SMU (2023-03-05): Expectations and Speculations
Past Week’s News:
- US: Consumer confidence 67 (previous 64.9)
- US: ISM Service 55.1 (previous 55.2); Manufacturing 47.70 (previous 47.4)
- Euro Area: Unemployment 6.7% (previous 6.7%)
- China: PMI Service 55 (previous 52.90); Manufacturing 51.60 (previous 49.20); Composite 55.20 (previous 51.0)
Market Sentiment:
This past week we have seen a rebound from the previous two weeks’ pessimism. Fear vs Greed has increased to 71% from 66% but is still below 80% which was three weeks ago.
We can see that the net long of SP500 has come down to 50/50, and both EUR/USD and Gold have also come down as well.
The average increase of indices YTD is 8.25% with all major indices above 0%. However, if we look at the 200LB we can see that both SP500 and Nasdaq are at negative returns, even though they are near the 0% mark.
Volume had a negative spike but is now back around average, while the VIX is back at sub-20 (18.49).
Next week is going to depend on expectations and the real outcome of US nonfarm payroll and unemployment. Is the US going to continue to show strong numbers which might scare the markets of further rate hikes? Powell said last time the NFP came in strong that if it continues to show strength is going to continue with their attempts of cooling off the economy. So this is important to keep an eye on and trade safely because the markets can drastically change.
- This Week’s Fear vs Greed 71%
- Last Week’s Fear vs Greed 66%
- SP500 Net Long 50%
- Last Week’s SP500 Net Long 56%
- EUR/USD Net Long 54%
- Last Week’s EUR/USD Net Long 63%
- Gold Net Long 70%
- Last Week’s Gold Net Long 77%
Indices: 200LB & YTD
Market Update: Indices
Comment: Indices
- The cool-off came to a quick end and it now looks like the markets are trying to climb higher. SP500, Nasdaq, and HangSeng turned around SMA200. While the other indices continue to climb well above (some in the top part of the box while others are in “outlier country”).
- At the moment, the direction is hard to predict. I assumed indices needed to go down a little further in the recent cool-off, before starting to climb again. The fact that they are turning already might just be a recoil (which I am skeptical of). To me, it looks like most investors bought the dip and that the markets can continue to grind up in the coming week. Then the trend after is going to depend on expectations and the real outcome of US nonfarm payroll and unemployment. Is the US going to continue to show strong numbers which might scare the markets of further rate hikes? Powell said last time the NFP came in strong that if it continues to show strength is going to continue with its attempts of cooling off the economy.
US Sectors & Industries
- As expected, the defensive 2022 winners are still the losers YTD, and will likely continue to be so until markets start the journey toward new lows.
Market Update: Rates
Comment: Rates
- Rates have come down a little since the last spike. What to keep an eye out for next week is US NFP and Unemployment. Here, expectations are going to control the narrative until Friday, however, as we saw last month, expectations might differ a lot from real numbers. Therefore, the outcome can lead to high volatility in both rates and the different markets/sectors. If the US economy is showing more strength, then there is more room for the FED to increase rates and try to cool off the economy.
Market Update: FX
Comment: FX
- More or less the same comment as last week, but the opposite. Markets are showing strength = Rates are cooling off = USD is getting weaker against its peers.
- Same here, we will see on Friday what NFP and unemployment will show, and remember, until then, the markets will trade on expectation, which means that there can be rapid changes in narratives, so trade with caution.
Market Update: Commodities
Comment: Commodities
- Not that much to add since last week, except for Gold coming up a little. Other industrial metals are also showing strength which is most likely from China showing strength and increased productivity.
- Oil, wheat, and cotton continue with stabilizing their bottoms, and depending on what happens with the other markets this spring, they should break on the upside.
- Natural gas had a spike this week due to colder weather in Europe. I still believe we should expect an increase in Natural gas this spring, and maybe it is that journey that has started. This is interesting, so keep an eye out for this one. There can still be room on the downside if we look at the 10-year graph, but commodities are more fundamental than technical, so if the demand increases, then the price of natural gas is going to go up.
Summary:
- Markets have rebounded since last week and might continue to grind up. However, next week is going to be dependent on expectations and real outcomes of US NFP and Unemployment.
- Rates have come down a little, but might continue up if NFP and unemployment come in stronger than expected.
- The inverse relation between markets, rates, and FX continues: Markets are showing strength = Rates are cooling off = USD is getting weaker against its peers.
- Gold and metals have come up a little due to increase productivity in China. Oil, wheat, and cotton are accumulating in a bottom range and are charging to go up. Natural gas has spiked up and might be on its way to changing its negative trend.
Next Week:
| Day: | Country & Indicator |
| Monday | – |
| Tuesday | US: Consumer confidence |
| Wednesday | US: ADP; Euro Area: GDP (Final) |
| Thursday | China: CPI & PPI |
| Friday | US: Nonfarm Payrolls & Unemployment |