Trade The Journey

Trade The Journey

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Market Update

Good afternoon, traders! I hope everyone is enjoying their weekend and preparing for the week ahead. There wasn’t much data to significantly move the markets, and second-quarter earnings reports won’t begin until mid-July. The S&P 500 and Nasdaq have risen to new highs, while the Russell and Dow have struggled recently. According to the Treasury watch tool, markets are pricing in a 59.5% probability of a 25-basis point rate cut in September, up from 48.4% a month ago. Another 25-basis point cut is being priced into the December meeting with a 44.6% probability.

However, the latest Fed projections and statements have forecasted just one rate cut, which is tentative and dependent on inflation returning sustainably towards 2%. Treasury yields have edged lower over the past month but are near the levels reached three months ago. Yields remain higher across all maturities compared to a year ago as the Fed maintains its higher-for-longer stance.

Some central banks have already begun to ease while maintaining a cautious stance. From a purely technical standpoint, the S&P 500 and Nasdaq appear poised for a pullback as both indices’ RSIs are in overbought territory. However, attempting to time the pullback might be a fool’s errand. Commodities have been shaky recently with the dollar rising, making them more expensive for countries outside the US.

Copper, which is facing oversupply issues, has yet to revisit its high from late March of $5.199. Copper closed at its low on Friday at $4.43 but appears to be forming some support around this area. Gold isn’t far from its recent high of $2,454 but seems to be facing resistance at its 50 SMA of $2,356. Gold has been trading in a range lately and failed this past week to break above its 50 SMA, currently sitting at $2,334.

The dollar has been rising after facing some short-term resistance at its 200 SMA. After briefly falling below the $104 level, the dollar is nearing the $106 level after breaking through its 50 SMA, with resistance at $106.367, a level formed back in April. The dollar is currently at $105.832. Crude oil finally broke above the $80 level after breaking through both its 50 and 200 SMAs.

After sharply pulling back in early June to the $72.39 reference level, crude advanced, breaking through several reference levels. OPEC’s supply cuts remain intact, and the summer season, which is peak demand for traveling, has kept prices supported. The US economy continues to show resilience with a large majority of consumers still traveling and spending.

Global Economic Update

Around the world, various economic developments are unfolding. China left its short-term rate unchanged at 2.5%. The loan prime rate for both its 1-year and 5-year terms remained steady at 3.45% and 3.95%, respectively. China’s recovery is still uneven, hampered by slowing inflation and a troubling property market. Industrial production over the past year decreased from 6.7% to 5.6%, reflecting a slowdown in industrial and manufacturing output. Despite this, most sectors posted some growth.

Retail sales exceeded forecasts, growing by 3.7%, indicating that most industries are in recovery. Fixed asset investment rose by 4% over the past year, slightly lower than the 4.2% measured in the previous period. While investments in the secondary sector (manufacturing, mining, construction, and public utilities) edged lower, the primary sector (agriculture) and the tertiary sector (transportation, retail, finance, education, and healthcare) saw increases. Unemployment held steady at 5%.

In Japan, both exports and imports rose over the past year. However, foreign investment in stocks and bonds declined in June. Inflation edged higher last month, though core inflation (excluding food and energy) over the past year decreased from 2.4% to 2.1%. The overall inflation rate neared the high of 0.7% reached in October 2023. Prices increased across nearly all categories, putting additional strain on consumers as the Central Bank seeks to normalize policy. The manufacturing and composite PMIs remain in expansionary territory, while the services PMI edged into contractionary territory.

In the Euro Area, labor costs and wage growth rose over the past year as the ECB cut rates at its last meeting. The economic sentiment index increased by 4.3 points to 51.3, its highest level since July 2021. However, construction output declined for the third consecutive month after starting the year positively. Building activity, although in contractionary territory, is improving with declines observed in both Germany and France. The Euro Area consumer confidence index showed improved confidence but remained cautious.

