SVET Reports
Friday's Markets Update (August 11, 2023)
On Friday, PPI increased, surprising the markets. As a result, Nasdaq dove, pulled down by AMD and Nvidia, as traders bet on the Fed keeping rates higher for longer. BTC hovered over 29.4K, still waiting for a catalyst. Other news: One more senator supports a reasonable regulatory framework for crypto, standing against the "Dirty Garry" war on blockchain. Belorussian inflation hit a record low.
Details:
Producer prices (PPI) in the US rose 0.3% in July, led by services and goods prices. Year-on-year, the PPI rose 0.8%.
Comment
The producer price index (PPI) is an important economic indicator to follow because it measures the prices paid by producers for goods and services. These prices are then passed on to consumers, so a rising PPI can signal that inflation is on the rise.
The rising PPI and services sector PPI are sending a negative signal to markets. This is because they suggest that inflation is becoming more widespread and that the Federal Reserve may need to raise interest rates more aggressively in order to bring inflation under control.
The Fed is known to pay particular attention to services side inflation. This is because services are a large and growing part of the economy, and because services inflation is often more persistent than goods inflation.
Additionally, the Fed may believe that it is easier to control services inflation than goods inflation. This is because services workers are often less unionized than goods workers, and they have less bargaining power with their employers (and, consequently, the Fed).
Crypto
Senator Lummis filed an amicus brief in support of Coinbase's motion to dismiss the SEC's lawsuit against the company. Lummis argued that the SEC should not be allowed to "legislate by enforcement" and that Congress should be the one to develop crypto regulations.
Brazilian lawmakers are considering raising taxes on cryptocurrencies held overseas. The proposed legislation would recognize cryptocurrencies as "financial assets" for tax purposes, and would tax gains from fluctuations in crypto asset prices and foreign exchange rates. The goal of the revision is to promote equal tax treatment for crypto investments abroad.
Comment
It is important to have the support of at least some lawmakers in order to achieve our goals. However, as we can see from the Brazilian example, political support can be a double-edged sword. Bureaucrats not only keep rising taxes but also often demand high sums of money in exchange for their support. In Brazil, for example, a study by Transparency International found that over 70% of lawmakers had accepted bribes in the past year.
Macroeconomics
Inflation in Belarus slowed to 2.7% in July 2023, the lowest level since records began in 1992. The decline was driven by a fall in prices for non-food items, while prices for services and food rose slightly. On a monthly basis, consumer prices rose by 0.3%, the same as in June.
Comment
The low non-food inflation in Belarus, the country next door to the raging war in Ukraine, can be explained by two factors: rigorous price controls from the state apparatus and a fall in imports from Belarus's major trade partners, Russia and China. Additionally, there has been an increased demand for potash (a fertilizer that is essential to the world's food industry) from Belarus's major import partners, Russia, Poland, and Germany.
The combination of these factors has helped to keep inflation in Belarus relatively low, despite the ongoing war in Ukraine. The state apparatus has been able to control prices by setting maximum prices for certain goods and services. The fall in imports has reduced the supply of goods in Belarus, which has helped to keep prices up. And the increased demand for potash has boosted exports and generated foreign exchange income for Belarus.
Week 33, investors will be watching closely for economic data releases from the US, China, Eurozone, Japan, Germany, India, UK, Canada, Norway, Philippines, and New Zealand.
The FOMC minutes (Wednesday, August 16), retail sales (Tuesday, August 15), and industrial production (Wednesday, August 16) in the US are all expected to be major releases. China industrial production and retail sales, GDP and inflation for the Eurozone, Japan GDP growth and inflation, Germany economic sentiment, wholesale and consumer prices for India, inflation, unemployment and retail sales for the UK, Canada CPI, Australia unemployment data, and interest rate decisions from Norway, the Philippines and New Zealand are also on the radar.