North American News
US stocks hit by late selling as S&P 500 finishes on the lows
- S&P 500 closes down 24 points, or 0.6%
It was a back-and-forth session of trading as tech battled with economic worries but ultimately the bears won as heavy selling hit in the final 10 minutes of trading.
- S&P 500 -0.6%
- Nasdaq Comp -0.2%
- DJIA -1.0%
- Russell 2000 -1.2%
One stock to watch is PacWest Bancorp, which fell 15% in a sign that banking worries continue to fester. In terms of big cap stocks, Nike fell 2.7% in an indication that strong retail sales today didn’t assuage economic fears.
Atlanta Fed GDPNow for Q2 growth 2.6% versus a 2.7% last
- GDP Q2 growth still solid at 2.6%
The Atlanta Fed GDPNow estimate for 2Q dips to 2.6% from 2.7% last. In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 2.6 percent on May 16, down from 2.7 percent on May 8. After recent releases from the US Bureau of Labor Statistics, the US Census Bureau, the US Department of the Treasury’s Bureau of the Fiscal Service, and the Federal Reserve Board of Governors, decreases in the nowcasts of second-quarter real personal consumption expenditures growth and second-quarter real government spending growth from 1.8 percent and 2.3 percent, respectively, to 1.6 percent and 2.1 percent were partially offset by an increase in second-quarter real gross private domestic investment growth from 4.2 percent to 4.6 percent.
US April industrial production +0.5% vs 0.0% expected
- US April 2023 industrial production data
Details:
- Mining output +1.0% vs -0.5% prior
- Manufacturing output % vs -0.5% exp
- Capacity utilization 79.7% vs 79.7% exp
- Motor vehicle assembly rate m units 11.40 vs 10.03m prior
- Industrial output ex autos and parts +0.4% vs +0.5% prior
Fed’s Mester says she doesn’t think they’re at the spot to hold rates yet
- Hawkish comments from Mester
- I would like policy rate to get to a point where it could equally be a potential increase or decrease
- I don’t put it in terms of a pause, I put it in terms of a hold
- I don’t think we’re at that hold rate yet
- There is four week weeks to go until the next meeting, need to see more data
- At this point, given how stubborn inflation is, I can’t saw I’m at a level where it’s equally probable that the next thing would be an increase or a decrease
- Seeing some slowdown in labor conditions
- Rates not at a sufficiently restrictive level
Feds Goolsbee on Bloomberg: Wants to get inflation back down to target
- Fed’s Goolsbee speaking on Bloomberg
- Once again inflation back to target without generating recession
- Starting to see some slowing inactivity
- He has not decided anything for the June meeting
- It would be a mistake to commit to a rate move 1 more data is coming
- Some of the froth has been taken off the labor market
- Not sure if put enough restraint on the economy yet
- Housing inflation hasn’t come down yet but we expect it to
- Far too premature to be talking about rate cuts
- Housing inflation hasn’t come down yet but we expect it to
- Not sure if we’ve put enough restraint on the economy yet
- I want to get inflation back to target without generating a recession
Fed’s Barr: We are looking carefully at commercial real estate risk
- Barr is in charge of supervisory at the Fed
- We are carefully looking at commercial real estate risk
- The fact that bonuses were paid on the day SVB failed was outrageous; Are investigating
- Expects to be be able to present thinking on the Feds holistic capital review by this summer
- There is a heightened risk related to the debt ceiling
US April retail sales +0.4% vs +0.8% expected
- US April 2023 retail sales data
Details:
- Ex autos +0.4% vs +0.4% expected
- Prior ex autos -0.4%
- Control group +0.7 vs +0.3% expected
- Prior control group -0.3%
- Ex autos and gas +0.6% vs -0.3% prior
- Gasoline stations -0.3% vs -5.5% m/m prior
- Electronics and appliance stores -0.5% vs +2.1% m/m prior
- Furniture stores -0.7% vs –1.2% m/m prior
- Restaurants -0.2% vs +0.1% m/m prior
NAHB housing market Index for May 50 versus 45 estimate.
- National Association of homebuilders housing market Index for May 2023
- NAHB housing market Index for May rises to 50 from 45 last month and 45 estimate. 5th straight month of gains
- Current single family home sales 56 versus 51 in April
- home sales over next 6 months 57 versus 50 in April
- index of prospective buyers 33 versus 31 in April
Fed’s Barkin: If more hikes needed to bring down inflation, I’m comfortable with that
Thomas Barkin, president of the Federal Reserve Bank of Richmond, told Bloomberg on Tuesday that he would be comfortable with more rate increases if that’s what is needed to bring inflation down.
Barkin comments:
“I like the optionality implied in the statement from last meeting.”
“Deposit flows are stable at banks in my district, encouraged by the resilience I’ve seen.”
