SVET Reports
SVET Markets Weekly Update (July 24–28, 2023)
On Week 30, Powell hiked the rate to the highest level in 22 years. Core PCI continued to subside, although very slowly, and GDP continued to grow, bewildering analysts. Meanwhile, BTC closed one of its least volatile weeks in history. Bears and bulls refused to act, facing two conflicting narratives: the approaching next-year halving and worsening technicals coupled with continuing regulatory uncertainties. Even though the House Financial Services Committee passed a pro-crypto bill and an act this week, the crypto-market remained cautious. On the macro-side, Russia pivoted to CBDC, Spain stocks stumbled after the indecisive election, and oil prices continued to rally on rising geopolitical tensions.
Overall, the macro investment climate remains highly unstable. All of the world’s major central banks (with the exception of the Bank of Japan), headed by rapidly aging and highly paranoid Boomers, have continued to over-tighten credit conditions for businesses, deliberately provoking a market crash. On the other hand, institutional buyers, who are floating in excessive liquidity resulting from the unprecedented monetary easing programs of the past decade, continue to “buy the dips,” expecting an early pivot in macroeconomic policies as indicators start to show inflation subsiding around the globe.
It results in stakes gradually rising on both sides, which could provoke an aggressive move from big speculative players intending to profit from traders’ growing nervousness. Such a move could result in a sudden up/down price tick, which would harvest stop-losses and lead to a massive squeeze. Although August is a very slow month for markets, traditionally, it is still advisable to stay vigilant.
Notable Macroeconomic Updates:
Fed Interest Rate Decision : 5.5% (fact), 5.25% (previous); 5.5% (consensus);
Chicago Fed National Activity Index (June): -0.32 (fact), -0.28 (previous); 0.03 (consensus);
S&P Global Services PMI (July): 52.4 (fact), 54.4 (previous); 54 (consensus);
Case-Shiller Home Price YoY (May): -1.7% (fact), -1.7% (previous); -2.2% (consensus);
CB Consumer Confidence (July): 117 (fact), 110.1 (previous); 111.8 (consensus);
New Home Sales (July): 0.697M (fact), 0.715M (previous); 0.725M (consensus);
NY Empire State Manufacturing Index (July): 1.1 (fact), 6.6 (previous); -4.3 (consensus);
GDP Growth Rate QoQ (Q2): 2.4% (fact), 2.4% (previous); 1.8% (consensus);
Durable Goods Orders (June): 4.7% (fact), 2% (previous); 1% (consensus);
Core PCE Price Index MoM (June): 0.2% (fact), 0.3% (previous); 0.2% (consensus).
On Monday, NASDAQ dwindled and BTC plunged below 29K as the Services PMI dropped and traders await the Fed’s monetary policy decision on Wednesday, with a 25 basis point increase expected.
Details: The Services PMI fell to 52.4 in July, the weakest level since February. New sales growth slowed amid constraints on client spending, including higher interest rates. However, new business from abroad rose at the fastest pace in 11 months. Job creation eased to a six-month low, with companies struggling to attract and retain staff amid rising wage costs. Operating expenses and selling prices continued to rise.
Comment: PMI data showed that the expansion in US services demand slowed significantly in July. This has raised concerns that previously resilient parts of the economy may be starting to feel the effects of the Fed efforts to cool inflation by destroying the demand.
Crypto
Russia: The implementation of the digital ruble has been approved by the President’s signature. The central bank digital currency (CBDC) pilot program in Russia will begin on August 1, 2023. This is nearly three years after the Russian government first published a consultation paper on the digital ruble in October 2020. This makes Russia the largest nation in the world to implement a CBDC. Currently, there are three fully-fledged CBDCs: the eNaira in Nigeria, the Sand Dollar in the Bahamas, and JAM-DEX in Jamaica. 93% of central banks showed interest in exploring CBDCs.
Macroeconomics
Ghana: The Bank of Ghana raised its benchmark interest rate to 30% in July 2023, the highest level since 2000, in an effort to curb inflation. Inflation in Ghana has been on the rise in recent months, reaching 42.5% in June 2023.
Currencies
USD, EUR, GBP, YEN: The dollar index (DXY) rose as investors anticipated the Fed’s 25 basis point rate hike on Wednesday. The euro and pound weakened ahead of the European Central Bank’s and Bank of England’s rate hikes on Thursday and Friday, respectively as investors now expect lower than previously anticipated rate increase. The yen strengthened as traders weighed the possibility of the Bank of Japan adjusting its yield curve control policy.
Politics
Spain: Stocks are down after the general election, which resulted in a political gridlock following the massive win of the conservative Popular Party (PP). The PP won 136 seats (+47) in the Congress of Deputies, while the Spanish Socialist Workers’ Party (PSOE) — the ruling party — came in second with an increase of 2 seats, to 122. At the same time, the Vox party (ultraconservative) saw a decrease in both popular vote and seats. Overall, the political balance remains precarious, with no party able to secure the 176 seats needed for a majority in the Congress of Deputies.
