SVET Markets Weekly Update (September 25–29, 2023)
On Week 39, with the core PCI index showing signs of slowing down, but GDP still on the path of expansion, the Fed received two contrasting signals. On one hand, Chicago Fed Governor expressed the opinion that, with rapidly slowing inflation, the Fed might have already overshot with its interest rate policies. On the other hand, Powell continues to emphasize the necessity of additional rate hikes, postponing any rate cuts for at least a year.
As a result of this divergence in viewpoints, investors, including those in the cryptocurrency market, who had been eager to capitalize on even the slightest opportunity to drive stock prices higher in the past six months, have now become more cautious. Bearish sentiments have taken hold, leading to a decline in stock prices, particularly on the Nasdaq, which fell below key support levels.
Currently, with technical indicators favoring a bearish outlook in both the stock and cryptocurrency markets, it appears that we are entering a highly volatile quarter.
On Monday, Texas’ manufacturing activity is down, but the Nasdaq index rose, boosted by Amazon investing USD 4 billion in AI and Netflix settling a labor dispute with screenwriters. BTC and ETH are experiencing mixed performances, with BTC holding above 26.2K and ETH hovering below 1.6K. Other news: Crypto regulation bills could be delayed.
Manufacturing activity in Texas deteriorated in September 2023, according to the Federal Reserve Bank of Dallas. The business activity index fell to -18.1, despite a rebound in the production index to 7.9, its highest reading of the year. New orders also improved, but remained negative at -5.2. Employment growth and workweeks were stronger in September, but uncertainty about the future outlook increased.
The labor market is still strong, but the economy is deteriorating. The strong labor market is a positive sign, as it suggests that businesses are still hiring and that the economy is not in a recession. However, the rising uncertainty about the future outlook is a concern. Businesses may be hesitant to invest or expand if they are unsure about what the future holds. This could lead to slower economic growth and job losses in the future.
It is important to note that the labor market is a lagging indicator of economic health. This means that it can take some time for the labor market to show signs of a recession, even after the economy has already started to slow down. Therefore, it is important to pay attention to other economic indicators, such as GDP growth, inflation, and consumer spending.
Crypto regulation bills could be delayed if US lawmakers don’t agree on a government spending bill by September 30.
It is paradoxical that small and medium-sized businesses would benefit if democratically governments were to stop operating. This is because governments have become too bureaucratic and over-regulated, and their actions often disrupt businesses more than they help them. Only contemporary, illiterate, mostly non-elected, clueless governments can shut down all businesses around the world or start wars that are not in the best interests of their citizens. Complete decentralization is the only viable solution left to deal with that.
On Tuesday, the Nasdaq fell almost 2%, breaching the important technical support at 13K, with tech giants such as Tesla, Apple, Amazon, Microsoft, and Alphabet all seeing notable declines. The sell-off came after data showed that consumer confidence and new home sales have fallen in recent months, with prices still rising. Meanwhile, BTC continued to hold above 26K. Other news: The SEC has delayed its decision to approve spot ETH ETFs.
Home prices ticked up 0.1% in July 2023, the first gain in five months, despite forecasts of a 0.3% drop. Chicago, Cleveland, and New York saw the biggest gains, while Las Vegas, Phoenix, and San Francisco saw the biggest declines. At the same time home sales decreased to -8.70 percent. Also consumer confidence dropped to 103.
Rising home prices with decreasing sales and consumer confidence are signs of an upcoming recession. Economists have observed this pattern historically, as consumers with declining confidence are less likely to make major purchases, such as homes. Additionally, rising home prices can make it more difficult for first-time homebuyers to afford a home, which can further dampen demand.
Fed is also concerned about rising home prices, as they can contribute to inflation. As a result, the Fed is likely to continue hiking interest rates in an effort to cool the housing market and bring inflation under control. However, higher interest rates can also make it more expensive to borrow money, which could further dampen demand for homes.
Overall, the combination of rising home prices, decreasing sales, and consumer confidence are signs of an upcoming recession. The Fed’s actions to combat inflation are likely to further exacerbate this trend.
