SVET Reports
SVET Markets Weekly Update (October 2–6, 2023)
Week 40 proved to be volatile, exactly as predicted. Traders’ focus was on unemployment data coming from both government and private sources, which contradicted each other and created a perfect storm for Wall Street players, who capitalized on this on Friday when major tech stocks suddenly shot up, taking bears by surprise. On the crypto front, BTC and ETH attempted to mimic tech stocks but with a much lower amplitude and on very low volumes, signifying a drop in interest in crypto among investors. In other news, House leadership may be taken over by pro-crypto politicians, and EU bureaucrats have been joined by their Taiwanese counterparts in bringing about more cumbersome and unnecessary regulations to crypto.
On MondayTraders cheered the better-than-expected ISM Manufacturing PMI, and the Nasdaq rose slightly on the first day of Q4. However, investors are concerned that high interest rates could persist, putting pressure on stocks in the coming months. Both BTC and ETH saw increases, with BTC surpassing $28.8K, and ETH reaching $1.76K. In other news, the CFTC Chair called for a substantial regulatory framework for cryptocurrencies, including DeFi.
Details
The PMI contracted in September, but at the slowest pace in ten months (rose to 49 from 47.6 in the previous month). New orders fell at a slower pace, production rebounded, employment rebounded, and prices declined at a slower pace. These signs of improvement raise hopes that the US manufacturing sector is turning a corner.
Comment
The Purchasing Managers’ Index (PMI) is a leading indicator of economic activity, and a PMI reading below 50 indicates that the manufacturing sector is contracting. The recent rebound in PMI may be temporary, as higher energy prices and the Fed’s continued interest rate hikes are likely to weigh on manufacturing activity in the coming months.
Crypto
CFTC Chair Rostin Behnam urged for a substantial regulatory framework for the booming cryptocurrency market, saying it’s urgent to update policy frameworks to better regulate the digital asset industry. His comments contrast with those of SEC’s Gary Gensler, who has said that current securities laws are enough to regulate the industry.
Comment
We have a “Dumb and Dumber” situation with crypto regulations. On one side, we have “Dirty Garry” arguing that 100-year-old legislation is perfectly fine to regulate 21st-century technology. On the other side, we have a former commodity trader with a Juris Doctor degree from Syracuse University who wants to impose heavy regulation on everything he can reach to satisfy his political ambitions, including DeFi. Is this what we as people deserve because we still refuse to erase the whole centralized governance system to the ground?
On Tuesday, a better-than-expected JOLTS report led to the Nasdaq tanking in a broad sell-off, as investors worried about rising interest rates. The consumer discretionary, financials, real estate, and technology sectors led the decline. Megacap growth stocks were also under pressure, with Microsoft, Amazon, and Tesla losing ground. Airbnb fell 6.5% after a downgrade, while HP gained 1.7% after a double upgrade. BTC (~27.3K) and ETH (~1.64K) closed the day in red. Other news: Crypto supporter McHenry (age: 49) replaced McCarthy (58) in the House of Representatives.
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Job openings rose by 690,000 in August 2023, reaching 9.61 million, beating market expectations and showing a strong labor market despite rising interest rates. Openings increased in all sectors and regions, with the biggest gains in professional and business services, finance and insurance, and state and local government education.
Comment
Although, officially, job market looks strong many critics of the government’s jobs statistics point out several key areas of concern:
Underemployment and Labor Force Participation: One major criticism is that official unemployment figures may not accurately reflect the true state of the job market. Critics argue that the official unemployment rate can be misleading because it does not account for discouraged workers who have given up looking for jobs or those who are involuntarily working part-time when they desire full-time employment. This leads to a concern that the unemployment rate may underestimate the extent of underemployment.
Use of U-6 Measure: Critics often point to the U-6 measure, which includes not only the officially unemployed but also discouraged workers and those working part-time for economic reasons. They argue that this broader measure provides a more accurate picture of labor market health but receives less attention than the official unemployment rate. As of August 2023, the U-6 unemployment rate in the United States was 7.2% while the “official” (U-3) unemployment rate was 3.8% for the same period.
FYI: Here’s a breakdown of the naming convention for unemployment measures:
U-1: This is the narrowest measure of unemployment, representing the percentage of the labor force unemployed for 15 weeks or longer.
U-2: This measures job losers and those who have completed temporary jobs.
U-3: This is the official unemployment rate, which represents the percentage of people who are actively seeking employment and are currently without a job.
U-4: This includes U-3 and adds discouraged workers, those who have given up looking for work because they believe no jobs are available.