On Tuesday, the Case-Shiller home price index dropped less than expected, showing a continuing inflationary pressure. However, the Nasdaq still closed the session in the green on technicals. BTC is testing 29K on the downside, as some whales are rumored to be preparing to take profits after a massive run in the previous 6 months.
The average real GDP growth for the United States in the period 2010–2020 was +2.1% (The highest — +2.9% in 2015, the lowest — -0.4% in 2009). Another saying, if Fed maintains its rate above 2.1% it means that USA economy would contract by: (Fed rate — 2.1%) + 2% (where 2% is the percentage of real GDP that goes to amortization in USA). This is even “better” outside of USA, where the amortization to GDP rate is even higher (Japan: 5%, Germany: 3%, France: 4%, United Kingdom: 3%). That is, exactly, why Fed dropped the rate to zero after 2007 mortgage debacle, when the real GDP collapsed from an average growth rate of 3.2% YoY (in 2000–2010) to 2.1% — to keep the national economy barely afloat. For comparison, in a period 1990–2000 the USA economy grew by 3.8% on average. So, it is very unlikely that Fed, faced by the prospects of the slowly but surly collapsing in itself economy, will be able to avoid cutting rates (let alone to increase it) back to zero (or close to). However, of course, that will not happen in a year or two :)
Details
Housing prices in the United States fell 1.7% year-over-year in May 2023, the same as in April. This was the biggest decline since April 2012. Market forecasts had expected a 2.2% drop. The biggest decreases were seen in Seattle (-11.3%), San Francisco (-11%), Las Vegas (-7.8%) and Phoenix (-7.6%). The top gains were reported in Chicago (4.6%), Cleveland (3.9%) and New York (3.5%).
Crypto
Namibia has passed a new law called the Virtual Assets Act of 2023. The law will regulate digital assets instead of banning them. The law was signed by the president in mid-July and has now officially become law.
Macroeconomics
Argentina: Retail sales grew by 148.8% YoY at current prices in May 2023, up from 147.8% YoY in April. The increase was driven by soaring inflation in the Argentinean economy, which has made consumers more likely to spend their money on goods and services.
Note: As we can see inflation can be beneficial for the economy and private businesses in some ways. For example, it can foster revenues and accelerate technological progress. When inflation is high, businesses may be able to raise prices, which can lead to increased revenues. This can be beneficial for businesses, as it can help them to cover their costs and make a profit.
Inflation can also lead to increased competition between businesses. This can lead businesses to invest in new technologies in order to stay ahead of the competition. This can accelerate technological progress, which can be beneficial for the economy as a whole.
Conversely, the inflation leads to higher prices for consumers, which can make it difficult for them to afford goods and services.
On the other hand, inflation can also lead to increased job opportunities and higher wages. This is because businesses need to raise prices in order to cover their increased costs, which can lead to higher profits. As a result, businesses may be more willing to hire new workers and offer higher wages in order to attract and retain talent.
In an inflationary economy, consumers may have more opportunities to find jobs because businesses are more likely to be hiring. This is because businesses need to increase production in order to meet the demand for goods and services. As a result, they may be more willing to hire new workers, even if they have to pay higher wages.
In addition, consumers may be able to ask for higher wages in an inflationary economy because businesses are more willing to pay them. This is because businesses need to keep up with the rising cost of labor in order to attract and retain talent. As a result, they may be more willing to offer higher wages to workers who are willing to stay with the company.
That a high inflation benefits the world’s economic growth can be exemplified by the International Monetary Fund’s latest report. The global inflation is expected to be higher than previously forecast, reaching 6.8% in 2023 and 5.2% in 2024. At the same time, IMF has upgraded its forecast for global economic growth in 2023 to 3%, from 2.8% in April. The 2024 projection was unchanged at 3%. The US economy is predicted to grow by 1.8% in 2023 and 1% in 2024. In the Euro Area, GDP growth is expected to slow to 0.9% in 2023 before picking up to 1.5% in 2024. The UK is likely to experience growth of just 0.4% in 2023 and 1% in the following year. China and Japan are forecasted to grow by 5.2% and 1.4%, respectively, in 2023, and by 4.5% and 1% in 2024. On the other hand, the German economy will likely contract by 0.3% this year, due to the lingering impact of the energy crisis.
Nigeria: The Central Bank of Nigeria (CBN) raised its benchmark interest rate by 25 basis points to 18.75% on July 25. This is the fourth consecutive rate hike so far this year, and it brings borrowing costs to their highest level since the monetary policy rate was adopted in 2006.
