SVET Reports
SVET Markets Weekly Update (September 11–15, 2023)
On week 37, Nasdaq and BTC both received an unexpected dose of macro-economic positivity with the ECB signaling a halt to its rate hike program, Chinese industrial production growing, and CPI increasing moderately. However, Nasdaq corrected sharply twice during the week (on Tuesday and Friday) as traders grew nervous ahead of the FOMC meeting the following week.
On Monday, Nasdaq jumps up for second winning day. Traders ignored rising inflation expectations focusing on the micro-economic data instead. Tesla, Qualcomm, Meta Platforms rise on positive news. BTC dropped on technicals with Bears testing the important resistance on 25.4K. Other news: Crypto funding dropped almost 10x in 2023.
Details
Inflation expectations for the year ahead increased to 3.6% in August 2023, with expectations for price growth in key areas also rising.
Comment
Consumers returning from their vacations at the beginning of the new working season appear to be less optimistic about inflation. Some of the reasons might be as following.
The price of gasoline, natural gas, and other energy commodities have been rising in recent months. This has contributed to higher inflation expectations, as consumers anticipate that these higher energy prices will be passed on to other goods and services.
The price of food has also been rising in recent months, due to factors such as droughts and crop failures in some parts of the world. This has also contributed to higher inflation expectations, as consumers anticipate that higher food prices will make it more expensive to buy groceries.
Inflation expectations can also be influenced by past inflation levels. If inflation has been high in the past, consumers may be more likely to expect high inflation in the future.
Crypto
Crypto VC funding in 2023 has dwindled significantly compared to 2022. Foresight Ventures rep attributes this to the plateauing of many crypto narratives, such as layer-2 solutions, zero-knowledge proofs, and NFTs.
Comment
In 2022, the crypto space saw a boom in VC funding, with Q2, Q2 bringing $20.3 billion. However, VC funding in the crypto sector has noticeably dwindled in 2023. In the Q1, approximately $2.6 billion worth of crypto VC deals transpired. The second quarter fared even worse, with approximately $2.1 billion distributed across 292 funding rounds, marking one of the weakest performances in the realm of crypto fundraising.
On Tuesday, Nasdaq slide down as inflation worries weigh on tech. Apple unveils iPhone 15, Oracle misses estimates. BTC recovered on a rare occasion of crypto traders anticipating positive macroeconomic updates. Other news: the EU Parliament required crypto-asset service providers to report all EU clients transactions.
Details
Small business optimism decreased in August 2023, with inflation and worker shortage cited as the biggest obstacles.
Comment
The decrease in the NFIB Small Business Optimism Index in August is a sign that business owners are feeling less optimistic about the economy. This is likely due to a number of factors, including inflation and the worker shortage.
Inflation is making it more expensive for businesses to operate, as they have to pay more for raw materials, labor, and other inputs. This is squeezing profit margins and making it harder for businesses to invest and grow.
The worker shortage is also a major challenge for businesses, as they are having difficulty finding qualified employees. This is forcing businesses to raise wages and offer other incentives to attract workers, which is also adding to their costs.
Obviously, the inflationary pressure is not only affecting consumers, but also businesses.
Crypto
The EU Parliament approved DAC8, which requires crypto-asset service providers to report transactions involving EU clients to tax authorities. This will pave the way for automatic exchange of crypto asset information among EU tax authorities.
Comment
Bureaucrats are motivated to control and tax people. One reason is that they see it as a way to maintain order and stability. Another reason is that they believe that taxation is necessary to fund government programs. Additionally, some bureaucrats simply enjoy the power that comes with controlling other people’s lives.
Most bureaucrats do not know how to earn money due to their personal incompetence. This is because many bureaucrats come from wealthy families or have connections that allow them to get ahead without having to work hard. As a result, they do not have the skills or experience necessary to be successful in the private sector.
So, no wonder, that instead of the support for their innovative ideas, drastically improving peoples lives, entrepreneurs get the enforcement from bureaucrats on all continents. Replace then with code, that what we need.
On Wednesday, Nasdaq up as investors assess mixed CPI report. Fed seen holding rates in September, pausing in November. Megacaps gain, Apple down after China bans new iPhone models. BTC continued its micro-rally enhanced by positive macro-data. Other news: CFTC’s director warned against “unregulated” DeFi.
Details
Inflation accelerated to 3.7% in August 2023, driven by higher energy prices. However, core inflation slowed to 4.3%.
