Trade The Journey

Trade The Journey

Begininning stages of a Bull Run?

Top of the Morning! I hope everyone is enjoying the beginning of a somewhat holiday weekend. The markets will be open on Monday but closed on Tuesday in observance of Independence day. This past week I didn’t place a trade although I was tempted. To be honest, sometimes I find myself hesistant to take risks when so many variables exist that could move the markets.

China relesed its manufacturing and nonmanufacturing PMI report which showed slower growth in services and a contraction in manufacturing. Recently, the Chinese central banks cut its rates in hopes that it would stimulate the economy and increase the amount of borrowing by consumers and businesses. However, the rates were cut shallower than expected and corresponding  GDP growth was also cut to 5%.

In a recent report from Bloomberg, a former IMF member stated that additional stimulus isn’t likely due to China’s high debt-to-GDP ratio. Chinas’ current debt-to-GDP ratio is 279%, the highest on record.

Below is a list of periods when China provided massive amount of stimulus to aid ailing economy:

The European Central Bank is also battling inflation, seeking to get the inflation rate to 2%. According to the bank, inflation is forecasted to reach 5.1% in 2023, lowering as the years progress, culminating to a level of 2,3% in 2025. GDP growth is expected to rebound in 2024 and 2025. Strong wage growth, a tight labor market and inflated services prices are influencing the rate of inflation. Some risks to a further rise in the inflation rate include, food, energy and higher wages.
 

Economy

Manufacturing & Inventory

Durable Goods

The durable goods report showed that new orders rose 1.7% in May, which is the third consecutive rise in new orders.  New orders started the year with a negative reading but have since rebounded with the highest month in March at 3.3%. Excluding defense, new orders rose 3%. Shipments rose 1.7%, following a 0.6% increase in April. Unfilled orders rose 0.8%, unchanged from the April levels. Inventories decreased slightly from the April total, rising 0.2% in May.

Nondefense capital goods new orders rose sharply, rising by 6.7% in May. Unfilled orders rose 1.1%, and inventories rose 0.1%. New orders declined for a third consecutive month for communications equipment and declined for computers and related products. New orders rose sharply for motor vehicles & parts, and machinery. Transportation equipment new orders rose for a third consecutive month but are down from its high in March. Computers & related products, and transportation equipment featured the largest year-over-year rise.

This implies that companies and/or businesses are investing, possibly preparing for economic growth in the future. The following industries should be monitored: manufacturing, construction, transportation & logistics, information technology, energy & utilities, and agriculture. Higher investment in capital goods can improve efficiency, manufacturing capacity, and productivity. Although this report is lagging, it gives you a good idea of where the economy is heading.

Advanced International Trade in Goods, Wholesale inventories and retail inventories

The international trade deficit fell sharply in May, declining by 6.1%. Imports and Exports both declined, with the bulk of the decrease in Imports. Exports fell 0.6% while imports declined by 2.7%. The only industries that rose in imports were capital goods, automotive vehicles, and other goods. Exports fell sharply for foods, feeds & beverages and fell for industrial supplies.

Wholesale inventories fell 0.1% in May while retail inventories rose 0.8%. For wholesalers, inventories fell by 1% for nondurable goods rose 0.5% for durable goods. For retail, total inventories were flat but rose 2.9% for motor vehicle & parts dealers.

Prices and Consumers

Personal Consumption Expenditure Index

The PCE price index rose 0.1% and excluding food & energy, the PCE rose 0.3%. Prices for goods fell 0.1% while prices for services rose 0.3%. Durable goods rose 0.2% while nondurable goods fell 0.3%. The PCE index rose 3.8% year-on-year and excluding food & energy, the PCE index rose 4.6%. Household consumption expenditure rose 0.22% and has continued to rise throughout the year. The same can be said for the prices for housing and utilities.

Healthcare services rose by 0.19% and have also risen throughout the year. Transportation Services rose 0.09% with its price growth slowing from its of March this year. Food services and accommodation rose 0.67% and reached a new high for prices in May.

