SVET Reports
SVET Markets Weekly Update (December 4–8, 2023)
On Week 49 the Nasdaq and other major stock indexes gained on weak economic statistics, including a cooling labor market and a slowing manufacturing sector, reinforcing expected Fed easing. However, on Friday, the new BLS data reporting a 3.7% unemployment rate came as a surprise, leading to a mixed close. Meanwhile, BTC and ETH continued their rise, reaching $44K and $2.4K, respectively. They were joined by major alts, some of which outperformed these two leading coins.
On Monday, the Nasdaq closed barely in the green as investors paused to assess the interest rate outlook after the previous week’s strong gains. Microsoft, Nvidia, Amazon, Alphabet, and Meta all declined by over 1%. However, crypto-exposed stocks like Coinbase surged as Bitcoin reached a 20-month high.
Details
In October, factory orders fell 3.6% month-over-month, the largest decrease since April 2020. This decline signals the industrial sector’s struggle with high interest rates. Transportation equipment orders, particularly nondefense aircraft and parts, dropped significantly. Orders also decreased for electrical equipment, machinery, and primary metals. In contrast, orders rose for fabricated metal products and computers and electronic products. Excluding transportation, factory orders were down 1.2%, and excluding defense, orders fell 4.2%.
On Tuesday, the Nasdaq rose as traders weighed new economic data showing job openings dropped below forecasts to the lowest since March 2021, signaling a cooling labor market. This was despite the PMI topping estimates, pointing to resilience in the services sector. Apple, Amazon, Nvidia, and Tesla grew 1–2%. Meanwhile, the crypto rally in major coins continued with BTC reaching over 44K and aiming at the 2-years-high as ETH came over 2.3K — the first time since May 2021.
Details
The ISM Services PMI rose to 52.7 in November from 51.8 in October, exceeding forecasts of 52. This indicates faster growth in the services sector, with quicker expansions in business activity, production, and employment. New orders stayed robust while inventories rebounded. Although price pressures eased slightly, there are ongoing concerns about inflation, interest rates, and geopolitical events.
The number of job openings dropped by 617K month-over-month to 8.7M in October, the lowest since March 2021 and below forecasts of 9.3M. Openings fell in healthcare, finance, insurance, real estate and leasing but rose in information. By region, openings declined in the South, Midwest, West and Northeast. The data indicates a cooling labor market compared to recent months, with fewer available jobs across most industries and regions in October.
World Economy
Germany
The DAX 40 closed at a record high above 16,530 after dovish ECB comments and signs of US labor market weakness suggested potential earlier rate cuts by the ECB and Fed. ECB officials indicated further hikes are “rather unlikely” given November’s inflation slowdown.
Spain
The IBEX 35 reached 5-year highs at 10,249, driven by ECB policymakers softer stance on rate hikes and US economic data. Rate-sensitive property sector gains were led by Merlin Propeties and Inmobiliaria, while Banco Santander and Cellnex Tel advanced by around 1.9% each.
FYI: The IBEX 35, or Índice Bursátil Español, is the benchmark stock market index for Spain. It tracks the performance of the 35 most liquid Spanish stocks traded on the Continuous Market of the Bolsa de Madrid. The index is capitalization-weighted, meaning that the companies with the largest market capitalizations have a greater impact on the index’s performance.
China
Moody’s affirmed China’s A1 rating but cut the outlook to negative over lower medium-term growth and property sector risks, plus increased government aid to strained local governments and state firms that threatens fiscal health, economic stability, and institutional robustness; 4% GDP growth forecast for 2024–2025.
Brazil
Brazil’s economy grew 0.1% in Q3, defying a predicted 0.2% contraction. The industrial and services sectors expanded, while agriculture output decreased. Household and government spending rose, supported by income transfer programs and a better job market. Exports remained strong, imports declined, and gross fixed capital formation fell amid high interest rates.
India
The BSE Sensex closed at a record 69,296, driven by energy and financial stocks. Investors reacted positively to India’s ruling party’s state election victory and strong PMI data. Top gainers included Power Grid Corporation of India and NTPC, as oil prices declined.