U-5: This includes U-4 and adds other “marginally attached” workers who would like to work and have looked for work in the past 12 months but are not currently looking.
U-6: This is the broadest measure and includes U-5 plus those who are working part-time for economic reasons, often referred to as “involuntary part-time workers.” These are individuals who would prefer full-time employment but are working part-time due to economic conditions or because they can’t find full-time work.
Seasonal Adjustments and Data Revisions: Some critics raise concerns about the seasonal adjustments made to jobs data, suggesting that these adjustments may lead to inaccurate readings during certain months. Additionally, revisions to jobs data can occur, which can alter previously reported figures and make it challenging to assess the real-time state of the job market.
Underreporting or Misclassification: There have been claims that the government underreports or misclassifies certain categories of workers, such as gig economy workers or independent contractors. This can affect the accuracy of labor market assessments.
Geographic Disparities: Critics also highlight regional disparities in employment opportunities and wages. While certain urban areas may experience robust job growth, rural areas may struggle with job losses and limited economic prospects.
Political Manipulation: Critics suggest that government administrations may manipulate jobs data for political purposes.
The IBD/TIPP Economic Optimism Index plummeted to 12-year low in October 2023 (36.3), amid growing concerns about the impact of rising interest rates.
Comment
The IBD/TIPP Economic Optimism Index is a measure of economic sentiment and confidence. It was created in 1998 by Investor’s Business Daily (IBD) in partnership with TechnoMetrica Market Intelligence — a market research and polling firm — and it provides insights into public perceptions about the economy.
The index is based on a nationwide survey of around 900 adults, conducted via telephone. Respondents are asked a series of questions related to their outlook on the economy, personal financial situation, and job prospects. The answers to these questions are used to calculate the index.
The index comprises three main components: the Six-Month Economic Outlook, the Personal Financial Outlook, and the Confidence in Federal Economic Policies. These components are combined to generate the overall index score.
The reliability of the Index in predicting recessions is limited. It is primarily a measure of public sentiment and perception, and it is not designed to predict recessions or economic downturns with a high degree of accuracy. It provides insights into how people feel about the economy at a given moment, but it does not incorporate economic indicators, such as GDP growth, unemployment rates, or leading economic indicators, that are typically used to forecast recessions.
Crypto
Rep. Patrick McHenry (49), known for his support of cryptocurrencies, takes the helm in the U.S. House of Representatives temporarily, as the House finalizes digital-asset regulations. McHenry’s leadership role as the temporary replacement for Speaker Kevin McCarthy (58), amid the search for a permanent successor, is expected to benefit the advancement of crypto-related bills he has been actively working on since last year.
Comment
Please, do not tell me that age is not a decisive factor in how politicians treat crypto. Almost everyone above 60 is against crypto, while almost everyone below 50 is pro-crypto. Hence, it is not a political issue, a national security issue, a fraud/not fraud issue, or a Howey test issue. Not at all. It is an issue of how old, inactive, and lazy your brain is in accepting new unfamiliar things, or an issue of how you want to promote your personal political / financial interests over the interests of the absolute majority of people.
On Wednesday, the Services PMI reached a neutral level, but the Nasdaq surged, fueled by consumer tech giants like Tesla (+5.9%), Microsoft (+1.8%), and Amazon (+1.8%), as ADP job data fell short of expectations, indicating a significant contraction in job growth and calming Treasury yields. BTC and ETH remained largely unaffected as traders hesitated, awaiting clearer macro signals. In other news, EU central banks plan to monitor DeFi with Atlas.
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The ISM Services PMI, a measure of service sector activity, fell slightly to 53.6 in September, but remained above 50, indicating continued expansion. This was the ninth consecutive month of growth for the sector, despite the Federal Reserve’s aggressive interest rate hikes. Business activity accelerated in September, while new order growth slowed for the ninth month in a row. Prices continued to rise at a rapid pace, due to higher labor costs and energy prices.
The private sector job growth slowed sharply in September, adding only 89,000 jobs, the smallest gain since January 2021. This was well below market expectations of 153,000 jobs. The services sector led the slowdown, adding just 81,000 jobs. Construction and natural resources/mining also added jobs, while professional and business services, trade, transportation and utilities, and manufacturing all lost jobs. Large establishments drove the slowdown, while small and mid-sized companies added jobs. Annual wage growth slowed to 5.9%, the 12th consecutive monthly decline. Pay gains also shrank for job changers.
Comment
The ADP Employment, created by Automatic Data Processing, Inc. (ADP), is one of the popular sources of private-sector employment data. ADP, a provider of human resources and payroll services, introduced the ADP National Employment Report in 2006. The report aimed to provide timely and accurate insights into employment trends.
