clues about the health of the US economy, after a batch of recent data suggested a recession may be on the horizon. On the corporate front, Natura (-5%), Meliuz (-4.3%) Totvs (-3.7%) booked the top losses while Alpargatas (+5.3%), 3R Petroleum (+5.2%) and Lojas Renner (+4.9%) advanced the most. On the week, the Ibovespa declined by 2.79%.
Europe
European Stocks Rise Ahead of Easter Break
European equity markets rose on Thursday, with the benchamrk Stoxx 600 and the German DAX up 0.5% each. Banks added almost 2%, and travel and leisure stocks increased 1.4%, led by tourism group Tui following reports of strong booking demand. On the other hand, household goods companies retreated by over 1% and retailers went down 0.5%. In other corporate news, FedEx will consolidate its separate delivery companies into a single entity as it looks to cut costs and better compete with United Parcel Service and Amazon. On the economic data, German industrial output rose 2% in February, easily beating expectations, while UK house price growth slowed to a near three-and-a-half-year low in March. For the week, European stocks ended marginally higher. The European stock market will be closed Friday and Monday for Easter.
French Stocks End Higher
The CAC 40 index closed on a stable note at 7,325 on Thursday, amid an uncertain outlook for the global economy. There are increasing signs the US economy is cooling, although upbeat news came from China, with PMI data showing the services sector grew faster. Meanwhile, construction PMI surveys for Europe pointed to another month of contraction. The French construction sector contracted for the 10th consecutive month and markedly. In domestic news, nationwide protests against the French government’s plan to raise the retirement age for most workers from 62 to 64 have now entered their 11th day. Protesters are seeking to maintain pressure ahead of a ruling by the Constitutional Council on the conformity of the reform due on April 14. On the corporate front, Thales (+2.7%) and BNP Paribas (+2.5%) rose the most; while luxury stocks posted the biggest declines, with losses between 1.8%-3.2%. The CAC 40 finished the week about 0.8% higher. The market will be closed Friday and Monday.
Spain Stocks Post Weekly Gains of Nearly 1%, Ahead of Holidays
The IBEX 35 closed 0.6% higher at 9,312 in pre-festive trade on Thursday, tracking its European peers on the support from the financials and property sector. The strongest gains came from CaixaBank (4.30%), followed by Banco Santander, Unicaja, and Banco Sabadell, up by more than 3% each. Inmobiliaria and Merlin Properties also advanced by 2.58% and 2.37%, respectively. In the meantime, investors continued monitoring the latest US macroeconomic data. A batch of releases showed that the US labor market could be slowing. On the first week of April, the index rose by 0.86%.
Italian Shares Outperform on Thursday
The FTSE MIB index closed 1.3% higher at 27,215 on Thursday after underperforming other European benchmarks for two consecutive sessions, with support from banks and utility providers. UniCredit and Finecobank both finished more than 2.5% higher to set the pace for financial companies and bounce back from recent losses. In the meantime, Enel jumped 3.3% to lead the gains for utilities, amid continued support from lower natural gas prices. Among other sectors, Leonardo advanced 2.7% after securing a contract to develop cybersecurity solutions for Siemens. In the meantime, investors monitored the latest US macroeconomic data and its potential impact on the Fed’s policy. A batch of releases this week showed that the US labor market could be softening ahead of the key NFP release tomorrow. The Milan stock exchange will be closed Friday and Monday for Easter, meaning the FTSE MIB closed the week marginally above the flatline.
FTSE 100 Extends Gains, Posts Third Weekly Gain
Equities in London advanced for a second consecutive session on Thursday, with the benchmark FTSE 100 closing above the 7,700 mark, driven by the real estate and financials sectors. Still, mounting fears of a US economic recession that were triggered by recent weaker-than-expected jobs data kept investors on edge. Domestically, British house prices rose for a third month in March. Admiral Group and Unite Group were among the biggest gainers in the FTSE 100, up roughly 3.6% and 3.3%, respectively. Shell rallied nearly 2.5% as the energy giant forecasted higher liquefied natural gas output in the first quarter. On the flip side, Melrose Industries lost almost 3%. The export-oriented index rallied more than 1% this week, posting a third consecutive weekly gain. The stock market will be closed Monday for Easter.