FYI: The S&P BSE SENSEX, also known as the BSE SENSEX or simply SENSEX, is a stock market index that tracks the performance of 30 of the largest and most liquid publicly traded companies listed on the Bombay Stock Exchange (BSE) in India.
Comment
The recent surge in combined market indexes in the USA, Spain, Germany, and India, alongside the growth of the Brazilian GDP, has been largely attributed to traders’ expectations of imminent rate cuts by world central banks in response to a decelerating inflationary trend. However, this buoyant market performance appears to be somewhat detached from a broader improvement in other key macroeconomic indicators.
Despite the optimistic market sentiment, concerns loom over the sluggish manufacturing activity, which continues to decelerate, and a concurrent rise in unemployment. Also the deteriorating economic situation in China — second largest world’s economy — is a reason for continues concern. The majority of banks have opted for over-hikes, with the noteworthy exception of Japan. This discrepancy in monetary policies raises questions about the sustainability of the current growth trajectory.
Furthermore, the geopolitical landscape remains relatively unchanged, with only superficial demonstrations of political goodwill, such as the non-binding meeting between Xi and Biden in San Francisco. While there may be symbolic gestures, the substantial improvement in geopolitical tensions is yet to materialize.
In light of these factors, it appears that the ongoing market rally is susceptible to a correction. The economic reality, with its inherent complexities and challenges, is likely to catch up sooner or later. Traders and investors should exercise caution and remain vigilant watching for the evolving economic landscape.
On Wednesday, the Nasdaq and other major stock indexes turned negative due to energy and megacap declines, despite earlier gains on cooling job data reinforcing expected Fed easing. Meanwhile, BTC went sideways just under 44K, and ETH retreated below 22.2K.
Details
103K workers were hired in Nov, below expectations of 130K. Services added 117K led by trade/transport/utilities, education/health, financial activities, while losses in leisure/hospitality, professional services. Goods shed 14K due to manufacturing, construction losses. Pay growth slowed — job-stayers saw 5.6% increase, smallest since Sept 2021. Job-changers saw 8.3% pay gains, least since June 2021.
World Markets (Africa)
Nigeria: The NSE index hit a record high at 71866, gaining for a second day on consumer stocks like FBN, Coronation Insurance, Access Bank and UBA. The Nigerian market has risen since President Tinubu took over May 29 on reforms, despite inflation, rate hike and forex fears.
South Africa: The JSE rose 0.3% despite fears of 2023 recession on poor Q3 GDP and power cuts. Top gainers were Amplats, Redefine, Implats and MTN, up over 3% each. British American Tobacco fell over 10% on a $31.5bn impairment from US brand pressure.
Ghana: The Ghana PMI rose to 51.6 in Nov from 50.5, indicating a tenth straight month of private sector growth and the highest since Aug. Output and new orders rose at a 3-month high. Job creation has lasted 12 months. Selling prices inflation accelerated but was below the average and 2022. Firms remain optimistic.
Uganda: The Bank of Uganda held rates at 9.5% as inflation eased to 2.6% in Nov from tight policy, good harvests, stable forex, lower global inflation. Core inflation was 2%, below the 5% target. Growth is seen at 6% in FY2023/24, 6–7% medium-term.
Namibia: Namibia’s central bank held its key rate at 7.75%, the highest since Apr 2019, for a third straight month to protect the rand peg and support growth. Inflation rose to 6% in Oct, a 5-month high, for a fourth month. Growth slowed in 2023 on weak construction. Risks are global slowdown, tight policy, geopolitics and South Africa’s power cuts.
Comment
Africa’s economic situation is diverse and complex, reflecting the continent’s vast size, varied geography, and differing political and economic systems.
The Mediterranean region, which includes countries like Egypt, has been politically troubled, but it has shown some economic resilience. Egypt, for instance, has one of the largest nominal GDPs in Africa at ~$400 billion. Mediterranean countries have a GDP that is approximately the world average.
