SVET Reports
SVET Markets Weekly Update (November 27 — December 1, 2023)
On Week 48, volatility has been prevalent across all markets, including the crypto. Nasdaq fluctuated, ranging between 14.1K and 14.5K. These up-and-downs are influenced by how traders interpret the numerous comments regularly issued by FOMC board members. Concurrently, BTC has got a bullish push, approaching the 40K mark. This surge is attributed to optimism surrounding the SEC’s potential approval of a spot BTC ETF and anticipation of the traditional Santa Claus rally.
On Monday, the number of sold houses decreased, the Dallas Fed’s index dropped, and Nasdaq, along with other major stock indexes, were trading slightly lower as investors awaited key economic releases, including the Fed’s preferred inflation measure, PCE. Nvidia, Microsoft, and Amazon saw positive movement as Cyber Monday sales commenced. However, retailers signaled a weakening in consumer spending despite a 7.5% increase in e-commerce spending on Black Friday compared to the previous year. Meanwhile, BTC and ETH both corrected on technicals, starting to form a double top on daily charts.
Details
The number of new single-family houses sold in the country decreased by 5.6% in October to 679K, below the predicted 723K. The high mortgage rates made it difficult for buyers to afford. Sales were varied, with the Northeast experiencing a 13.2% increase, while the South saw a 2.1% rise. The median price of houses sold was $409.3K, while the average price was $487K, compared to $496.8K and $543.3K a year ago.
The Dallas Fed’s index for manufacturing in Texas has been deteriorating for three straight months, reaching its lowest level since July 2023. The production index fell into negative territory, while the new orders index has been negative for 18 months and the capacity utilization index returned to negative territory. The shipments index slipped, and labor market measures suggest slower employment growth and shorter workweeks. Price front, wage growth normalized, while material cost growth remained below average and selling prices fell. Expectations for future activity is mixed.
Macroeconomics
The Russian stock market (MOEX) edged higher, building on slight gains from last week, reaching 3220 (ATH: ~4200) as investors continued weighing the outlook for key Russian exports like oil and metals. Gains in oil companies supported the broader market index as Russia appears to be selling some oil above the $60 price cap through a fleet of tankers.
The Euro hovers on USD 1.09 near its highest point since August 10, surpassing $1.09, as market participants anticipate inflation data to evaluate monetary policy. Despite subsiding inflation pressures in the Eurozone, robust wage growth poses a challenge to the European Central Bank’s efforts to tame price surges, according to ECB President Christine Lagarde. She underscores the need for cautiousness, declaring that it’s premature to proclaim victory over inflation. Lagarde anticipates further weakening of inflationary pressures but envisions transitory spikes in headline inflation with substantial uncertainty in the medium-term outlook. The forthcoming CPI report is expected to reveal a decline in the Euro Area’s annual inflation rate to 2.7%, its lowest since July 2021, with the dipping to 3.9%, its lowest since June 2022.
On Tuesday, the dollar index fell, and Nasdaq was up while traders were considering new data and comments from the Fed. Governor Waller expressed confidence in the current policy, while Governor Goolsbee noted significant progress on inflation, and Governor Bowman’s hawkish stance seemed more conditional than before. Consumer confidence improved for the first time in four months, and home prices hit a record high. Meanwhile, BTC surged above 38K, continuing to edge towards 40K under sustained bullish pressure, exploiting rising positive sentiments on stock markets and in an expectation of the traditional Santa Claus rally.
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In November, the Dallas Fed’s service sector index for Texas improved to -11.6 from a ten-month low of -18.2 in October indicating that services sector continues to degrade but a bit slower. However, employment indicators suggested growth, with the employment index rising and part-time employment increasing. Input price pressures eased while selling price pressures slightly increased.
Currencies
The dollar index reached its lowest point in 15 weeks, falling to almost 102.5 on Tuesday (-3% in November). Recent Fed speeches have led to the belief that the Fed is done with raising interest rates and may start cutting them next year. Board Member Waller expressed confidence in the current policy for slowing the economy and returning inflation to 2%. Governor Bowman anticipates further policy tightening but her statement was less assertive than before.
FYI: Comments on Vitalik’s techno-optimism article
Vitalik’s publication of the My techno-optimism article was a response to Marc Andreessen’s manifesto, which, basically, argues “to keep the world roughly the same as today but with less greed and more public healthcare”. The exchange is symbolic of a generational dialogue where each side speaks but fails to truly listen.
Contrary to Vitalik’s and other Millenials / Gen Z public figures’ disposition towards politics, Boomers continue to navigate the intricate web of global governance effectively, while tech moguls engage in endless discussions.
A fundamental critique of the Boomers lies in their desire to halt progress, seemingly unable to cope with the rapid changes that threaten their established power structures. Their reluctance to embrace technological advancements and evolving societal norms underscores a resistance to change, contributing to the widening generational gap.
Vitalik, a prominent figure in the tech world, represents the optimism of Millenials. His global influence is undeniable, yet his worldview is simultaneously broad and narrow. While he envisions a unified by a ‘defensive technologies’ World, his focus on a predominantly Western, high-tech community leaves a significant portion of humanity untouched.
The criticism against Vitalik’s views has several dimensions:
Limited Worldview: Vitalik’s optimistic vision fails to acknowledge the profound cultural, social, and economic differences that exist globally. His theories may resonate with a tech-savvy minority but lack relevance for a substantial majority of the global population.
Defensive Technologies: The call for defensive technologies, rooted in a fear of violence, neglects the symbiotic relationship between offense and defense. This oversight reflects a failure to recognize the complexities inherent in technological advancements and their potential consequences.
Political Involvement: Despite significantly improving as a public speaker and media influencer since 2014, Vitalik remains light-years distant from the realities of global politics.