SEC has delayed its decision on whether to approve spot Ethereum exchange-traded funds (ETFs) from VanEck and ARK 21Shares. The SEC said it has received no public comments on either proposal and has extended the deadline for a decision to December 25 and December 26, respectively.
The SEC’s handling of the spot crypto ETF proposals reminds me of a science fiction movie with alien body snatchers invading the highest levels of power and forcing them to make disastrous decisions at the last critical moment, even when everything seems to be aligned for a solution that would benefit all of humanity.
How can anyone believe the outrageous claim that the SEC received no public comments on these proposals, despite the unprecedented level of public attention to the issue and the involvement of so many major crypto companies?
How many insectoids from Alpha Centauri do we have in the SEC?
On Wednesday, Manufacturing orders rose above expectations and the Nasdaq closed slightly in the green, with Palantir increasing 6.4% on the news that it got $250M for AI services with the Army. BTC attempted to breach a resistance at 27K but then retreated back to 26.3K. Other news: McHenry threatened to subpoena Gensler; Binance is leaving Russia.
Manufacturing orders unexpectedly rebounded in August, led by machinery, fabricated metal products, computers and electronics, and electrical equipment. Orders for machinery led the increase, followed by fabricated metal products, computers and electronics, and electrical equipment. On the other hand, orders declined for transportation equipment, primary metals, and capital goods. However, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, went up 0.9%, recovering from a 0.4% fall in July.
We have already seen in the previous data that manufacturers continue to insist on an upcoming economic recovery and count on the recession being avoided. On the one hand, this underlines an unusual resilience of the economy (compared to previous recessions), boosted by growing government expenditures, including those on the war. On the other hand, we see that negative economic signals continue to accumulate. Overall, this could signify a more prolonged period during which the Fed might hold its high rates.
McHenry, the chair of the House Financial Services Committee, threatened to subpoena SEC Chair Gensler at the beginning of Wednesday’s hearing. He accused Gensler of not being transparent to Congress;
Binance is selling its Russian business to local exchange CommEX and exiting the country completely. The process will take up to a year.
One branch of the government, the executive branch, is completely disdainful of the regulatory branch. This is a sign of a non-functioning governance system. The only answer is massive deregulation and complete decentralization. The number of bureaucrats overseeing markets must be cut by at least 90% to keep the economy competitive in the dawn of technological breakthroughs, including blockchain and AI, that have occurred in the past decade. These advances allow us to get rid of bureaucrats who are only serving their own interests.
On Thursday, GDP and core price index increases aligned with expectations, creating a neutral backdrop on which megacap stocks such as Meta, Tesla, Alphabet, and Nvidia rallied on technicals, leading to the Nasdaq’s up-tick. BTC also started to gain some positive momentum, reaching above 27K, while ETH was boosted by rumors about a potential ETH futures ETF passing SEC scrutiny.
The economy grew at an annualized rate of 2.1% in Q2 (2.2% growth in Q1), driven, mostly, by business investment (+7.4%). Consumer spending, which is the largest component of the economy, grew less than expected (0.8% vs 1.7%), but still remained positive. Government spendings increased 3.3%. The Bureau of Economic Analysis revised down economic growth (to 1.9%) for the full year 2022, due to weaker consumer spending and exports. The Fed expects the economy to grow 2.1% in 2023. At the same time, the core PCE price index rose by 3.7% in Q2 as expected, the lowest rate since Q1 2021.
The latest data on real GDP growth (GDP deflator increased 1.7% in Q2 2023) showed that businesses are confident in the future economic outlook. Companies continue to invest in new structures, equipment, and technology, which can lead to increased productivity and job creation. However, the trend in GDP growth is negative (2.2% in Q1 2023, 2.7% in Q3 2022, and 2.6% in Q4 2022), and we can expect this trend to continue in Q3 2023.
According to unconfirmed rumors spread by several news agencies, Valkyrie Investments, a digital asset management firm, will start offering exposure to Ether futures through its existing Bitcoin Strategy ETF. This means that investors will be able to invest in ETH futures through a traditional investment vehicle, such as a brokerage account. The SEC has not confirmed this (in fact, the SEC later said that it is delaying its decision on this), but it has moved the ETH price nonetheless.
