Wednesday's Markets Update (December 13, 2023)

13 Dec 2023 by rate3

On Wednesday, the Fed held interest rates steady at 5.5% and projected slower rate hikes through 2024-2025, buoying the Nasdaq and other major stock indexes to new highs, including the Dow Jones reaching a record of 37,090. Meanwhile, BTC and ETH also experienced growth, but started to form a bearish double top, raising speculation about "selling the news" among traders.

Details

The Fed maintained the fed funds rate at 5.25%-5.5% for a third meeting in a row. The central bank indicated 75bps cuts in 2024 due to slowing economic growth and job gains. GDP growth is projected at 2.6% for 2023 and 1.4% for 2024, while PCE and core PCE inflation are revised lower for both years. Unemployment is expected to remain at 3.8% for 2023 and 4.1% for 2024. The dot plot shows a drop in the median year-end 2024 federal funds rate projection to 4.6% from 5.1% in September.

In November, producer prices remained stable, as defined by BLS's PPI, after decreasing 0.4% in the previous month, contrary to predictions of a 0.1% increase. Prices for goods and services stayed the same, with gasoline prices dropping the most (-4.1%). Food prices rose, particularly chicken eggs (58.8%). Within services, traveler accommodation and utility natural gas increased, while automobile retailing margins decreased.

Comments

It becomes evident that the Federal Reserve’s policies, designed ostensibly to balance the negative effects of the free market system, are, in reality, a Placido-pill that sustains aging individuals' unwarranted powers within the regulated-market system. This sustenance perpetuates a status quo where a select few wield tremendous influence without contributing positively to the overall economy.

a) Regulated-Markets as a Sustaining Pill for Elites: The regulated-markets system, underpinned by the Federal Reserve’s policies, acts as a life-extending elixir for entrenched elites. Instead of fostering a fair and competitive environment, the system provides a cloak for the preservation of power, shielding aging individuals and their families from the natural evolution that should occur in a dynamic society.

b) Ineffectiveness in Influencing Key Economic Indicators: Despite its purported role, the Federal Reserve demonstrates a stark inability to influence critical economic indicators. Stock markets, inflated asset prices, and the costs of major resources and energy remain largely immune to the Fed’s interventions. This lack of influence exposes the institution as an ineffective regulator that fails to curb the excesses of the privileged few.

c) Artificial Suppression of Salary Rises: The Federal Reserve’s policies, rather than promoting economic well-being, artificially suppress salary rises (and, as a result, slow down the service-based economy) a vital factor in improving the livelihoods of the majority. This deliberate suppression hampers the ability of individuals to experience real growth in their standard of living, perpetuating economic inequality and social unrest.

d) Destruction of SME Lending Market: The adverse effects extend to the small and medium enterprises (SMEs), which are the lifeblood of innovation and economic dynamism. The Federal Reserve’s policies contribute to the destruction of the lending market for SMEs, stifling their growth potential and hindering the very source of innovation and job creation that should be driving the economy forward.

e) Selective Impact on Inflation: Remarkably, the major sources of inflation — governments and large corporations — are largely untouched by the Federal Reserve’s interventions. This selective impact raises questions about the institution’s true purpose and its alignment with the interests of the broader society.

f) The Federal Reserve as a Dangerous Economic Weapon: In light of these observations, the Federal Reserve emerges as a dangerous economic weapon wielded by the elite to suppress any rising, technologically driven opposition from the grassroots of society. Its policies serve as a tool for maintaining control indefinitely, irrespective of the risks posed to the stability and progress of our civilization.

The conclusion drawn from this analysis is the urgent and comprehensive reforms are necessary to dismantle this distorted system. Relying on the Federal Reserve as the guardian of economic stability has proven detrimental to the majority and advantageous only to a select few. A paradigm shift towards decentralization, transparency, accountability, and a ultimately, to an equable and fair distribution of economic power is imperative for the prosperity and sustainability of our society.

