Retail Sales MoM took a battering last week the worst number since March 2023 and YoY data showed a measly +0.6% gain the lowest annual gain since May 2020. Industrial Production MoM slipped -0.1% after a forecast gain of 0.5% with the YoY number 1.2% below expectations. Manufacturing YoY dropped 0.9%. Yet the market liked the recent company profit reports helping to propel it to a new record high. Oil continues to rally, currently knocking on major resistance at US83.20 as fire intensifies between Hezbollah and Israel and civilians look to exit Rafah. On the flip side the market is cautious about Chinese demand for the commodity which continues to drop as the IEA revises its global demand forecasts lower to reflect growing sentiment that the Chinses economy will remain soft. The USD rejected US105 which has helped precious and base metals regain some dignity as they cope with a weak demand outlook. BHP is considering closing down its Nickel West operations after the metals weak performance this year. Nickel has dropped 39% and BHP is taking a $5.4 billion right down on its nickel business as a consequence. The concern for company earnings is not just centered on BHP. This week in Australia we see more companies reveal how they are performing against the crosswinds of high interest rates and inflation. A picture that is not looking all that encouraging. Analysts are looking to reflect a “downbeat “economy. Yet we traded just shy of another record on Thursday.
But first let’s take a deep look at the economic numbers coming from the US. Last week’s raft a data does not bode well for the economy. Core Inflation, which excludes volatile items such as food and energy, rose by 0.4% from the previous month, accelerating from the 0.3% increase in the earlier period and above market expectations of a 0.3% advance. Although the increase was small the core inflation rate has been rising since June 2023, a concern echoed by the Federal Reserve and questions if it has done enough, hence the monthly wait and see approach on any monetary policy. Further, when we analyze Retail Sales, Industrial Production and Manufacturing data they all point to a slowing economy, this comes with a double-edged sword.
Retails Sales MoM, dropped by -0.8% in January, reversing from a downwardly revised 0.4% rise in December, and worse than market forecasts of a 0.1% fall. It is the biggest decrease in retail sales since March last year, primarily driven by the aftermath of the holiday shopping season and cold weather. Industrial production in the US edged down 0.1 percent from the previous month in January 2024, missing market expectations of a 0.3 percent growth after recording no change in December. Manufacturing production fell by 0.5% from a month earlier in January 2024, missing market expectations of no growth. As mentioned, these numbers come with a double-edged sword. On one hand the data shows that the Fed has adopted the correct policy with the economy cooling. But on the other had the cooling economy will influence company profits and valuations should come lower. As it stands, we still question why the market is trading close to record highs. It doesn’t make sense for the market to be where especially as the ramifications of a spreading conflict in the Middle East works its way through the markets.
Oil has just knocked on resistance at US83.50 after news that fire is intensifying between Hezbollah and Israel. If this continues then there is a new dynamic that needs to be dealt with. Hopefully, common sense will prevail but as casualties (28,473) on the Palestinian side mount you must think whether Palestinian allies will be content standing on the sideline. Israeli casualties’ amount to 1410. It’s a wild card which could see prices through US83.50 onto US85.50 and really can only be countered by slowing global demand egged on by a poor preforming economy in China.
In the other commodities especially the metals, we have seen a light reprieve as the USD rejected US105.00. Momentum indicators have turned bearish on the USD so we could be in for some selling pressure on the USD which will help the metals regain some lost ground. Across the board this could just be a technical correction that will provide opportunities to sell into as the generally the economics around a sustainable recovery are not there. Gold and Silver look set for a test higher especially silver which continues to be a favorite pick.
On the data front this week it looks to be light on. Of note is the FOMC Minutes from the last Meeting plus we have plenty of Fed Governors on the wires hopefully given away a few clues to when the next more in monetary policy will be.
On the position front, we have not taken on too many new trades as we see no clear trend. We have a recent small, … in the Dow (38 576), remain … the SPI (7505). In the currencies … both the AUD/USD (US0.6770) and AUS/CHF (0.5707). Commodities, in bullion market … Silver (US23.19) with… in Gold (US2046).
Trade Focus:
Fundamentals:
Silver: We have been …
Technical Analysis:
From a technical perspective we have a triple low at US22.00...
Support …
Resistance …
Momentum