Timing Issue: Vitalik’s defensive technological gradualism requires a lot of time to reverberate through society in all countries and to lead to real improvements on social and economic levels of a broader society. Simultaneously, with Boomers’ increasing stubbornness and their aggressive wrong-decision-making, we are all running out of time very quickly.
In response to the perceived shortcomings of Vitalik’s proposal, we advocate for an ‘on-hand’ approach to politics. The proposal suggests actively engaging in local politics by not only developing methodologies, platforms, and applications that facilitate the spread of horizontal governance systems beyond the confines of the crypto/blockchain enthusiast community but also by establishing formal political parties to represent the interests of the technological and entrepreneurial community at both the local and federal levels.
On Wednesday, Nasdaq and other stock indexes pared back some of their early gains after a Fed official cautioned against premature rate cut expectations. The comments tempered investor optimism following remarks earlier in the week that had suggested the Fed might soon halt rate hikes. Meanwhile, revised GDP data showed the economy grew faster in Q3 than initially estimated. BTC and ETH traders remained undecided, with prices continuing the up-and-down movements characteristic of the entire month of November.
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The economy grew at an annualized rate of 5.2% in the third quarter of 2023, exceeding initial estimates. This marks the fastest expansion since Q4 2021. Upward revisions were seen in nonresidential investment and residential spending. Meanwhile, consumer spending eased slightly from initial readings but remained robust. Government expenditures and trade also made positive contributions to growth. The report suggests the economy maintains momentum despite high inflation and interest rates.
On Thursday, PCE inflation measures slowed, personal spending eased, and continuing jobless claims rose to a two-year high. The Nasdaq pared back early gains to trade lower 14.2K. Meanwhile, BTC and ETH continued to hover below 38K and 2.1K, respectively.
Details
In October, personal income rose 0.2% month-on-month, reaching $57.1 billion. Disposable personal income, which excludes taxes, increased 0.3% month-on-month, totaling $63.4 billion. Personal outlays (PCE — preferred Fed’s indicator of inflation), including consumption, interest payments, and transfer payments, rose 0.2% month-on-month, totaling $43.8 billion and increasing by 3.5% from the previous year in October, marking the lowest level since April 2021. Consumer spending increased 0.2% month-on-month, reaching $41.2 billion. Personal savings totaled $768.6 billion, or 3.8% of disposable personal income.
The number of filings for unemployment benefits increased to 218K in the week ending November 25th, but slightly below market expectations. Continuing claims surged by 86K to 1.927M, the highest level since November 2021. The non-seasonally adjusted claim count dropped to 198.8K, driven by declines in California, Texas, Oregon, Florida, and Georgia.
On Friday, the PMI Index indicated that factory activity contracted more than anticipated. However, major stock indexes, including Nasdaq, traded higher as investors interpreted comments from Powell. He suggested that current monetary policy is “sufficiently” tight, implying a potential end to interest rate hikes. Tesla’s stock price corrected after a recent price increase on its Cybertruck. Both BTC and ETH pushed higher, with Bitcoin reaching above 39K and Ethereum closing above 2.1K on hourly charts.
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According to Powell, the risk of excessively raising interest rates now balances the risk of not increasing them enough to curb inflation. He implied the full effects of rate hikes likely haven’t emerged yet. Maintaining the Fed’s anti-inflation credibility helped keep public inflation expectations anchored. Powell aligned with other Fed officials that it’s premature to declare victory over inflation, since price increases remain above the Fed’s 3% target. Core inflation rose 3.5% in October. He reiterated preparedness to tighten policy further if appropriate, though the need to restrain the economy excessively has moderated.
The ISM Manufacturing PMI remained at 46.7 in November, below expectations of 47.6, indicating continued contraction in the manufacturing sector. Production, employment, and supplier deliveries deteriorated, while new orders, inventories, and prices decreased at a slower pace. Prices stabilized due to easing energy markets, but steel market increases offset this. Manufacturing supplier lead times are decreasing, which is positive for future economic activity.
Macroeconomics
The November 2023 S&P Global Mexico Manufacturing PMI rose to 52.5, the highest since July, indicating improving business conditions. Demand significantly increased, driving job creation, more input purchasing, and greater production volumes. New orders saw the joint-strongest upturn in nearly 5 years, although international sales continued falling due to global economic uncertainty.
Comment
Why hasn’t re-shoring mitigated the effect of rising interest rates in the manufacturing sector, which continues to shrink?
The state of re-shoring (moving production back to the USA) is experiencing a significant shift due to the continuing disruption of international supply chains caused by factors such as the Ukraine war, China’s economic slowdown, and the ongoing impact of the global lock dawn. This trend is reflected in the increasing mentions of “re-shoring” in S&P 500 earnings transcripts, which were up 128% in the first quarter of the year compared to the same period a year ago.
However, despite this trend, the latest Purchasing Managers’ Index (PMI) has shown a reduction in manufacturing in the USA, indicating that re-shoring alone may not be sufficient to offset the overall decline in the sector
One possible reason for the limited re-shoring is that some companies find it easier to move production to countries such as Mexico, whose imports to the USA have recently equaled those of China.
In summary, while there is a growing interest in re-shoring manufacturing to the USA, the decision to do so is influenced by a wide range of factors, and the overall reduction in manufacturing in the USA suggests that re-shoring alone may not be enough to reverse the trend.
On Week 49, the labor report, JOLTS, and ISM Services PMI are highly anticipated, along with Michigan consumer confidence, factory orders, and trade data. Monetary policy decisions are expected in several countries, and inflation rates will be watched in China, Turkey, South Korea, the Philippines, Mexico, and Russia.