Comment: The CBN has been raising interest rates in an effort to combat inflation. However, these rate hikes have not been effective in bringing inflation under control. Inflation in Nigeria has been accelerating for the past six months, and it reached 22.79% in June 2023, its highest level since September 2005. This is because the main driver of inflation in Nigeria is not rising demand, but rather rising costs, particularly for food. The food industry in Nigeria is highly monopolized, which means that a small number of companies control a large share of the market. This gives these companies the power to raise prices without fear of competition. In addition, the war in Ukraine has constrained imports of wheat and other grains, which has also pushed up food prices.
On Wednesday, the FOMC raised interest rates to the highest level in 22 years. However, Powell’s comments were seen as a sign that the Fed is leaning towards a more dovish monetary policy. In response, the NASDAQ went volatile, while BTC continued its attempt to recover after Monday’s plunge below 29K. Other news: the House Financial Services Committee has approved an act and a bill considered to be favorable for the crypto industry by media; UK car production is highest in 2 years.
Details: The Fed raised interest rates by 25 basis points to 5.25%-5.5%. This is the highest level since January 2001. They said that Fed will continue to monitor the economy and adjust rates as needed and will take into account a wide range of factors, including labor market conditions, inflation pressures, and financial developments.
Crypto
The House Financial Services Committee has approved a pair of bipartisan pieces of legislation for the crypto industry in the United States. The legislation aims to set out clearer rules for the crypto industry in the United States. The approval of these bills is being considered a “huge win” for the US crypto industry. Among them, the Blockchain Regulatory Certainty Act will “clear things up by affirming to the blockchain community that if you don’t custody customer funds, you are not a money transmitter,” according to Rep. Tom Emmer (R-MN). Rep. Maxine Waters (D-CA), the ranking Democrat on the committee, has criticized the Digital Assets Market Structure bill, saying that it “too closely heeds the calls of the crypto industry.”
Macroeconomics
UK: The car production up 16% in June, highest in 2 years. UK car production increased 16.2% in June 2023, the highest level in two years. This was the fifth consecutive month of growth. Manufacturers were able to manage global supply chain challenges, notably the shortage of semiconductors. Exports increased 13.6%, while domestic sales rose 4.5%. The EU remained the biggest market, followed by the US, China, Japan, and Australia. Production of electrified vehicles increased 71.6%, representing 37.8% of all cars produced so far this year.
On Thursday, GDP data surprised to the upside, as did the surge in manufacturing orders. This reinforced bears’ expectations of the Fed’s next rate hike in September. NASDAQ dropped almost to 14K, followed by BTC, which retested 29K support.
Details: The economy grew at an annualized rate of 2.4% in the second quarter of 2023, beating expectations by far (1.8%). Nonresidential fixed investment jumped sharply (7.7% vs 0.6%), led by a rebound in equipment. Consumer spending decelerated (1.6% vs 4.2%) but still exceeded expectations. Public expenditure increased at a slower pace. Net trade weighed down on growth. Residential investment continued to decline.
In June, Durable Goods Orders for manufacturing skyrocketed by 4.7% compared to the previous month (2%), marking the most substantial increase since July 2020. This surge easily surpassed market expectations of a mere 1% rise. The driving force behind this surge was transportation equipment, which saw an impressive surge of 12.1%. Notably, this marks the fourth consecutive month of rising durable goods orders.
Commodities
Natural gas: Prices fell 4% on Thursday due to a combination of factors, including cooler weather expectations, lower gas exports, and increased gas storage.
On Friday, the Core PCI showed lower than anticipated inflation leading to a new hope for no rate hikes rising among bulls, which pushed NASDAQ higher. BTC, meanwhile, continued its weird side-wise move, strongly suggesting a strong buy-wall.
Details: The annual rate of inflation, as measured by core PCE, was the lowest since September 2021 rising by 4.1% while 4.2% was expected. The PCE price index, which includes food and energy costs, rose 3% in June from the corresponding period of the previous year, the lowest since March 2021.
Week 31 promised to be a volatile one for investors, yet again, as several notable economic events take place around the world and major indexes (as well as BTC) are trading close to their major support zones.
In the US, the focus will be on non-farm payrolls, earnings reports, factory orders, JOLT’s Job Openings, and ISM Manufacturing issued on Tuesday, August 01, and Services PMI — on Thursday, August 03, as well as an Unemployment Rate — on Friday, August 04.
Others:
Central banks in the UK, Australia, and Brazil will be making decisions about monetary policy.
Meanwhile, macro investors will be watching for GDP growth rates in the Euro Area, Italy, Hong Kong, and Mexico, as well as inflation rates in the Euro Area, Italy, Netherlands, Switzerland, Turkey, South Korea, the Philippines, and Indonesia.
Finally, China will release manufacturing and services PMI data, while Japan, Germany, the Euro Area, and Canada will publish unemployment rates.