Comment
The annual inflation rate accelerated. At the same time, core inflation, which excludes food and energy, slowed. This is a reverse trend from what we have witnessed during the first halve of 2023. The Fed faces a serious challenge in raising interest rates without putting government budgets under too much stress or hurting the labor market. They cannot do anything about the price of energy, which is completely driven by geopolitical factors.
The latest increase in inflation was largely due to higher energy prices. The price of gasoline rose 10.3% in August, while the price of natural gas rose 19.8%. These higher energy prices were driven mostly by OPEC+ cutting its production trying the prevent further price downturn.
Crypto
The CFTC’s enforcement director warned that unregulated DeFi exchanges pose a threat to the integrity of the financial system. He said the agency will take enforcement actions against those who violate the law.
Comment
Agencies are fighting each other in an attempt to control blockchain and crypto. This is a new and rapidly evolving technology, and there is no clear regulatory framework in place. As a result, different agencies are vying for control over this space.
The fight for control of blockchain and crypto is likely to continue for some time. The fight for control of blockchain and crypto is not about “defending” consumers. It is about power. The agencies involved in this fight are all vying for control over this new and potentially lucrative market. They want to be the ones who set the rules and regulations, and they want to be the ones who collect the fees.
The fight for control of blockchain and crypto is a reminder that power is always at play. When new technologies emerge, there is always a struggle for control over them. The outcome of this struggle will have a significant impact on the future of blockchain and crypto, and it will also have a significant impact on the power dynamics in the financial system.
On Thursday, the Nasdaq rose, with Arm Holdings’ successful IPO lifting investor sentiment. Headline producer inflation beat estimates, while core PPI met expectations. Also strong economic data indicated the economy resilience. Retail sales increased. BTC extended its rally re-energized by the ECB rate announcement. Other news: House GOP want to control the issuance of CBDCs.
Details
Producer prices rose 0.7% in August, the highest level since June 2022. Energy prices led the increase, while core prices rose 0.2%.
Comment
The producer price index (PPI) is a measure of the prices paid by producers for goods and services. The August increase in PPI shows that input costs for businesses are rising, which is likely to be passed on to consumers in the form of higher prices. This is a sign that inflation is likely to remain elevated in the near term.
The war in Ukraine, OPEC+ political games and most lately China reportedly increased industrial output are a major factors driving up energy prices, which are a major component of PPI.
The Fed is expected to raise interest rates in September again in an effort to cool inflation. However, it is not clear how effective this will be. The Fed’s efforts to curve inflation by suppressing demand may have reached their limits. The US economy is already slowing, and raising interest rates further could tip it into recession.
Crypto
Republicans in the House of Representatives are pushing for legislation to prevent the Federal Reserve from issuing CBDCs without express approval from Congress.
Comment
Outdated politicians can only help crypto by delaying their own stupid proposals amid their fight against each other.
Many politicians in the world are still stuck in the old ways of thinking and are not open to new technologies like cryptocurrencies. They are often quick to make knee-jerk reactions to things they don’t understand, and this can lead to bad policy decisions that stifle innovation.
The good news is that the outdated politicians and their corrupt fight against each other are only delaying the inevitable adoption of cryptocurrencies. The technology is too powerful and too disruptive to be stopped. As more and more people learn about the benefits of cryptocurrencies, the demand for them will only grow.
In the end, the outdated politicians will be left behind as the world moves on to a new era of finance. Cryptocurrencies will become the new normal, and those who embrace them will be the ones who benefit the most.
Macroeconomics
ECB hikes rates for 10th time, signals end of tightening cycle. The refinancing operations rate reached a 22-year high of 4.5%. The deposit facility rate set a new record at 4%.
ECB Forecasts:
Average inflation: 5.6% in 2023 and 3.2% in 2024,
2025 rate: 2.1%.
Core inflation: 5.1% in 2023, 2.9% in 2024, and 2.2% in 2025.
GDP growth: 0.7% in 2023, 1.0% in 2024, and 1.5% in 2025.
Comment
The ECB’s signaling of the end of the tightening cycle is a significant development, as it shows that monetary authorities around the world are starting to become more worried about recession than inflation.
This is a shift in thinking from earlier this year, when many central banks were raising interest rates aggressively in an effort to combat inflation. However, the recent slowdown in economic growth has led some central banks to reconsider their approach.
The ECB is not the only central bank that has signaled a possible end to the tightening cycle. The Bank of England has also said that it is likely to pause its rate hikes in the coming months. And, of course, the Fed, which has been the most aggressive central bank in raising rates, has also hinted that it may slow down its pace of tightening in the near future.