“Commercial office sector is where you hear the most concern.”
“Most people I talk to anticipate a downturn over coming quarters.”
“When it comes to downsizing, businesses are quite cautious, reluctant to let staff go.”
“Businesses will not give up pricing power unless they’re forced to do it.”
Commodities
Gold plunges amidst US economic resilience, high US bond yields
- Gold prices fall 0.80% as US economic data showcases resilience, led by strong retail sales and industrial production figures.
- Hawkish tones from Fed officials Mester and Barkin contribute to rising US Treasury bond yields, further pressuring gold prices.
- Upcoming speeches from New York Fed John Williams, Dallas Fed Lorie Logan, and Atlanta’s Fed Raphael Bostic may provide more insight into the economic outlook.
Gold price is erasing Monday’s gains, plunging 0.80%, as data from the United States (US) showed signs of resilience amidst a solid retail sales report. Industrial Production recovered in April, though manufacturing production stood at contractionary territory. The factors mentioned above and the US bond yields rising were a headwind for XAU/USD prices. At the time of writing, the XAU/USD is trading at $2000.91 after hitting a daily high of $2018.28.
Solid Retail Sales and Industrial Production data strengthen the greenback and XAU/USD dips
The US economic agenda revealed that Retail Sales rose by 0.4% MoM, below estimates of 0.8%, while excluding autos rose by 0.4% MoM, aligned with estimates. It should be said that both figures surpass March’s readings, which showed sales plunging. Annually based figures rose by 1.6% below the prior’s month 2.4% rise, suggesting an ongoing deceleration of the United States (US) economy.
In another data, the US Federal Reserve (Fed) reported that Industrial Production in April rose by 0.5% MoM, above estimates of 0%, while annually based, uptick to 0.2% from 0.1% in March. The same report showed that Manufacturing Production expanded at a 1% MoM pace, crushing forecasts of 0.1%, with motor vehicle production underpinning the figures.
On the data release, XAU/USD extended its losses and reached a two-day new low of $1998.17 before trimming some of its losses. US Treasury bond yields continued to rise as Federal Reserve officials led by San Francisco Fed President Loretta Mester and Richmond’s President Thomas Barkin sounded hawkish.
Mester said that the Fed cannot do much about slowing long-term economic growth but can “do its part” by tackling inflation. She emphasized the Fed’s commitment to getting inflation to the 2% target. In the meantime, Thomas Barkin said that if more increases are needed to bring down, he’s “comfortable with that.”
Silver slumps to six-week lows amidst higher US T-bond yields
- Silver prices slide as US retail sales data spur a jump in US Treasury bond yields, driving XAG/USD down to six-week lows around $23.64.
- Technical outlook shows a double-top chart pattern with XAG/USD between 50 and 100-day EMAs, while a bearish RSI suggests further declines may be imminent.
- XAG/USD could target the $22.90 level if the 100-day EMA is breached, while reclaiming the $24.00 figure could pave the way for a rally toward the 50-day EMA and potentially $25.00.
Silver price continues to validate a double-top formation, falls to fresh six-week lows around $23.64, shy of testing the 100-day Exponential Moving Average (EMA) at $23.48. Factors like US Retails Sales improving in April spurred a jump in US Treasury bond yields, a headwind for the white metal. Therefore, the XAG/USD is trading at $23.73 after reaching a daily high of $24.10.
XAG/USD Price Analysis: Technical outlook
A double-top chart pattern remains as the XAG/USD continued to slide, sitting between the 50 and 100-day EMAs, each at $24.24 and $23.48, respectively. The Relative Strength Index (RSI) indicator at bearish territory suggests Silver’s fall could continue in the near term, but the 3-day Rate of Change (RoC) has begun to show that sellers are losing momentum.
If XAG/USD cracks the 100-day EMA, that will exacerbate a fall toward the $23.00 a troy ounce figure before sellers can reach the double-top’s objective to fall toward $22.90, shy of testing the 200-day EMA at $22.77.
On the other hand, if XAG/USD reclaims the $24.00 figure, that could exert upward pressure on the XAG/USD and open the door to test the 50-day EMA. A breach of the latter will expose the February 2 high at $24.63 before challenging the $25.00 psychological figure.