ADP’s data for the employment indicator is derived from its payroll processing services. It collects and analyzes data from over 24 million employees across various industries, making it a significant source of information on employment trends. It is published monthly, typically a few days before the release of the BLS’s employment report. Here are some advantages of ADP reports over those of BLS:
ADP’s data primarily focuses on the private sector, whereas the BLS employment data includes both public and private sectors. This means that the ADP indicator can provide a more granular view of private-sector employment trends.
ADP often breaks down its employment data by sector and industry, providing a detailed picture of which sectors are experiencing employment growth or contraction.
ADP’s data is based on a substantial sample size, covering millions of employees. This large sample size can reduce the margin of error and improve the accuracy of the employment estimates.
ADP uses consistent data collection methods, which can make it easier to compare month-to-month and year-to-year trends.
While the ADP Employment Indicator does not cover the entire economy (f.e. does not account for the public sector employment) it is much more reliable and comprehensive than a centralized government reporting. It is an excellent example of how entrepreneurs can self-organize and to provide the good quality free-of-charge data without intervention of useless government bureaucrats.
Crypto
The Bank of International Settlements (BIS) is working with central banks in Europe to develop a system to track cryptocurrencies and decentralized finance (DeFi). The system, called Project Atlas, will combine data from both inside and outside of blockchains to create new statistics and vet existing data. The goal of Project Atlas is to better understand the macroeconomic impact of crypto and DeFi.
Comment
Although government ‘tracking’ always leads to two things — excessive taxation and harmful, useless policing — the fact that EU bureaucrats want to sneak into DeFi means they recognize that DeFi is here to stay. That is positive news.
On Thursday, Nasdaq fell slightly today in reaction to resilient labor market data, which points to more rate hikes. In the broader market, consumer staples, materials, and industrials led the downside. BTC and ETH tumbled on technicals, confirming the bearish trend. Other news: Hong Kong-based CMCC Global raised $100 million in a crypto fund; the Basel Committee requires banks to disclose their crypto asset holdings.
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According to a report by Challenger job cuts slowed in September (47K, below 75K in August) but remain elevated, with technology leading the way. Despite the layoffs, employers also announced plans to add jobs. Also, new unemployment claims rose slightly last week, but remained near a seven-month low. Continuing claims unexpectedly fell, suggesting that the labor market remains strong.
Comment
The Challenger, Gray & Christmas job cuts report is a monthly report that tracks the number of job cuts announced by US employers. The report is compiled from press releases and other publicly available information. The Challenger report is one of the most widely followed measures of job cuts in the US, and it is often cited by economists and the media.
The Challenger report has a long history, dating back to 1984. The report is generally considered to be reliable, but it is important to note that it is only a measure of announced job cuts. It does not include job cuts that are not announced publicly, such as layoffs at small businesses or government agencies.
The Challenger report has been used to predict recessions in the past, but it is not a perfect predictor. For example, the Challenger report showed a sharp increase in job cuts in the months leading up to the 2008 recession, but it did not predict the timing of the recession accurately.
The Challenger report is often compared to the Bureau of Labor Statistics (BLS) Job Openings and Labor Turnover Survey (JOLTS) report. The JOLTS report is a monthly report that tracks the number of job openings, hires, and separations in the US. The JOLTS report is considered to be more comprehensive than the Challenger report, but it is also less timely. The JOLTS report is released about 30 days after the end of the month that it covers, while the Challenger report is released about 10 days after the end of the month that it covers.
The JOLTS report is also generally considered to be more reliable than the Challenger report. The JOLTS report is based on a survey of employers, while the Challenger report is based on press releases and other publicly available information.
However, both the Challenger report and the JOLTS report have their limitations. The Challenger report only measures announced job cuts, and the JOLTS report does not include job cuts that are not announced publicly. Additionally, both reports can be revised after they are initially released.
Crypto
CMCC Global raised $100M in a crypto fund to support Asian blockchain startups. The fund, Titan Fund, is administered by State Street and audited by EY. Block.one is the fund’s lead investor.
The Basel Committee on Banking Supervision is proposing new rules that would require banks to disclose their crypto asset holdings. This is part of an effort to increase transparency and reduce risks in the banking sector.
Comment
It is a shame that the political games of one person, SEC Gary Gensler, are driving the crypto industry out of the country. This is giving our geopolitical rivals a huge advantage.
Gensler has repeatedly made it clear that he is hostile to the crypto industry. He has proposed new regulations that would stifle innovation and make it difficult for crypto companies to operate. As a result, many crypto companies are moving to other countries, where they are more welcome.