The shift in thinking among central banks is a reflection of the fact that the global economy is facing a number of challenge. These challenges are likely to weigh on economic growth in the coming months and years.
As a result, monetary authorities are starting to worry that raising interest rates too aggressively could tip the economy into recession. The ECB’s decision to signal the end of the tightening cycle is a sign that the central bank is aware of this challenge.
Commodities
Oil prices rose to a 10-month high on Thursday, as traders bet that the global oil market will tighten further in the coming months.
Comment
The major cause of this rise are geopolitical games and resurgence of the production in China. The International Energy Agency (IEA) said that extended supply cuts by Saudi Arabia and Russia will mean a substantial market deficit through the fourth quarter. OPEC also projected a large deficit of 3.3 million barrels per day in the fourth quarter, while the US EIA forecasts a smaller deficit of 230,000 barrels in the same period.
On Friday, New York production activity is reported stable but Nasdaw fell sharply with megacap names leading the declines. Adobe declined 4.2% after earnings miss. Traders await the FOMC decision due next week. Also, investors were selling amid a massive options expiration on the third triple witching day of 2023. BTC rally halted after hitting the resistance on 27K. Other news: Japan softened the rules for startups raising in crypto.
FYI: The third triple witching day of 2023 is on Friday, September 15, 2023. It is the simultaneous expiration of stock options, stock index futures, and stock index options contracts all on the same trading day. This happens four times a year: on the third Friday of March, June, September, and December.
Details
Surprisingly, NY manufacturing activity little changed in Sept, after sharp drop in Aug. New orders, shipments up, inventories down. Labor market indicators are weak.
Comment
Some regions, like New York, might still experience a temporary rise in manufacturing activity during an upcoming recession.
New York is a major financial and business center, and it is home to many Fortune 500 companies. These companies may be less likely to cut back on production during a recession, as they may still have strong demand for their products or services.
New York is home to a number of counter-cyclical industries, such as the pharmaceutical. These industries are less likely to be affected by a recession than industries that are more cyclical, such as manufacturing and construction.
The NY state government has implemented a number of policies to support manufacturing, such as the Excelsior Jobs Program, which provides tax breaks to businesses that create new jobs. These policies have helped to keep manufacturing activity in New York relatively stable.
Crypto
Japan to let startups raise funds with digital assets
Comment
The Japanese government’s decision to allow startups to raise funds with digital assets is a sign that they are taking a forward-thinking approach to the technology. This is in contrast to many other governments, which have been slow to embrace cryptocurrencies and other digital assets.
The Japanese government’s decision not to raise interest rates is also a sign that they are taking a cautious approach to the economy. The Federal Reserve, on the other hand, has been raising interest rates in an attempt to combat inflation. However, this has raised concerns that it could lead to a recession.
Japanese government’s willingness to experiment and try new things is a sharp contrast with outdated Boomer’s financial and economic policies, practiced elsewhere in the world.
Comment
Macroeconomics
China’s industrial production grew at a faster-than-expected pace in August, rising 4.5% year-on-year, the strongest expansion since April.
Comment
China is the world’s second-largest economy, and its growth is important for the global economy. The country is a major exporter of goods and services, and its demand for commodities such as oil, copper, and soybeans helps to keep prices high. This can lead to inflation in other countries, as businesses pass on higher costs to consumers.
For example, China’s industrial production growth in August was driven by a recovery in manufacturing activity, which rose 5.4%. Mining output also grew, rising 2.3%.
The rebound in industrial production is a positive sign for the Chinese economy, which has been struggling to recover from a recent slowdown. However, it also led to an increase in prices for major commodities. For example, the price of copper rose by 2.5% in August, while the price of oil rose by 1.5%. This could lead to higher inflation in other countries, as businesses pass on higher costs to consumers.
According to the IMF, China’s economic growth is expected to slow to 4.8% in 2023, from 8.1% in 2022. Despite the slowdown, China’s growth is still expected to be higher than the global average of 3.6%. This means that China will continue to be an important driver of global growth. However, the country’s growth will also continue to have a significant impact on commodity prices and inflation.
FYI: China is the world’s largest consumer of commodities, accounting for about 15% of global demand and also the world’s largest exporter of goods, accounting for about 13% of global exports.
In Week 38, all eyes will be on the Fed Press Conference (Wednesday, September 20) announcing the Fed Rate Decision (projection: no change at 5.5%). Therefore, long-term investors will stay on the sidelines and indexes will be volatile within narrow ranges.