SVET Reports
Wednesday's Markets Update (August 9, 2023)
On Wednesday, investors are nervous in the wake of Thursday's CPI data release. As a result, Nasdaq sharply corrected downward on technicals, while EU stocks recovered after Tuesday's slump. At the same time, BTC continued its whales' games, bewildering retail traders who are trying to position either for a crash or a sudden jump. Other news: Binance is up and running in El Salvador, the mortgage rate reached a 10-month high, and natural gas prices rose sharply on lower US supply.
Details:
Mortgage rates in the US surged to 7.09% in the first week of August 2023, the highest level since November 2022.
Comment:
The reason why mortgage rates re-established their rising trend in February 2023 despite the fact that the Fed was raising rates very quickly in October-February is likely due to a combination of factors.
First, the Fed's rate hikes were not enough to offset the rising inflation. Inflation in the US has been at a 40-year high, and it is likely to remain high for some time. This is putting upward pressure on mortgage rates, as lenders demand higher interest rates to compensate for the risk of inflation.
Second, the intensification of the war in Europe and rising political and military tensions with China have also contributed to the rise in mortgage rates. That have created uncertainty in the global economy, which is making investors more risk-averse and demanding higher interest rates.
Finally, the downgrading of the US government debt rating also contributed to the rise in mortgage rates. The downgrade made investors more wary of lending money to the US government, which led to higher interest rates on all types of debt, including mortgages.
Crypto
Binance has become the first fully licensed cryptocurrency exchange in El Salvador. The company received two licenses from the country's regulators: Bitcoin Services Provider (BSP) and Digital Assets Services Provider (DASP). Binance has also expanded to other countries in recent years, including Italy, France, Sweden, Australia, the UAE, and Japan.
Comment
The SEC's current stance on cryptocurrency is aggressive and politically motivated. This is likely due to the fact that the SEC is under pressure from Boomers-lawmakers to crack down on cryptocurrency exchanges. I believe that the SEC's approach is misguided and ultimately harm the US economy.
The SEC's aggressive stance is driving cryptocurrency businesses out of the US. This is bad for the US economy because it is taking away innovation and talent. The US has always been a leader in financial innovation, and the SEC's actions are threatening to undermine this position.
In addition, the SEC's politically motivated approach is creating uncertainty in the cryptocurrency market. This is discouraging investment and making it difficult for cryptocurrency businesses to operate. The SEC needs to take a more balanced approach to cryptocurrency regulation. It needs to be clear and consistent in its enforcement, and it needs to be open to dialogue with the cryptocurrency industry.
Commodities:
European natural gas prices rose sharply (30% to more than EUR 40 per megawatt-hour) today, despite record-high gas storage levels. The increase was driven by concerns about dwindling LNG flows to Europe, as well as higher demand from Asia. Also, US's exports of liquefied natural gas (LNG) are currently more lucrative for the markets in Asia in September, October, and November. As a result, there may be less LNG available this month. It is added by worker protests that impact LNG supply in Australia.
Comment
Despite the fact that the USA is exporting more liquefied natural gas (LNG) to Asia, fuel reserves in Europe are at their highest level ever for this time of year. The European Union wants them to be 90% full by November, and many countries, such as Spain and the Netherlands, have already met or exceeded this goal. Germany and Italy are close behind, but France is at 78% due to energy supply problems caused by strikes earlier this year.
This is a perfect example of how the market mechanism can work without government intervention. While supplies to the EU are cut from the East due to the war, LNG flows from the opposite side of the world more than compensate for that deficiency. If governments do not interfere, markets will do their job much faster and smoother.
Macroeconomics
Industrial production in Argentina contracted by 2.3% year-on-year in June, the first decline since February. The slowdown was driven by a decline in food and beverages output, as well as other sectors such as machinery and equipment, wood, paper, and printing. Production of basic metals and oil refining rose at a slower pace.
Comment
The decline in industrial production in Argentina is mostly due to China's economy deceleration. China is Argentina's largest trading partner, and a slowdown in China's economy will have a ripple effect on Argentina's economy.
However, more broadly speaking, we must not forget that the current deceleration of economic activities all around the world is the direct result of the over-centralized, hyper-bureaucratized system of governance that dominates our planet.
The current economic calamities began with the decision of governments to shut down the global economies in 2020. Today, we can say with complete certainty that it has proved to be an absolutely stupid and ineffective choice. It was a major shock to the global economy, and it is likely that the full economic impact of that choice, made for us by aging, technically outdated, and frightened Boomers (with the unique exception of the Swedish government led by 56-year-old Stefan Löfven), will be felt for several decades.
The "quarantine" exposed the weaknesses of centralized decision-making, and it is clear that we need to find a better way to manage our economies in the future. The centralized states are simply incapable of coping with the complicated realities of today. We need to decentralize our economies and give more power to local communities. This will allow us to be more responsive to change and more resilient to shocks.