World Economy

The Shanghai Composite and Shenzhen Component fell by 1.15% and 1.54% respectively, erasing week gains, following a Chinese policy meeting with no clear growth target and focus on domestic demand and comprehensive policies.
In October, the UK's trade deficit widened to £4.480 billion, the largest in five months, as imports increased by 4.6% and exports rebounded by 0.6% from a one-year low. Imports from the EU rose by 6.1%, driven by increased machinery and transport equipment imports, notably cars from Germany and refined oil from the Netherlands, Denmark, and Sweden. Imports from non-EU countries surged by 10.9%, mainly due to electrical machinery imports from China. Exports to non-EU countries advanced by 8.2%, driven by material manufactures exports, primarily to India. However, exports to the EU fell by 5.8% due to reduced chemicals, material manufactures, food, and live animals exports.
The Bank of Japan's big manufacturers' sentiment index rose to 12 in Q4, surpassing the market consensus of 10 and marking the highest level since Q1 2022. Confidence increased across various industries, while large firms plan to raise capital expenditure by 13.5% in the current financial year, higher than forecasts.
The Brazil's Ibovespa soared 2.4% to close above 129,400, rebounding after two losses. Investors await policy decisions by the Brazilian central bank, expecting an extension of its cutting cycle. Ambev's stock rose 3.3% after announcing interest on equity distribution, while Petrobras jumped 1.3% as oil prices rebounded.
Argentina's Merval index hit a record-high as the new government implemented economic reforms, including devaluation, tax hikes, and spending cuts, while maintaining the interest rate and removing capital controls, affecting the domestic currency.
Russia's GDP grew by 5.5% in Q3 2023 compared to the previous year, matching preliminary estimates and accelerating from the previous quarter. This was the fastest growth since Q2 2021, driven by commodity prices, restored supply chains, a low base year due to the war, and evasion of oil price caps.
The Nigerian NSE-All Share index reached a new record high of 72,279 on December 13th, amidst challenging macroeconomic conditions in Nigeria. Some companies, including Union Homes REITs, SCOA Nigeria, and Access Holdings, experienced notable gains. (The NSE All Share Index, also known as the NGX All Share Index, is a stock market index that tracks the general market movement of all listed equities on the Nigerian Exchange).
Uranium prices surged to over $82 per pound for the first time since January 2008, driven by high demand and supply risks. The US House passed a bill to ban Russian nuclear fuel imports, magnifying supply risks. Fossil fuel volatility and decarbonization goals led countries to extend the life of existing generators and invest in new plants. The optimistic demand outlook aligned with lower nuclear fuel inventories, resulting in large-scale near-term purchasing activity.
Crude oil futures are near low levels (around $69 per barrel) due to supply and demand concerns and skepticism about OPEC+ production cuts. OPEC noted speculators played a major role in the recent decline. Non-OPEC production is expected to expand by 1.4 million bpd, led by offshore start-ups in Latin America and the North Sea, and Canadian oil sands projects. The EIA predicts record-high net exports of US crude oil and petroleum products in 2024, reaching almost 2 million barrels per day.
Comment

The global economic landscape is experiencing a significant transformation, characterized by a series of interconnected developments. China, a long-standing economic powerhouse, is facing challenges that have the potential to reverberate across the global economy. Stagnant productivity and declining domestic sales have led to concerns about deflation and sluggish growth in the world's second-largest economy. As a result, China's manufacturing sector is likely to export deflation, impacting global trade and economic dynamics.

Concurrently, there is evidence of a contrasting trend in other regions. The United Kingdom, Japan, and other advanced economies are witnessing a surge in manufacturing exports to Asia, particularly to rapidly expanding economies such as India. This shift is indicative of a broader realignment in global trade patterns, with smaller-economy, relatively peripheral countries emerging as potential beneficiaries.

Furthermore, 3rd world countries such as Brazil, Russia, and Nigeria are experiencing growing stock markets and expanding economies. This trend, coupled with rising commodity prices, particularly for resources like uranium, underscores the potential for smaller economies to capitalize on the changing global economic dynamics. The higher prices of locally produced commodities and the relatively lower prices of imported goods from developed economies, because of the competition among them, have the potential to bolster the internal markets of these countries.

The confluence of these developments reflects a broader narrative of decentralization in the global economy. As traditional economic powerhouses face challenges, smaller economies are presented with opportunities to leverage their comparative advantages. The intensifying competition for global market share is reshaping trade dynamics, with implications for both developed and emerging economies.

In this context, it is essential to recognize the potential for a more balanced and diversified global economic landscape while decentralization forces kick in. While challenges persist, the evolving dynamics offer prospects for smaller economies to strengthen their market positions and contribute to a more inclusive and multifaceted global economy.