Personal income rose 0.1% from its April levels to 0.4% in current dollars. The rise in income was attributed to an increase in compensation led by private wages and salaries. Disposable income rose by the same amount for current dollars but rose 0.3% in chained dollars.

Consumer Confidence

Consumer Confidence rose 7.2 points in June to 109.7. The present situation index rose 6.4 points to 155.3 for consumers assessment of current business and labor market conditions. The expectations index rose 7.7 points to 79.3 for consumers assessment of short-term outlook for income, business, and labor market conditions. Below 80 signals a possible recession in the near future, and consumers are anticipating a recession within the next year.

Consumers are optimistic about future conditions, with 30% of the consumers expecting their finances to be better in the next six months. Plans to make a big-ticket item or go on a vacation have declined after rising earlier in the year. Although the expectations index is below the 80-level signaling a possible recession, consumers perceiving the likelihood of a US recession declined 3.9% to 69.3%.

The final reading for the University of Michigan Consumer Sentiment Index rose slightly from its preliminary report of 63.9 to 64.4. The current economic index rose 1 point from its preliminary reading to 69. The index of consumer expectations rose 0.2 points from its preliminary reading to 61.5 points. The year-ahead inflation expectation reading was unchanged at 3.3%, as was the five-year inflation expectation remaining at 3%.

Initial Claims

Initial claims came in below forecast, arriving at 239,000. Typically, recessions are marked by initial claims rising above 300,000. Continuing claims also decreased by 19,000 to 1.742 million. Claims continue to show a tight labor market and may inspire the Fed to continue to raise rates.

Housing

New Home Sales

New home sales rose 12.2% in May. The median sales price was $416,300 and the average sales price was $487,300. At the current sales rate, the inventory supply is at 6.7 months. New homes sales rose for the $200,00 to $299,999, $400,000 to $499,999, and $500,000 to $749,000. The $300,000 to $399,999 declined and for $750,000 and over was unchanged. For new homes sold during the period, new homes rose for not started and under construction and declined for completed.

For homes for sale at the end of the period, homes declined for under construction and completed but rose for not started.

Pending homes sales fell 2.7% in May. This index measures housing contract activity. Pending homes sales declined in every region except for the Northeast.

MBA Index

Mortgage applications rose 3% from the week prior. The refinance index rose 3% and the seasonally adjusted purchase index rose 3% from the week prior. The average confirming rate for the 30-year fixed mortgage rose 0.02% to 6.75%. The average jumbo rate for the 30-year fixed mortgage rose 0.11% to 6.91%. The median payment for purchase applications rose 2.5% to $2,165, measured by the Purchase Applications Payment Index (PAPI).

GDP: Third Revision – Final

The third revision for GDP of the first quarter was revised up from 1.3% to 2%.  The GDP deflator, which is a measure of total inflation, separating nominal from real GDP was revised downward to 4.1%. The GDP deflator, also known as the implicit price deflator for GDP, is a measure that reflects the average price changes of all goods and services produced within an economy. It is used to adjust the nominal Gross Domestic Product (GDP) for inflation and calculate the real GDP. The PCE rose sharply in the revision from 3.8% to 4.2%.

Gross private domestic investment declined 0.4% from the second estimate to -11.9%. Exports were revised upwards from 2.6% to 7.8%. Imports were down 2% from 4% in the second estimate. Government spending declined 0.2% to 5% from the second estimate. On the whole, GDP for the first quarter showed that the economy is resilient. There were some declines in nonresidential investment, intellectual property, and equipment from the fourth quarter.

Final Sales, PCE, and government rose in the first quarter and remained unchanged for structures from the fourth quarter.

 

This past weeks cash flow:

This past went well as I adhered to my spending plan and received a new offer for employment. While continue to master option trading, the increase in salary will support my efforts to erase my credit card debt and pay off a few items that I still owed money on.

Grade: B+

Reason: Sharp improvement in spending discipline.

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