Japan
Japan Stocks End Week on Downbeat Note
The Nikkei 225 added 49.93 points or 0.18% higher to finish at 27,522.56 in a muted session on Friday, advancing for the first time in three sessions, mainly supported by gains in financial stocks, electronics, and industrials. Fresh data showed personal spending in Japan increased for the first time in 4 months despite the rate of growth below expectations. Meantime, preliminary readings showed that the country’s leading index hit a 4-month peak in February and that the coincident index recovered from an 8-month low. In the US, Wall Street’s S&P 500 posted its first losing week in four Thursday as a batch of economic data stoked concern that the economy is slowing. Tokyo Electron jumped 2.2%, followed by Mitsubishi UFJ Financial (1.4%), Sumitomo Mitsui Financial (1%), Honda Motor (0.8%), and Daikin Industries (0.6%). For the week, however, the index fell 1.8%, the first drop in three, as evidence mounted regarding a potential global recession this year.
China
Shanghai Composite Hits 1-Month High
The Shanghai Composite gained 15 points or 0.45% to finish at 3,327.65 on Friday, the highest close in over a month, while booking a 1.7% jump for the week, as investors remain optimistic while capital inflows continue. The taxation administration said tax revenue in China would grow faster in Q2 of 2023 due to the low base and the concentration of large tax credit rebates in Q2 last year. Investors also welcomed news that Airbus will double production capacity in China of its top-selling jet. The move is a boost for Chinese manufacturing as other firms like Apple Inc. rethink production in the country amid rising tensions with the US. On Wall Street, S&P 500 and the Nasdaq ended their session higher, ahead of US monthly jobs data. Most sectors contributed to the upturn, led by healthcare, tech, and financials. Beigene Ltd. posted strong rises (13.7%), alongside Wuxi Apptec (6.6%), S.F. Holdings ( 6.1%), Jiangsu Hengrui Pharmaceutical (5.5%), and Advanced Micro-Fabrication (4.3%).
Hang Seng Gains 0.3% at Close
The Hang Seng added 56.61 points or 0.28% higher to end at 20,331.20 on Thursday, reversing losses from Tuesday’s session, as trading resumed from a holiday, supported by news that Chinese and EU leaders began a series of meetings in Beijing today after years of strained ties. Meantime, Reuters said that Chinese officials stepped up foreign travel to Asia and Europe as they seek to attract more investors. Also lifting sentiment was private data showing that China’s services sector rose the most in 28 months. Meantime, private sector growth in Hong Kong stayed robust last month, rising for the third month in a row. Consumers mainly gained, while financials were muted and tech and property were lower. Semiconductor Manufacturing was the top performer of the day, jumping near 7.5%, followed by Hansoh Pharmaceutical (6.1%), Innovent Biologics (5.1%), Shandong Weigao (4.6%), Chow Tai Fook Jewelry (3.4%), and Wuxi Biologics (3.2%). Markets will be closed Friday for the Good Friday.
Asia
India
Sensex Advances After RBI
The BSE Sensex closed 145 points higher at 59,830 on Thursday, its fifth consecutive session of gains after the Reserve Bank of India surprised market consensus and left its main repo rate unchanged at 6.5%. The MPC cited unprecedented geopolitical uncertainty and turmoil in the global economy as reasons for the rate pause, underscoring that a priority shift from the fight against inflation to stimulate growth. Still, the RBI raised its growth forecast for the fiscal year starting in April to 6.5% from 6.4% earlier, while lowering its inflation forecast to 5.2% from 5.3%. Real estate shares rallied following the decision, with Housing Development adding nearly 1%. Policy-sensitive auto manufacturers also benefited, with Tata Motors, Mahindra & Mahindra, and Maruti Suzuki adding between 2.5% and 1%.