Economic Data Insights

The Empire State Manufacturing Index showed general business conditions improved but still remaining in contractionary territory. Employment and hours worked during the week edged lower. Prices moderated for both input and selling. Inventories were unchanged while unfilled orders improved, now in positive territory. Supply availability is still lower, little changed from the previous month.

Despite the weak current activity, optimism for the six-month outlook reached its highest level in over two years, with the future business conditions index rising to 30.1. However, expectations for employment growth and capital spending remained subdued.

 The Philly Manufacturing Index showed activity in the region has remained mostly steady according to the June Manufacturing Business Outlook Survey. While the general activity index edged lower, it stayed positive, suggesting a stable environment overall. However, indexes for shipments and new orders continued to be negative, indicating challenges in these areas. Employment levels showed a slight improvement but remained negative, highlighting ongoing employment difficulties.

Price indexes indicated overall price increases, reflecting inflationary pressures. Despite a positive outlook for future activity, the expectations for growth over the next six months appear to be less widespread compared to previous months.

Business Inventories for April 2024 reveals a mixed landscape for manufacturing and trade inventories and sales. The combined value of distributive trade sales and manufacturers’ shipments rose slightly by 0.3% from March 2024 and 2.2% from April 2023, indicating moderate growth in trade activities. Meanwhile, inventories also saw a modest increase of 0.3% from the previous month and 1.0% year-over-year. The total business inventories/sales ratio remained stable at 1.37, suggesting a balanced inventory level relative to sales.

Manufacturing inventories saw only a slight increase, while retail inventories grew more significantly. Merchant wholesalers’ inventories showed minimal change. While there is some growth, certain sectors such as retail and motor vehicle parts dealers experienced varied performance, reflecting ongoing challenges in specific industries.

Retail sales for May rose 0.1% from the previous month, up 2.3% over the past year. Excluding motor vehicles & parts, sales fell 0.1%. Excluding gasoline stations, sales rose 0.3%. Gasoline stations’ sales were down 2.2% over the past month but rose 1.6% over the past year. General merchandise rose 0.1% over the past month, up 2.7% y/y. Miscellaneous store retailers rose 0.4% m/m and 7.3% over the past year. Food Services & drinking places down 0.4% m/m and up 3.8% y/y.

Food & beverage stores were down 0.2% & 0.4% and up 1.6% and 1.3% over the past year. Home improvement sales, which include furniture/building materials/garden equipment, was down over the past month and down sharply over the past year.

Moving to housing, building permits were down 3.8% this past month and down 9.5% over the past year. Single-family permits were down 2.9% over the past month and down 1.8% for 2-4 units. 5 or more units starts are down sharply from the previous month. Housing starts were also down over the past month and down sharply this past year. Single-family starts were down 5.2%. Completions fell 8.4% but are up 1% over the past year. The recent trend showed new construction edging lower towards the end of the month.

Single-family homes under construction edged lower and are down 2% over the past year. 5 or more units are down 1.5% this past month and close to 9% over the past year. Existing home sales in May edged lower as the median sales price hit a high. The median sales price is up 5.3% this past year and is currently at $419,300. The inventory of unsold homes rose 6.7% and there is a current supply of 3.7 months at the current sales pace.

The average mortgage payment is now double what homeowners were paying before 2020. Properties remained on the market for an average of 24 days, a little better than the 26 days in April. First-time homebuyers edged lower.

Initial claims came in slightly higher than forecasted, at 238,000 but lower than the previous week. The four-week moving average edged higher to 233,000, its highest level in several weeks. Continuing claims from June 8 now firmly at the 1.828 million level, and higher than the last few weeks.

Technical Story

This past week’s cash flow in review:

This past week, I struggled to manage my spending and ended up spending freely, which resulted in me having to withdraw money from my savings account. While there were some positive actions I took, there’s no justification for spending my entire paycheck. For the upcoming week, I hope I can excercise the  discipline required to prevent money from flowing out of my account unnecessarily.

Grade: F

Reason: Poor Money management

 

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