The crypto industry is one of the most innovative and rapidly growing industries in the world. It is creating jobs and attracting investment. By driving the crypto industry out of the country, Gensler is hurting the economy and giving our geopolitical rivals an advantage.
We urge Gensler to reconsider his approach to the crypto industry. He should work with the industry to develop regulations that promote innovation and protect consumers, rather than stifle growth.
On Friday, the Nasdaq rebounded sharply on Wall Street, trying to harvest bears’ stop-losses, with megacap stocks leading the way after a mixed jobs report. Microsoft, Nvidia, and Apple were among the top gainers, while Tesla lost ground after cutting prices. Meanwhile, BTC and ETH gains were much less pronounced, with most traders simply mimicking tech stock moves. Other news: Binance’s spot and derivatives market share has been declining drastically; Taiwan’s bureaucrats have introduced new crypto regulations.
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The unemployment rate remained unchanged at 3.8% in September, suggesting a tight labor market. This gives the Fed leeway to keep interest rates high. The number of unemployed people and the labor force participation rate were also unchanged. At the same time, U-6 unemployment rate fell to 7% in September, from 7.1% in August. This includes people who want to work but have given up searching, or are working part-time because they can’t find full-time work.
Comment
In a nutshell, what is the relationship between the unemployment rate and the recession?
The relationship between unemployment rate spikes and recessions can be complex and varies from one economic cycle to another.
Historically, spikes in the unemployment rate have often been considered a leading indicator of an impending recession. When businesses start laying off workers due to economic challenges, it can signal a broader downturn in economic activity. For example, the recession of 2007–2009 saw a significant rise in unemployment as the housing market collapsed and financial institutions faced severe turmoil.
However, unemployment rate spikes can also be a lagging indicator. In some cases, the economy may have already entered a recession, and unemployment rates continue to rise as a consequence. There have been instances where unemployment remained low during recessions or depressions due to various factors, such as government intervention, unique industry dynamics, or a strong labor market in specific regions. For example, during World War II, the United States experienced a period of low unemployment despite the global economic turmoil.
Overall, the relationship between unemployment and recessions is not straightforward, which keeps traders confused nowadays.
Crypto
Binance’s spot and derivatives market share has been declining in recent months. In September 2023, its spot market share dropped to 34.3% from 38.5% in August, and its derivatives market share fell to 51.5% from 53.5%. For comparison, in January 2023 Binance held 55.2% of the spot market. This sharp drop is likely due to a combination of factors, including regulatory challenges in the US and Binance’s decision to stop its zero-fee trading promotion for several major trading pairs.
The European Securities and Markets Authority (ESMA) has published proposed rules under the Markets in Crypto-Assets Regulation (MiCA) framework, covering sustainability indicators, inside information disclosures, white paper requirements, trade transparency measures, and record-keeping and business continuity requirements for crypto-asset service providers.
Taiwan’s lawmakers are proposing a new law to regulate the cryptocurrency industry. The law would require exchanges to segregate customer assets and establish listing and delisting mechanisms. Foreign crypto-asset service providers would need approval from local regulators to operate in Taiwan.
Comment
It is a well-known fact that the most developed countries have an aging bureaucracy, with many officials and politicians who have been in their positions for decades. It means that these individuals are highly resistant to change and new technologies. This is particularly evident in the current debate over the role of blockchain /crypto in finance, where most aging bureaucrats are fighting against its adoption.
On the other hand, younger bureaucrats are more open to the use of new technologies and are more likely to understand their potential benefits. In fact, many younger bureaucrats are embracing technologies such as artificial intelligence and blockchain, which can help to streamline processes, improve efficiency, and increase transparency.
According to data from the U.S. Census Bureau, the median age of members of the 116th Congress (2019–2021) was 59.3 years old. The median age of members of the 117th Congress (2021-present) is 60.5 years old.
In Taiwan, the median age of politicians in the Legislative Yuan, the country’s unicameral legislature, is typically in the early to mid-50s. According to data from the Legislative Yuan’s website, the median age of members of the 10th Legislative Yuan (2020–2024) was 54.3 years old.
On Week 41, markets might be calmer before Thursday’s inflation data release. Also, other economic data like FOMC meeting minutes, Fed speeches, wholesale prices, and consumer confidence will draw attention. Major companies will also start reporting quarterly earnings. Internationally, inflation rates in China, Mexico, India, Brazil and Russia will be watched. China will disclose trade, inflation and lending numbers. The UK will reveal monthly GDP. Australia will provide consumer and business confidence data. Germany will share industrial production details.