Middle East
Commodities
Energy
Crude Oil Eases, Still Set for Sharp Weekly Gain
WTI crude futures edged down to nearly $80 per barrel on Thursday, as more data pointed to a potential recession that could hurt energy demand. Data out of the US showed the services sector growth slowed to a 3-month low, private companies added fewer jobs than expected and factory orders fell for the 2nd month, suggesting that the economy could be cooling. The US oil benchmark remains up about 6% this week after OPEC+ unexpectedly announced on Sunday that it will reduce output by 1.16 million barrels per day from May until the end of 2023. Also, the latest EIA data showed larger-than-expected draws in US crude and fuel stockpiles. US crude oil inventories fell by 3.739 million barrels last week, more than market expectations of a 2.329 million barrel decrease. Gasoline stocks declined by 4.119 million and distillate stockpiles by 3.632 million. Meanwhile, Saudi Arabia has raised the prices of its flagship crude for Asian buyers for the third straight month.
US Natural Gas Futures Fall Below $2.1
US natural gas futures extended losses below $2.1/MMBtu, the lowest since September 2020, as milder weather and lower heating demand should allow utilities to start injecting gas into storage this week. While the latest government data showed a bigger-than-expected storage draw last week, the stocks remain way above last year’s level. US utilities pulled 23 billion cubic feet (bcf) of gas from storage during the week ended March 31, more than market expectations of a 21 bcf withdrawal and compared with a 24 bcf withdrawal during the same week a year ago. Still, working stocks in underground storage amounted to 1.853 trillion cubic feet, 443 bcf higher than last year at this time and 298 bcf above the five-year average of 1.532 tcf. Meanwhile, the total amount of gas flowing to the seven biggest US LNG export plants rose to 13.9 bcfd so far in April, up from a record 13.2 bcfd in March. For the week, US natural gas prices are down 5%.
Copper
Copper Rebounds Past $4
Copper futures in the US advanced above the $4 per pound mark, rebounding from the two-week low of $3.98 touched on April 4th amid persistent concerns of tight supply. Inventories at the Shanghai Futures Exchange fell by over one-third since hitting their peak in February. At the same time, output from top producer Chile sank by 3.7% in February, magnifying low supply from Peru due to political turmoil. Depleting stocks worldwide drove key commodity trader Trafigura to forecast copper prices will rise to a record high this year. Meanwhile, supply and demand imbalances led Goldman Sachs to project a global shortage of visible copper inventories by September. In the meantime, investors continued to assess the outlook of the Chinese economy for hints of future demand, as mixed manufacturing PMI data extended the uncertainty over the impact of the country’s reopening on infrastructure activity.
Precious Metals
Gold Prices Halt 3-Day Winning Streak
Gold prices were slightly down to $2,008 an ounce on Thursday, halting a three-day winning streak, but holding close to levels not seen in over a year, as investors digest a gloomy economic outlook and uncertainty regarding monetary policy. Fresh economic data for the US including the ISM PMIs, ADP and JOLTS report showed tighter financial conditions are leading to a slowdown in the US economy, with markets seeing a greater probability the Fed will leave the funds rate steady next month. Also, both the RBI and the RBA paused the rate hikes this month. On the other hand, both the ECB and the BoE are likely to tighten further while the Reserve Bank of New Zealand unexpectedly delivered a 50bps rate hike. Gold is highly sensitive to the rates outlook as lower interest rates reduce the opportunity cost of holding non-yielding bullion. The bullion has gained 2% this week.
Soft Commodities
Corn Retreats from 6-Week High
Corn futures in the US fell to $6.4 per bushel level, retreating from the six-week high of $6.6 on March 31st as forecasts of favorable weather in growing regions of the US lifted supply expectations further. The strong momentum for world supply came after key producer Brazil projected a record crop of 125 million tons and a record export of 52 million tons in the 2022/23 marketing year. Meanwhile, worries about the global economic outlook also pressured US grain prices, limiting demand estimates for corn-based biofuels. Previously, corn futures rallied after OPEC+ nations abruptly cut oil output, raising the attractiveness for biofuel alternatives.
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