Rate Hikes Likely End, Impacts Begin

Weekly Wrap Content for the week of May 5:

1. Week 18 major indexes performance;

2. Week 18 US sector indexes performance;

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

U.S.

For the week ended May 5, 2023, major U.S indexes end mixed despite a rally on Friday. The SPX ended week lower on comments from Fed Chair Powell that suggested a pivot to cutting rates might not occur as quickly as the market had hoped. Uneasiness surrounding the need to raise the U.S debt ceiling may also have weighed on sentiment. Refer to major indexes’ weekly and YTD performance table below.

Key highlights for the week and outlook:

1.    Fed rate hike probably the last one. On Wednesday May 3, the Federal Reserve implemented what perhaps could be the last interest-rate increase of this hiking cycle. The Fed raised rates by 0.25%, its 10th consecutive rate hike since March 2022, bringing the fed funds rate to 5.0% - 5.25%. 

2.    Ongoing turmoil in the banking system. After First Republic Bank was acquired by J.P. Morgan last weekend, this week additional West Coast-based regional banks, including PacWest Bancorp, Western Alliance, and Zions Bank, all saw substantial declines in their share prices, before rebounding somewhat on Friday. Consequently, both credit and regulation on regional banks will likely to tighten. 

3.    Still strong April job report despite higher rates and uncertainty in the banking system. April nonfarm payroll jobs increased by 253k, far higher than estimated of 185k. unemployment rate came in at a healthy 3.4%, still near multidecade lows. 

SPX sectors in play

Only three out of 11 sectors within the SPX index closed positive for the week. Technology(XLK) and Healthcare(XLV) outperformed, led by the market heavyweight Apple(AAPL) which reporting expectations-beat results. While Communication Services(XLC) and Energy(XLE) lagged. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

Despite strong rebound on Friday, the SPX and Dow indexes still down for the week. While Nasdaq Composite Index recovered all its losses and closed inched higher. All three indexes have been in sideway consolidation mode for the last three-six weeks with bullish bias. Refer to below indexes weekly charts.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China stocks ended mixed after a holiday-shortened week as surprisingly weak manufacturing data tempered sentiment. The Shanghai Stock Exchange Index rose 0.34% while the blue chip CSI 300 fell 0.3%. In Hong Kong, the benchmark Hang Seng Index(.HSI) gained 0.78%. Financial markets in mainland China were closed Monday through Wednesday for the Labor Day holiday.

Key highlights for the week and outlook for China/HK:

1.    China’s official manufacturing purchasing managers’ index (PMI) fell to 49.2 in April from March’s 51.9, marking a return to contraction for the first time since December after Beijing abandoned its zero-COVID policy. The nonmanufacturing PMI also softened in April but remained above 50, the level separating growth from contraction. 

2.    Domestic tourism during the five-day holiday rebounded to pre-pandemic levels. Approximately 274 million trips were taken from Saturday through Wednesday, marking a roughly 71% increase from a year earlier, according to the Ministry of Culture and Tourism.

Technically, Hang Seng Index (. HSI) rebounded 1^st week after a two-week decline. The index closed just above its 50dma level still trapped in its three month sideway range. While SSE appears more bullish as it rebounded to close above 20 and 50dma after fell below of them previous week.  

SSE weekly chart

.HSI weekly chart

Singapore

The STI index fell 2^nd week in a row, closed just above its 50dma, the overall market is relatively quiet with decreasing total volume as it enters month of May. Immediate downside support to watch would be at its 50dma around 3255 and upside resistance around 3330.

STI weekly chart

Source: Some contents and data excerpted from various public market reports.