U.S Stocks Retreat on Rate Fears

Weekly Wrap Content for the week of Aug 19:

1. Week 33 major indexes performance;

2. Week 33 US sector indexes performance;

3. Major indexes weekly charts of support and resistance levels;

U.S

For the week ended Aug 19, U.S stocks closed in negative territory, causing the S&P 500 to snap its four-week winning streak. The halt in the market’s rally came amid the release of the minutes from July’s FOMC meeting earlier this week, in which comments indicated that the central bank would likely continue to hike rates in the short term. The U.S. dollar resumed a rally and is near multi-decade highs, while Treasuries fell to boost yields and the inversions on the curve remain intact. Crude oil gained ground, while gold prices traded lower. Subdued summer trading was accompanied by some volatility Friday as USD 2.3 trillion in options expired. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:

1.    Bullard doesn’t see inflation peak. In an interview with The Wall Street Journal on Thursday, St. Louis Fed President James Bullard questioned whether inflation had really peaked despite the surprise downturn in the year-over-year increase in the consumer price index (from 9.1% in June to 8.5% in July) reported the previous week. He was likely to vote in favor of another 75-basis-point increase in the federal funds target rate at the Fed’s next policy meeting. 

2.    July data generally surprise on the upside. Some upward surprises in the week’s economic data may have fueled rate fears, even as they offered hope that the economy would avoid a recession. 1) Retail sales proved more resilient than expected in July, rising 0.7% once the volatile gas and auto segments were excluded. 2) Industrial production was also strong, rising 0.6% in the month, roughly twice consensus expectations. 3) Weekly jobless claims ticked lower, betraying expectations for an increase.

SPX sectors in play

Only three out of 11 sectors in the S&P 500 advanced this week. The growth-oriented technology(XLK) and communication services(XLC) sectors underperformed, with the latter dragged down by a sharp decline in Facebook parent Meta Platforms. Energy stocks(XLE) and Consumer Staples(XLP) outperformed. Refer to below sector indexes weekly performance table.

Technically all three major indexes declined, after four-week winning streak. Technology dominant Nasdaq composite index led the losses with 2.6% down.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China’s stock markets posted a loss for the week in reaction to weak economic data and elevated levels of COVID cases, with drought conditions in parts of the country adding to the gloom. The broad, capitalization-weighted Shanghai Composite Index(SSE weekly Chart) dipped 0.6% and the blue chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, eased 1%.

Data released during the week showed retail sales in July grew 2.7% year on year while industrial output was 3.8% higher than a year ago. Both data sets were below expectations. In the property sector, data showed China’s home prices fell for an 11th month in July. New home prices in 70 cities declined 0.11% from June, when they fell 0.1%, according to the National Bureau of Statistics. Existing-home prices fell 0.21%, the same as a month earlier.

It was the worst seven-day period for China in terms of COVID infections since mid-May, with more than 18,000 new local cases recorded, Bloomberg reported. The government also issued a national drought alert as soaring temperatures threatened crops and industrial activity, with regions from Sichuan in the southwest to Shanghai in the Yangtze Delta facing extreme heat. The severe heat wave has sparked power shortages and forest blazes. Sichuan, which accounts for 5% of China’s gross domestic product, is exceptionally vulnerable due to its reliance on hydropower.

The PBOC lowered its seven-day reverse repo rate—the main rate at which it provides short-term liquidity to banks—to 2.00% from 2.10% and the one-year Medium-Term Lending Facility (MLF) rate to 2.75% from 2.85%. More steps could follow, including a cut in the loan prime rate (LPR). The LPR is a lending reference rate set monthly by 18 banks and announced by the PBOC.

Hang Seng index (.HSI weekly chart) was down 2% this week. Technically, the index formed an inside-bar on its weekly chart within previous’ week. Technical indicators appear still weak while it trading near its May bottom.

Singapore

STI index (STI weekly chart) eased 0.7% this week-its 2^nd weekly loss. Technically, it appears the index is in profit-taking after a previous strong three-week rally, given back partial of its gains, rather than bearish downtrend. The STI index has been outperformed YTD as compared to other major indexes in my table above. Immediate support at 3238- its 200dma level.

Source: Contents/Data including information from various public market reports