Public Holidays
US celebrates 4th July 2023 (Independence Day) ie Tuesday. On Monday, there is early closure at 13:00 hours.
No public holidays for Hong Kong, Singapore & China
Economic Calendar (03Jul2023)
Economic Calendar for the week starting 03 July 2023
Notable Highlights
FOMC meeting minutes - This will set the tone for the coming rate hikes/pivot/pause by the Fed as more details of the recent meetings will be revealed.
PMI - there are several important PMI data to be announced in the coming week namely, ISM Manufacturing PMI, Services PMI and ISM non-Manufacturing PMI. A higher-than-expected PMI is good news for the market and likewise, it is bearish when vice versa.
Jobs-related data like ADP nonfarm employment change, JOLTs Job openings, average Hourly earnings & Nonfarm payroll will provide a better understanding of the job market.
Jobless claims. Initial jobless claims will be announced on Thursday. We will also get an update on the unemployment rate. This would form important data points for the Fed to decide on the next interest rate adjustment.
Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, this implies demand erosion that can lead to reduced production & weakening consumer spending. The last crude oil saw a bigger drawdown than expected.
Earnings Calendar (03 Jul 2023) ~ Levis
Earnings for week starting 03 Jul 2023
We have arrived into the 2nd half of 2023 and the earnings season will be upon us. For this coming week, I have one that I am interested in (more as a customer than an investor) - Levi’s Strauss.
Levi’s Earnings
Levi’s is down 11.58% compared to a year ago. Its latest price of 14.43 sits closer to the 52-week low of 14.24 than the 52-week high of 20.49.
From the table above, Levi’s has hit a record annual revenue of $6,169M in 2022 though they have a record lowest (annual) profit of $81M in 2020 (the year of the pandemic).
For the coming earnings, investing has a forecast of 0.0324 and 1.34B for its EPS and revenue respectively. Will Levi’s be able to recover from its recent dip?
News and my muse - mortgage, defaults, dropping EPS of S&P500 & zombie buildings of USA
<CNBC> Mortgage catastrophe brews in Britain as millions are pushed toward insolvency
Research by the NIESR estimated that the latest rate hike would see 1.2 million U.K. households (4% of households nationwide) run out of savings by the end of the year.
<CNBC> Corporate defaults rose last month, with 41 in the U.S. so far this year. That’s more than double the same period last year. Companies are defaulting on their debt due to uncertain economic conditions & heavy debt loads.
<CNBC> 40% of all U.S. container traffic travels through the Panama Canal with $270 billion in cargo annually.
A severe drought has led to water depth & weight restrictions on ships passing through the canal with container surcharges imposed.
<CNBC> Russian mercenary chief Prigozhin is 'dead man walking': Eurasia's Ian Bremmer
S&P500 EPS
S&P500 EPS has been dropping for the last 5 quarters. This seems contrary to the recent stock market. In the long run, the market is still a weighing machine.
“Singapore faces a heightened risk of a technical recession in H1 2023, following the annual contraction in externally facing indicators,” said RHB senior economist Barnabas Gan.
If the economy is tanked by a few mega cap companies, how are the performances of the rest of S&P500? I hope that the AI frenzy is not obstructing our views from the weakening fundamentals.
At some point, people will need to choose between food, fuel and the other cost of living. If debt is the main option that remains, the country could be heading for some rough days ahead.
Dallas Fed survey of 63 banks, June 13-21: "Credit standards and terms continued to tighten, and loan pricing continued to rise. Bankers’ outlooks remained pessimistic, with contacts expecting an increase in nonperforming loans over the next six months"
<Reuters> KPMG to cut 5% of US jobs in fresh round of layoffs
<CNBC> A U.S. recession is coming this year, HSBC warns — with Europe to follow in 2024
Reminder ... do not leverage and keep out of debt.
Owe no one anything except love.
<WSJ> Lordstown Motors, Once Considered an Ohio Town’s Savior, Files for Bankruptcy
<Business Insider> More than half of Credit Suisse's global workforce will be pruned beginning in July, Bloomberg reports. That's more than 20,000 people. That's more than the headcounts of Blackstone, Jefferies, Lazard, and Moelis combined.
Federal Reserve says 23 biggest banks weathered severe recession scenario in stress test
<NY Post> Just last week, the owners of downtown San Francisco’s largest shopping centers abandoned the lot after 20 years.
My muse: The debt ceiling crisis can be averted if there are buyers of US-issued treasury bonds & bills. The government must spend within its means.
<LA Times> We define zombie buildings as those that are at least half-empty. Many buildings are already at that mark, and 60% of office leases nationwide are set to expire over the next three years.