Although the approval of an Ethereum futures ETF is an important development for ETH, it has little to do with investment into ETH. Spot ETFs, which would track the price of ETH directly, have been consistently rejected by the Securities and Exchange Commission (SEC), which is governed by Gary Gensler. Gensler has been criticized for his close ties to the traditional financial industry, and most of us believe that he is biased against cryptocurrencies.
German inflation fell to 4.5% in September, the lowest level since the start of the war. This is down from 6.1% in August and 7.6% in July. This was below market expectations and was driven by a slowdown in both services and goods inflation.
The easing of inflation in Germany is a positive sign that the global economy, particularly the EU, is adapting to the recent geopolitical shocks caused, first, by the “quarantine” and, then, by the war.
On Friday, Core PCI rose the least since May 2021, and Nasdaq went up at the opening but then backtracked and closed in the red, marking its most bearish month of the year. Nvidia and Tesla saw increases after their ratings were upgraded. BTC moved sideways, reflecting the mood of Wall Street traders. In other news, Eurozone inflation fell, and a new bill requiring the reporting of off-chain transactions was introduced.
The personal consumption expenditure price index (PCI) — one of the key inflation’s metrics — slowed to 3.9% in August 2023, the lowest since May 2021 and in line with expectations. Core PCI — the Fed’s preferred gauge to measure inflation — which excludes food and energy, rose 0.1%, the least since May 2021, from the previous month and 3.5% from the previous year, both below forecasts.
Here’s a poem about that:
We dance with ’90s inflation’s song,
Yet ’70s rate, a rhythm strong.
Mortgage rates, an ’80s serenade,
Consumer sentiment, ’90s cascade.
Technology, a gift from ‘21’s bright star,
Governance, an 18th-century memoir.
In this curious mix, we now belong, Oh, what could possibly go wrong?”
A new bill would require cryptocurrency trading platforms to report all transactions (including, off-chain) to a government repository. The bill, introduced by Congressman Don Beyer, is intended to protect investors and increase transparency in the cryptocurrency market.
In this new technological age, any form of bureaucratic government regulation (excluding self-government systems based on communal consent) is likely to become obsolete, susceptible to corruption, and detrimental to entrepreneurs. Nevertheless, the concept of continually improving algorithms, the rules of the game, is unquestionably essential for the advancement of markets.
The notion of achieving transparency for off-chain transactions above a certain threshold is a commendable one, particularly in the context of corporate deals heavily influenced by Wall Street, where certain entities with seemingly unlimited resources accumulate undisclosed assets, thus exerting a disproportionate influence over these transactions. This becomes especially critical in the case of communal coins, such as ETH and BTC.
Eurozone inflation fell to 4.3% in September 2023, its lowest level since October 2021. This was below market expectations and was driven by slower price increases for services, non-energy industrial goods, and food, alcohol, and tobacco. Core inflation also cooled. Inflation rates fell in Germany, France, and the Netherlands, but rose in Italy and Spain.
We initially reported a significant drop in inflation in Germany, but now we see that this trend is supported by more comprehensive data encompassing the entire EU region. It’s evident that with inflation decreasing at such a pace, central banks like the Fed are seemingly overreacting with their aggressive interest rate policies. The primary motivation for keeping rates high appears to be political in nature. Additionally, bureaucrats, who often exhibit a disdain for entrepreneurs, may prefer to maintain unreasonably high rates to retain leverage and control over the economy.
Week 40 will be a busy one and, most likely, volatile, for the global economy, with a number of important data releases scheduled. In the US, the jobs report and speeches by Fed officials will be in focus, followed by data on job openings, PMIs, foreign trade, and factory orders. Investors will also be closely monitoring inflation rates in several Asian countries and interest rate decisions in Australia, New Zealand, and India. Elsewhere, fresh PMI data will be released for a number of countries, as well as foreign trade data for several more. Finally, market participants will be keeping a close eye on unemployment rates for Canada and the Euro Area, the Tankan Large Manufacturers Index for Japan, and factory orders for Germany.