IEA warns latest oil price drop is running against backdrop of a supply crunch in 2H 2023
- IEA with some comments in their latest oil market report
- Global oil demand set to rise by 2.2 mil bpd in 2023 to a record 102 mil bpd
- Current market pessimism stands in stark contrast to tighter market balances in 2H 2023
- That is when we expect demand to exceed supply by almost 2 mil bpd
- China will account for nearly 60% of global oil demand growth this year
- China’s demand recovery has surpassed expectations, reaching a record 16 mil bpd in March
EU News
European equity close: Modest losses with the UK lagging
- Soft jobs data in the UK added to equity market selling
Closing changes for the main European bourses:
- Stoxx 600 -0.4%
- UK FTSE 100 -0.3%
- German DAX -0.1
- French CAC -0.1%
- Italy MIB -0.1%
- Spain IBEX -0.1%
Eurozone Q1 GDP second estimate +0.1% vs +0.1% q/q prelim
- Latest data released by Eurostat – 16 May 2023
- Q1 GDP +1.3% vs +1.3% y/y prelim
Germany May ZEW survey current conditions -34.8 vs -37.0 expected
- Latest data released by ZEW – 16 May 2023
- Prior -32.5
- Outlook -10.7 vs -5.3 expected
- Prior 4.1
Central banks have lost a degree of trust, says ECB’s Makhlouf
- Remarks by ECB policymaker, Gabriel Makhlouf
- I think we have lost a degree of trust
- That affects what we should be doing with our decision making
- We should be explaining it to more people, do more in terms of thinking about the audience we’re talking to
- We need to be explaining what we’re seeing and why we’re making the judgements we are and talk to the people and communities in a language they can understand
Other News
US retail sales report quells recession fears – CIBC
- CIBC on today’s US retail sales report
US consumers ended Q1 on a cautious note but opened their wallets again in April, aside from spending on gasoline.
The headline on the report was soft but the important part was the surprise strength in the control group, which excludes autos, gas and building materials.
CIBC:
Although clothing, furniture and sporting goods sales declined, restaurant spending grew on the month, suggesting that overall, consumers, supported by the strong labor market, are still not fully pulling back on discretionary spending. This supports our call that a recession is not imminent and that the Fed will not cut rates until 2024.
Biden grants permit for key pipeline in West Virginia
- Key political tilt for Biden
The Biden administration has granted a permit to allow the mountain valley Pipeline to run through the Jefferson National Forest according to a NY Times article.
What: The project is expected to carry gas approximately 300 miles from Marcellus shale fields in West Virginia to Virginia. The pipeline will cover 3.5 miles of Jefferson National Forest, which is located between West Virginia and Virginia. This project, worth $6.6 billion, has been delayed for years due to legal issues and strong opposition from environmentalists, scientists, and many Democrats in Virginia.
Why: The decision is seen as a strategic move by the Biden administration to appease Senator Joe Manchin of West Virginia, a Democrat who strongly supports fossil fuels and is up for potentially challenging re-election next year. Despite President Biden’s ambitious climate agenda, he needs the support of Senator Manchin and moderate Republicans to pass legislation that is critical for speeding up the construction of renewable energy projects. The decision also aligns with Biden’s recent efforts to support fossil fuels and placate centrists while deflecting Republican criticism about his climate policies undermining American energy security.
House Majority Leader McCarthy: We need to get a framework for a debt deal by this weekend
- The clock continues to tick
House Majority Leader McCarthy is saying:
- He is in agreement on Treasury Secretary Yellen timetable
- we need to get a framework for debt deal by this weekend
- Tighter work requirements for welfare programs SNAP (supplemental nutrition assistance program) and TANF (temporary assistance to needy families) in debt ceiling talks. The inclusion was a red line item for McCarthy
Update: McCarthy says still very far apart on debt ceiling talks, but deal possible by end of the week
Biden begins debt ceiling meeting with Congressional leaders
- Biden says he has no comments to make ahead of the meeting
Reminder: The US has raised the debt ceiling 78 times since 1960 and has never once defaulted.
Cryptocurrency News
Polygon investors’ activity stumbles as MATIC price crashes by 30% in a month
- MATIC price has been on a decline since April 16, losing nearly 30% after hitting $1.18 to trade below $0.84 at the time of writing.
- The active address ratio is currently at 0.26%, lower than even Floki Inu’s 0.39%.
- Investor’s decision to stay put for now makes sense as nearly 74% of all MATIC holders are underwater, awaiting profits.
MATIC price has witnessed the lower ranges of March over the last month and is currently on the way to potentially test year-to-date lows. The fear of this happening has left investors paranoid, resulting in their pull back from the network. This maneuver will end up playing in their favor as the altcoin is exhibiting signs of recovery.
MATIC price takes a break from forming lower lows
MATIC price has observed a drawdown of nearly 30% in the span of 30 days. After marking $1.18 as the April high, the cryptocurrency started charting red candlesticks bringing the price down to the $0.84 area at the time of writing.
This decline has spooked the investors to the point that they have pulled back from conducting transactions on the network. The active addresses, which were averaging around 3,000 around mid-April, have come down to 1,500 in the duration that MATIC price fell by 30%. The last time investors’ presence was this low was back in March 2021. This impacted the active address ratio as well, which is presently at an all-time low.
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