2023/03/07 (185.048) Technical Analysis

Significant Losses On US WallStreet Today
– Interest Rate Worries Are Faster Back As Excepted

The New US Economic Data That Drives The US Financial Markets Today
US Wholesale Inventories Shrink in January As US Used Car Prices Rise for 3rd Month
US Consumer Credit Rises Less than Expected While US Economic Optimism Highest since 2021

Wholesale inventories in the United States fell by 0.4% from a month earlier to $929 billion in January 2023, in line with preliminary estimates and after a 0.1% increase in the prior month. It was the first decline in inventories since July 2020, reinforcing the idea that businesses are scaling down their restocking efforts amid weaker demand. Stocks fell for both non-durable goods (-0.9%, the same as in December), mostly apparel (-5.5%) and farm products (-3.5%) and durable ones (-0.1% vs 0.7%), notably furniture (-2.7%). On an annual basis, wholesale inventories grew by 15.8% in January, slightly below an earlier reading of 15.9%. The Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its US wholesale auctions increased 4.3% month-over-month in February of 2023, the biggest gain since October of 2021. It was also the largest increase for a February month since 2009, partially reflecting the seasonal adjustment. All eight major segments saw significant price increases with gains of between 3.3% and 5.9%. Meanwhile, prices for used cars were down 7% compared to February 2022, the smallest decrease in five months. Pickups had the smallest decline at 3.9%, with compact cars, midsize cars, and vans losing less than the overall industry. Also, prices of luxury cars, SUVs, and sports cars were down 10.1%, 8.6%, and 7.4%, respectively.

Total consumer credit in the US rose $14.8 billion in January of 2023, after a downwardly revised $10.69 billion increase in the previous month and missing market expectations of a $20 billion rise. On a seasonally adjusted annual basis, consumer credit went up by 3.7 percent in January after an upwardly revised 2.9 percent gain in the prior month. Revolving credit, like credit cards, was up 11.1 percent, compared to a downwardly revised 6.9 percent rise in the prior month. Nonrevolving credit, typically auto and student loans, increased by 1.2 percent, following a downwardly revised 1.3 percent gain in the prior month. The IBD/TIPP Economic Optimism Index in the US rose 1.8 points to 46.9 in March 2023 from 45.1 in February, the highest since December 2021. Still, the index remained in pessimistic territory for a 19th straight month. A steady 53% of adults polled think the US economy is in a recession, down from 55% in January and below 61% in October. The six-month outlook for the US economy increased 1.9 points to a less-gloomy 41.6 and the personal finances subindex rose 2.4 points to 55, a level last seen in September 2001. Also, the gauge of support for federal economic policies rose 1.1 points to 44.2.

Fed is Prepared to Raise Rates Faster

Fed Chair told the US Congress the Fed is prepared to increase the pace of rate hikes, if the totality of the data were to indicate that faster tightening is warranted. Powell also noted that the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. The Fed continues to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% and that restoring price stability will likely require a restrictive stance of monetary policy for some time. The Fed raised the target range for the fed funds rate by 25bps to 4.5%-4.75% in its February 2023 meeting, dialing back the size of the increase for a second straight meeting but still pushing borrowing costs to the highest since 2007.

The dollar index was subdued around 104.2 on Tuesday as investors cautiously awaited Federal Reserve Chair Jerome Powell’s congressional testimony on Tuesday and Wednesday for further guidance on the central bank’s tightening plans. Investors also looked ahead to the February jobs report on Friday that could influence how aggressive the Fed will need to be in the upcoming meetings. Markets are expecting the central bank to raise interest rates by another 25 basis points at its March meeting in light of stronger-than-expected US economic data, though analysts remain divided on what the likely peak for rates could be. In the latest Fed commentary, San Francisco Fed President Mary Daly said US rates need to stay higher for longer amid concerns about recent hotter-than-expected inflation data and worries about global economic trends that could fuel price pressures.

DXY Hits 8-Week High As Meanwhile US 10-Year Treasury Note Eases from 4%

The dollar index hit 105.3 on Tuesday, its highest level since January 6th after Fed Chair Powell said interest rates are ‘likely to be higher’ than previously anticipated. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”, Powell said in prepared testimony before the Senate Banking Committee. The strongest selling activity was recorded against GBP (-1.4%), AUD (-1.9%), and NZD (-1.1%) which depreciated to their lowest level since November as divergence in monetary policy widened further with the latest Powell statement.

The yield on the US 10-year Treasury note consolidated around 3.95%, remaining marginally below the three-month high of 4.07% touched on March 2nd as investors assessed the pace of future rate hikes by the Federal Reserve. In a hearing before the Senate, Chairman Powell stated that recent hot economic data might force the central bank to increase interest rates more aggressively and that the terminal rate may be higher than anticipated. Despite the pullback in 10-year Treasury yields, the remarks drove investors to price a 60% chance of a 50bps interest rate hike instead of back-to-back 25bps increases. Meanwhile, the 2-year yield increased to 5% for the first time since July 2007, jumping from the 2023 low of 4.03% hit earlier in February. As a result, the spread between the 2 and 10-year yields widened to as much as 104 basis points, the deepest inversion since 1981.

Technical Analyis 4XSetUp for this week…

On monday the NDX traded a so called “red Hangman”; which usually is often a part a trend-reversal-formation.
This 4 set-up aims to break the December 2022 high in the next two weeks, i.e. this week and/or next week (when we get US inflation data).
So that in the medium term we can then retrospectively assume a short-term false break-out in February 2022 in the NDX. And in the short term we can then assume that we will be trading new lows again in the medium term. And maybe even much deeper than 2022. But that is medium-term vision of the future. First of all we need courses below 11700 points. And a US inflation report that gives no reason for hope in the short term. Because green US inflation, under the guise of a liberal democracy, is still much high in the US. And the stock market, like me until a few days and weeks ago, just the last US inflation figures, still assumed that the worst of US stagflation was something we had already experienced together.

However, the Wall Street sheds on Powell’s Comments today.
The Dow closed 574 points or 1.7% lower on Tuesday, while the S&P 500 and Nasdaq 100 shed 1.5% and 1.2%, respectively, after Powell’s hawkish remarks fueled fears of a larger rate hike. Powell warned that the central bank is ready to speed up the pace of tightening as the latest data have come in stronger than expected in prepared testimony before the Senate Banking Committee. He acknowledged that the terminal level of interest rates might be higher than previously anticipated. By the way, Walmart decreased to a 4-week low of 139.37 and/or Merck & Co increased to a 7-week high of 111.45.