Sub-Saharan Africa, which includes many of the continent’s poorest countries, is expected to see economic growth slow to 2.5% in 2023. The region’s largest economy, Nigeria, has a nominal GDP of $390B. The region faces significant challenges, including conflict, climate shocks, and poverty.
The West Coast of Africa, which includes countries like Ivory Coast, is relatively well-off compared to other parts of the continent. Ivory Coast has a nominal GDP of $79B billion
The Central African region, which includes countries like the Central African Republic, is characterized by conflicts and difficult political regimes. The Central African Republic has a nominal GDP of $2.760B.
South Africa, once the dominant economy in Africa, has been declining but still has a significant economy with a nominal GDP of $380B
The East Coast of Africa, which includes countries like Ethiopia and Kenya, has been friendly to Chinese investment. Ethiopia has a nominal GDP of $155B, and Kenya has a nominal GDP of $112B
Inflation has started to subside across the African continent, which is a positive sign for economic stability. However, the great discrepancy and uncertainty of economic policies country by country make it a fertile ground for cryptocurrencies.
On Thursday, the Nasdaq and other major stock indexes closed higher due to a megacap rally driven by AI optimism. Alphabet’s advanced AI model launch led to a 5.3% share increase. Government data revealed initial jobless claims rose less than anticipated, continuing claims fell beyond predictions, and the Challenger report indicated more job cuts in November. Meanwhile, BTC continued to linger at Wednesday’s level as ETH surged almost to 2.4K.
Details
According to the latest Challenger Report employers announced plans to cut 45,510 jobs in November, up from 36,836 in October, with retail (6,548), tech (5,049), financial (3,698), transportation (3,515), and healthcare/products (3,329) seeing the most cuts. While lower than November 2022, the 686,860 year-to-date tally was the highest since 2020’s lock-down impact and 2009 prior.
On Friday, the Nasdaq rose, but other equities fluctuated as investors assessed the sudden drop in the jobless rate to 3.7% and a surge in consumer sentiment, while inflation expectations dipped. Meanwhile, BTC and ETH continue to hold below $44K and $2.4K, respectively, outperformed by leading altcoins, including ADA, SOL, MATIC, and DOT.
Details
The University of Michigan’s consumer confidence soared to 69.4 in December, outperforming expectations due to lower near-term inflation forecasts, reaching the highest point since August and significantly rebounding from June 2022’s record low.
In November, the unemployment rate dropped to 3.7% from 3.9%, outperforming market expectations. Unemployed persons decreased by 215K, while employed individuals increased by 757K.
Comment
The latest BLS report, revealing a drop in the unemployment rate from 3.9 to 3.7 percent, is certainly unexpected and raises questions about the dynamics of the current job market. The contrast with previous data from JOLTs, Challenger, and ADP reports prompts a closer examination of the underlying factors.
A detailed analysis of the government data suggests interesting trends among various worker groups. Notably, the unemployment rate for teenagers decreased to 11.4 percent in November. Simultaneously, the jobless rates for adult men, adult women, Whites, Blacks, Asians, and Hispanics remained relatively stable. This nuanced pattern prompts speculation that employers might be adapting to the escalating costs of doing business, potentially induced by FED policies, by favoring the recruitment of younger workers who may command lower wages.
Furthermore, a deeper dive into industrial analysis indicates a noteworthy rise in employment within the health care and government sectors, while other industries, with the exception of hospitality, exhibit mostly flat employment figures. This leads to the hypothesis that increased government spending could be a driving force behind the employment spike. If this holds true, it implies that the government is emerging as a major contributor to inflation at both executive and FED levels.
The reliability of government data has become a topic of scrutiny among a growing number of analysts. As we navigate these nuances, it is crucial to monitor the evolving job market dynamics and their potential implications for broader economic trends.
The week 50 focuses on the Fed’s interest rate decision, inflation data, and retail sales. Oversees investors will monitor global monetary policies, Germany’s ZEW index, Japan’s Tankan index, and flash PMIs, while China highlights retail sales and other economic indicators.