Friday's Markets Update (December 22, 2023)

22 Dec 2023 by rate3

On Friday, the Nasdaq and other major indexes rose due to lower-than-expected PCE inflation, plummeting home sales and rising consumer sentiment index, which reinforce potential Fed rate cuts expectations. Energy, real estate, and utilities led gains; consumer discretionary fell. BTC, ETH hover around $44K and $2.3K, with mixed technical signals.

Details

In November, Durable Goods Orders excluding transportation rose to 0.5%, up from -0.3% in October, with a 1992-2023 average of 0.24%, peaking at 6.3% in 2004 and bottoming at -10.2% in 2009
Annual PCE inflation dropped to 2.6% in November, the lowest since February 2021, with personal spending falling by 0.1%. Core PCE inflation remained at 0.1% monthly, with annual core rates slowing to 3.2%.
The University of Michigan's consumer sentiment index was revised up to 69.7 in December, the highest in five months, with year-ahead inflation expectations falling to 3.1% and five-year outlook to 2.9%.
New single-family home sales plummeted by 12.2% to an annual rate of 590K in November, the largest drop since April 2022, defying lower mortgage rates and a surge in mortgage demand. Sales fell significantly in the South and West.
World Economics The Shanghai Composite and Shenzhen Component fell by 0.13% and 0.39% respectively, as tech stocks declined following Beijing's draft guidelines to limit gaming. The indexes hit yearly lows, dropping for the fifth consecutive week, despite expectations of eased monetary policy.
The UK's economy contracted by 0.1% in Q3 2023, with Q2 growth also revised to 0%, increasing recession risks. The services sector declined, led by telecoms and computer programming, while production and construction saw minor upward revisions. Household spending and business investment dropped, and both exports and imports were revised lower.
Mexico's economy expanded by 4.2% YoY in Oct, surpassing market expectations and accelerating from 3.3% in Sep. Agriculture, wholesale trade, and construction contributed to growth. Despite BoM's aggressive tightening campaign, Mexican economic activity remained resilient.
Russian ruble weakened to 92 per USD in Dec 2023, due to reduced foreign currency inflows and expectations of end to CBR's monetary tightening. CBR raised key rate to 16%, but signaled neutral tone, indicating potential rate reduction in spring 2024. The ruble has recovered by 8% since Oct 2023.
Baltic Freight Index rose 0.3% to 2,094 points on Dec 23, 2023, after 7 straight declines. Capesize index increased 1.1%, but Panamax and Supramax indices decreased 0.3% and 9 points, respectively. The index dropped 10.8% on the week. Traders monitor Red Sea disruptions due to rebel attacks.

Comment: Why don't current disruptions in the Red Sea influence on the upside The Baltic Exchange's Freight Index ?

The Baltic Exchange's main sea freight index does not respond solely to specific regional events such as the disruptions in the Red Sea; instead, it reflects a composite of various shipping routes and vessel types globally. Factors influencing the index include:

Diverse Shipping Routes: The index accounts for multiple shipping routes, not just those affected by the Red Sea disruptions. Other routes may not be experiencing the same level of tension or may even see reduced rates due to different market conditions.
Different Vessel Types: The index measures costs across different vessel types, such as capesize, panamax, and supramax. Disruptions in the Red Sea might not impact all these vessel types equally, as they often carry different commodities and operate on different routes.
Supply and Demand: The overall supply and demand for shipping capacity play a significant role. An oversupply of ships or lower demand for shipping due to various global economic factors can offset the impact of regional disruptions
Contract Timing: Shipping rates are often negotiated on long-term contracts, and spot market volatility might not immediately impact the index if most ships are operating under previously agreed rates.
Market Anticipation and Hedging: Market participants may have anticipated the disruptions and adjusted their operations accordingly. They might have rerouted ships or taken out insurance to hedge against such risks, thus minimizing the impact on shipping rates.
Global Economic Context: The broader economic environment, including trade volumes and fuel prices, can have a more pronounced effect on the index than regional geopolitical incidents.
In essence, while disruptions like rebel attacks in the Red Sea can influence costs for affected routes, the Baltic Index's aggregate nature means it represents a broader picture of global shipping that dilutes the impact of any single event.

Crypto

Argentina's Foreign Minister confirmed gov't under Javier Milei will allow contracts in BTC and other cryptos, boosting crypto community's confidence. Milei's election victory sparked enthusiasm in the crypto industry, with contracts in crypto now permitted.

Comments:How consequential might be that decision of Javier Milei for BTC in Argentina?

The announcement by Argentina's Foreign Minister regarding the government's intention to allow contracts in Bitcoin and other cryptocurrencies has certainly generated excitement in the crypto community and has the potential to drive wider adoption of cryptocurrencies in the country, particularly for business-to-business transactions.

However, it is important to note that this announcement is a political statement that could be subject to change as government policies shift. Javier Milei, who will take office as president, has expressed support for cryptocurrencies, but his administration's stance could change, especially if he seeks to maintain good relations with financial authorities in the US and international organizations like the World Bank, which have expressed skepticism towards Bitcoin.

Furthermore, while the announcement refers to "species" in general, which could include cryptocurrencies like Bitcoin and Ethereum, it could also include other assets like sugar or livestock. This means that there will be competition among different assets, which is not necessarily a bad thing, but it could limit the adoption of cryptocurrencies in the country.

RE: "Art 766. – Obligation of the debtor. The debtor must deliver the corresponding amount of the designated currency, whether the currency is legal tender in the Republic or if he does not have it."

In summary, while the announcement by Argentina's Foreign Minister is a positive development for the crypto community, it is essential to maintain a realistic perspective and recognize that there are still significant challenges to overcome before cryptocurrencies become widely adopted in the country.