<CNBC> A union representing port workers in Western Canada officially began striking, an action that could have ripple effects reaching beyond the U.S.’s northern neighbor.
Market Outlook - 03 Jul 2023
S&P500 1D chart as of 02 Jul 2023
Technical observations of the S&P500 1D chart:
The stochastic indicator has completed a crossover and is on an uptrend.
The MACD indicator is about to complete a crossover and is expected to start an uptrend.
Moving Averages (MA). Both MA50 & MA200 lines are on an uptrend. With the last candle being above both the MA50 line and MA200 lines, this can be interpreted as an uptrend in the mid-term and the long term.
Exponential Moving Averages (EMA). The lines are on an uptrend and remain in a fanning-out pattern. This implies the current uptrend remains in momentum.
Note that the average trading volume of S&P500 (1D chart) is 3.996B. The trading volume on Friday (30 June 2023) is 2.489B. Note that volume represents the momentum of the current trend. There are signs that the current trend is losing momentum. Let us monitor.
My thoughts
Though the majority of indicators point to an uptrend, I think that the market could be looking at a retracement as the bull tires from its recent surge. There is no certainty but I would prefer to monitor closely.
My investing muse
Supply Chain signals
Here are some news and updates from the supply chain industry.
https://www.seatrade-maritime.com/containers/inbound-us-container-volumes-down-201-may The data from Blue Alpha Capital’s John McCown noted a drop of 19.6% drop for West Coast ports, and a 20.7% drop for East Coast and Gulf Coast ports.
Across the ten largest container ports in the US, inbound volumes were 1,827,627 TEU, down 20.1% in May 2023 compared to May 2022. The result marks the eighth straight month of double-digit declines on-year. May 2023 marked the fourth worst on-year decline.
Freight recessions can last a lot longer than most people realize. Many execs have compared the current freight market to the Great Recession. That freight recession began in late 2006 and ended in late 2010 (started a year before the Great Recession and ended a year after). - Craig Fuller
<Freightwaves> FreightWaves Ocean and Trade expert has been warning since May 2nd that a second-half recovery in imports was highly unlikely and any price gains would be fleeting.
<American Shipper> FedEx is downsizing its fleet again during the next 12 months to match weak international and domestic package shipping demand, and save money. Container lines are facing a triple whammy: Freight rates are weak and show no signs of rising. New ships are flooding the market. And vessel leases that container lines booked at historically high rates during the boom have yet to expire.
The ocean container market tells us what we want to know about inventory restocking - its not happening. - Craig Fuller
The main driver of investments (for shipping lines) in new vessels is future demand, but most importantly fleet growth & more efficient (larger) vessels. More than 700 ships are expected to be delivered in 2023-24 & more than 150 in 2025. Is there future demand? When there is 27% extra capacity in 2025, it needs to be met by a similar magnitude of demand.
The shipping lines may need to de-commission or convert some of the older vessels (to reduce shipping capacity), revert to slow steaming and other ways to keep the rates competitive. When an influx of shipping capacity is met with weakening demand, it is likely to lead to lower prices. This could lead to a bloodbath and further consolidation into the bigger shipping lines with deep pockets.
Leading Economic Indicators (LEI)
(Here is an extract from my recent article about LEI).
Observations from the latest LEI:
In general, LEI continues to point towards negative economic developments.
There are a few exceptions that have provided good news including:
S&P500 index stock prices
Bulk permits for private housing
Manufacturers’ new orders (nondefense capital goods excluding aircraft)
Manufacturers’ new orders (consumer goods & materials)
Overall, the LEI is still down at -4.3%
My investing muse
As per the chart above, the US LEI has been accurate to signal a recession since the year 2000. We could expect a recession given the list of financial and non-financial components. But there is no doubt that the market is on a bull run currently.
Conclusion
I saw this chart posted by Twitter user Jason. This is a good reminder that we need to recognize the peak and also the place of maximum opportunity (when the market is down). When there is panic, desperation, hopelessness and people wanting to get out, this is the “zone” of the best opportunities.
We are still in a state of great optimism and euphoria following the bullish runs in the markets. It would take some time for us to enter a bearish zone. For now, it is important to qualify great companies to buy when we reach the zone of maximum opportunity. There are some who have predicted recession and some who have predicted that we are over the recession.
I recommend looking into data for import, export, debt, repossession, foreclosure and Leading Economic Indicators. With this, let us continue to hedge accordingly. With student loans resuming payment soon, we could see more families facing cost of living challenges.
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Great ariticle, would you like to share it?
Great ariticle, would you like to share it?