Trade The Journey

Trade The Journey

Markets recover!

Good Afternoon Traders and Happy Mother’s Day! I hope everyone is enjoying their weekend and preparing for the week ahead. Trading while under stress or personal challenges can fog your vision and blur your outlook.

This past week, there wasn’t much economic data for traders to grasp and most of the big retailers report their earnings this upcoming week. However, the markets staged a recovery.

Companies reporting earnings this week:

  • Tuesday: Home Depot
  • Wednesday: Cisco
  • Thursday: Walmart, Deere

Economic Reports this upcoming Week:

Tuesday: PPI, Fed speakers: Cook, Powell

Wednesday: MBA Index, Retail Sales, CPI

Thursday: Housing Starts & Building Permits, Import/Export prices, Philly Fed Manufacturing, Industrial Production/Capacity Utilization, Manufacturing Production, Fed Speakers: Barr, Harker

Friday: Fed Speaker: Waller

This past week witnessed a significant drop in the VIX as market indices climbed above their short-term averages. The VIX closed at 12.55, finding support at 12.31. Gold rallied late in the week, escaping its previous range-bound trading to close at $2,366.90, nearing its recent peak of $2,448.80. Meanwhile, tensions in the Middle East persisted as Israel rejected a ceasefire proposal from Hamas.

The dollar experienced a stagnant week, finishing at $105.314. Towards the week’s end, the two-year yield rose from a low of 4.804% to close at 4.870%. The ten-year yield slightly increased, ending at 4.50%, as yields generally trended downward amid a slowing economy and the Fed’s cautious stance on rate cuts. The yen held steady at $155 after the Bank of Japan intervened, preventing it from reaching $160.

Although Japan released no new data, China unveiled extensive economic data. Its Caixin Services PMI was slightly below expectations at 52.5%, and despite some improvements in business conditions, employment fell. China’s exports regained positive growth, rising by 8.4%, although imports from major partners like the EU and the US saw declines. Chinese inflation edged up by 0.3% annually, with core inflation increasing by 0.70% last month.

Loan growth in China remained stable at 9.6%, with a modest rise in new yuan loans, though below expectations. The M2 money supply grew by 7.2% annually, indicating a potential for increased consumer spending and economic growth. Vehicle sales, however, dipped slightly. In the Euro Area, the HCOB services PMI exceeded expectations at 53.3, marking its third consecutive month of expansion, while the Euro Area’s composite PMI also grew.

The PPI dropped, hinting at possible ECB rate cuts soon. Retail sales surged by 0.8%, hitting the highest rate this year. In the US, the sparse data releases maintained positive market sentiment, with a notable rise in initial claims. The upcoming CPI and PPI reports are expected to shed more light on potential rate adjustments, while the modest increase in consumer credit suggests a pullback in credit usage. Non-revolving credit grew by 2% annually, excluding home loans.

In the US, data releases were limited, yet traders maintained a positive outlook bolstered by the employment report and comments from the Federal Reserve. Initial unemployment claims unexpectedly jumped to 231,000 from the previous week’s 209,000, and continuing claims increased slightly to 1.785 million. The four-week moving average for initial claims climbed to 215,000. This surge in initial claims has heightened expectations for a potential rate cut, with upcoming CPI and PPI reports anticipated to provide more insight.

Meanwhile, consumer credit growth was modest, increasing by $6.27 billion—significantly below expectations—with revolving credit up just 0.1% over the past year. This suggests a possible pullback in consumer credit usage. Non-revolving credit, excluding home loans, grew by 2% over the same period.

The April 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) showed a general tightening of lending standards and a decline in demand for both business and residential loans. Commercial and industrial (C&I) loans, as well as commercial real estate (CRE) loans, saw stricter criteria and reduced demand, influenced by a less optimistic economic outlook and heightened risk aversion among lenders.

In household lending, there was an observed tightening in standards for home equity lines of credit (HELOCs) and various categories of residential real estate (RRE) loans, with demand similarly decreasing. Consumer lending followed suit, with banks increasing credit score requirements and tightening terms for credit cards and auto loans. Banks remain cautious, however a lower number of banks overall reported tightening lending standards compared to the fourth quarter of last year.

Mortgage applications saw a notable increase of 2.6% from the previous week, bolstered by declining yields. The refinancing index climbed by 5%, while the purchase index grew by 2%. Concurrently, the average rate for a 30-year fixed conforming loan decreased by eleven basis points to 7.18%, and the rate for a 30-year fixed jumbo loan dropped eight basis points to 7.31%.

In a surprising turn, the University of Michigan reported a significant drop in consumer sentiment, which plummeted nearly ten points from 76 to 67.4. The expectations index also fell close to the same margin, from 75 to 66.5, while the current conditions index decreased by just over ten points to 68.8. This decline in consumer sentiment spanned across various demographics, including all ages, income brackets, and education levels. The primary concerns affecting consumer outlook were inflation, unemployment, and rising interest rates. Meanwhile, year-ahead inflation expectations increased slightly from 3.2% to 3.5%, although long-term inflation expectations remained stable.

Technical Story:

This Past week’s cash flow in Review:

This past week, I splurged and spent freely which isn’t a good sign for the week ahead. Sometimes, I eat out and buy things I don’t need. 

 I was able to add money to my savings account but did not increase the amount designated for decreasing my credit balance.

Yesterday was tough and I planned to skip this week’s blog but I’m glad I didn’t. This blog didn’t include the in-depth analysis of the previous weeks, but sometimes just showing up is enough to keep going.  I’m proud that my commitment to my trading and blog supersedes any disappointment I might experience.

Grade: C+

Reason: Continued effort

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