Thursday's Markets Update (September 21, 2023)

22 Sep 2023 by rate3

Unemployment claims declined, suggesting a strong labor market and further rate hikes. Treasuries responded with new highs, and the Nasdaq fell sharply to its lowest level in five weeks, led by rate-sensitive tech shares. Amazon, Broadcom, and Cisco shares decreased on corporate news. BTC plunged below 26.4K as bears used macroeconomic negativity to strengthen their positions. Other news: The WSJ reported that crypto firms are leaving the country en masse.

Details

Unemployment claims fell to 201,000 last week, the lowest level since late January and well below expectations. At the same time, the Philadelphia Fed Manufacturing Index fell to -13.5 in September, down from 12 in August. This is worse than expected and suggests a contraction in manufacturing activity. However, firms are still raising prices and future indexes improved, suggesting some optimism for growth over the next six months. Markets reacted by Treasury rising sharply, with the 10-year yield nearly touching 4.5%, its highest level since 2007 and the 2-year note approaching its highest level (5.2%) since November 2000.

Comment

Employment situation is a lagging indicator and it usually starts to notably worsen when recession is already on the way. In contrast, despite occasional spikes, manufacturing activity in one of the country's largest and most economically active regions continues to deteriorate, which is a clear sign of an upcoming economic downturn. However, most recent unemployment data suggests that the Fed may still have some political ammunition left to argue that its policies are not harming the economy, and it is likely that the FOMC will continue to raise rates further. Traders reacted accordingly and loaded up with Treasuries selling tech sector.

Crypto

Wall Street Journal reported that crypto firms are leaving the US due to SEC crackdowns. Companies are being forced to develop growth plans overseas, and MakerDAO has blocked US-based users. Three companies focusing on overseas growth are Ryze Labs, Zodia Markets, and Ripple Labs.

Comment

We may be standing at the dawn of a new era in cryptocurrency markets, in which a small portion of our community will be in direct confrontation with US and EU regulations due to their perceived unfairness and general stupidity. The rest of the crypto market will be dominated by giant banks, which will cut off the vast majority of users from crypto by introducing expensive, "fully compliant" centralized protocols that mimic DeFi but are insecure and simply represent a continuation of their existing outdated trading systems.

Macroeconomics

The Bank of England paused interest rate hikes at 5.25% on September 21st, citing recent data suggesting that the impact of previous hikes is taking effect and expectations that inflation will decline. Policymakers remain committed to tightening policy further if necessary.

Comments

The BoE rate halt, following the European Central Bank's (ECB) pause, is another confirmation that policymakers are starting to consider a change in their rate-hiking programs due to the continued deterioration of global economies and slowing inflation. However, the Fed's decisions will still have a decisive impact on global financial markets.