SVET Reports
SVET Markets Weekly Update (December 18 - 22, 2023)
On Week 51, the Nasdaq, along with other major stock indexes, extended its rally into an eighth consecutive week of remarkable growth, driven by traders' expectations of multiple interest rate cuts by the Federal Reserve in 2024. Macroeconomic data revealed that the economy expanded by 4.9% annually in the third quarter, which was marginally below projections. Concurrently, the annual PCE inflation rate decreased to 2.6%.
In the cryptocurrency market, BTC and ETH have been oscillating between $41K to $44K and $2.1K to $2.3K, respectively, as they await a catalyst that could spur further growth. Despite showing mixed technical indicators, the prevailing sentiment in the crypto market leans towards optimism.
On Monday, stocks extended their winning streak to 7 weeks, led by energy sector gains. Nasdaq rose, Apple shares dipped on patent issues. Investors expect lower rates, despite mixed views from policymakers. BTC and ETH declined on a pre-market but then surged back during a day remaining in a rising pattern.
Details
In December, the NAHB/Wells Fargo HMI improved to 37 from 34 (lowest in a year), beating predictions. First rise in 5 months due to declining mortgage rates, raising buyer interest and sales expectations. Sub-indexes for sales and buyers also grew.
Crypto
On-chain data: Digital asset investment products saw minor outflows of $16m, ending an 11-week streak of inflows. Trading activity remained high at $3.6bn, suggesting profit-taking rather than a shift in sentiment. Altcoins saw $21m of inflows, with Solana, Cardano, XRP, and Chainlink being the main beneficiaries.
Commodities
Gasoline futures surged above $2.18/gallon, rising with oil amid supply threats and higher crude prices. Red Sea attacks and longer export routes contributed to the increase. Anticipated multiple rate cuts by the Fed and softer dollar amplified the price rise, while gasoline stocks rose unexpectedly.
World Markets
Shanghai Composite and Shenzhen Component dropped to their lowest levels in over a year, driven by economic uncertainties in China. Mixed economic data and lackluster policy plans from top officials dampened market sentiment. Investors now look to the People’s Bank of China’s loan prime rate decisions.
On Tuesday, housing starts rose unexpectedly but stocks edged up with the Nasdaq 100 reaching an all-time high record of 16,766. Top sectors were materials, communications, consumer discretionary and real estate. Meanwhile, BTC and ETH continue to fluctuate up and down on technicals as traders await catalysts and assess Fed policy. The double top formation is now more prominent on some altcoins' daily graphs.
Details
Building permits decreased by 2.5% to a rate of 1.460 million in Nov '23, below expectations. Permits for large buildings dropped 9.6% while single-family permits rose 0.7%. There were regional declines in the Northeast and South, but increases in the Midwest and West.
Crypto
Bitcoin digital art sales hit $449M in 30 days, topping Ethereum NFTs. Bitcoin now struggles with network congestion and higher fees from the popularity of Bitcoin-based digital collectibles.
Comment: Ordinals - the Future of BTC?
FYI: Bitcoin ordinals, also known as ordinal NFTs, are a protocol that allows individual satoshis (the smallest unit of Bitcoin) in the Bitcoin blockchain to be assigned a unique identifier. This unique identifier is called an "ordinal" and is based on the order in which the satoshi was mined. Ordinals enable the attachment of data such as images, videos, and more to an individual satoshi on the base Bitcoin blockchain.
The rise of Bitcoin-based digital collectibles known as Ordinals has sparked a debate in the Bitcoin community. Most of the first generation Bitcoiners criticize Ordinals as inefficient, arguing Bitcoin should focus on its original purpose of enabling peer-to-peer payments.
They have a point. While Ethereum was built for NFTs, Bitcoin wasn't. Over the past year, average Bitcoin transaction fees have surged over 25 times. The network is facing record congestion in its mempool, where unconfirmed transactions are stored.
But Ordinals supporters counter that the digital art is good for Bitcoin. Transaction fees fund miners and secure the network as less and less BTCs are mined. BTC must demonstrate its usefulness to the larger crowd to justify these costs.
I believe Ordinals represent the future. They will bring a new generation of users oriented around NFTs to Bitcoin, though not necessarily technologically savvy. Ordinals can introduce Bitcoin to mainstream audiences in an accessible way and drive adoption of cryptocurrency.
World Economics
The Bank of Japan (BoJ) kept rates unchanged and policy loosened. It pledged patience amid uncertainties. Policymakers will respond to achieve 2% inflation and wage rises. The BoJ won't hesitate to ease more. The governor, Kazuo Ueda, said inflation may not sustain without wage increases, which have lagged price rises.
Commodities
Crude oil held at $73/barrel on supply fears. Yemen's Houthis attacked ships, diverting tankers. BP, Frontline avoided the Red Sea. Iran's oil minister blamed Israel for hacking gas stations. The US will push disclosures on Russian oil to enforce sanctions.
On Wednesday, major stock indexes rebounded to trade slightly higher, with the Nasdaq 100 reaching a new record high of 16,830. Gains were driven by expectations of Fed rate cuts and better-than-expected economic data on home sales and consumer confidence. Alphabet stock rose on news it plans to reorganize its ad sales unit. BTC and ETH prices jumped but stayed under their yearly highs, shifting technicals to the bullish side, again.
Details
Sales of previously owned homes rose 0.8% month-over-month in November 2023 to 3.82 million units, the first increase in five months. Prices and inventory also increased from last year, with the median home price at $387,600.
30-year fixed mortgage rates fell to 6.83% for the week ending December 15th, the lowest level since June, due to positive inflation news and Fed projections of future rate cuts. Rates have declined since early November as Treasury yields fell on expectations the Fed's tightening campaign is over.
World Economics
The People's Bank of China (PBoC) kept its one-year LPR at 3.45% and the five-year rate at 4.2%, continuing record lows, despite injecting a record CNY 800 billion to aid a sluggish property sector.
Russian MOEX index rose on Wednesday, extending gains for the fourth session, as investors bet on the end of monetary tightening. Electric utilities, metals & mining, and consumer goods sectors led the rally. Gazprom projected its 2023 EBITDA to reach 2.2 trillion rubles, improving its debt-to-EBITDA ratio.
On Thursday, the Nasdaq and other stock indexes rallied, as weaker-than-expected US GDP growth reinforced expectations of future Fed interest rate cuts. Tesla stock rose nearly 3% on reports of potential US tariffs on Chinese electric vehicle makers. Meta shares added 1% and are headed for their best year on record. BTC and ETH, although trading in the green zone, were still lacking a decisive bullish impulse to get them over two-week old resistance levels.
Details
The economy grew 4.9% annually in Q3, slightly below estimate of 5.2%. Consumer spending and trade rose less than expected, but business investment and government spending increased more than anticipated. Still the strongest growth since late 2021.
Comment: Why did such a spike in GDP happen while all main-stream analysts predicted the recession?
The unexpected spike in the US's Q4 real GDP, driven by a substantial increase in retail sales and sustained consumer expenditure, provides a compelling testament to the resilience of the public amidst a backdrop of negative rhetoric from aging government officials and politicians. Despite the prevailing doom and gloom portrayed by centralized government elites, this economic surge suggests that the traditional model of "representative democracy" might be losing its grip on shaping public sentiment.
The continued rise in consumer spending, seemingly unaffected by the narratives propagated by the political establishment, underscores a growing disconnection between official channels and the public's lived experiences. It hints at a shift where citizens are increasingly relying on decentralized information sources and forming opinions outside the influence of government-led manipulation.
This economic endurance, defying pessimistic projections, aligns with the principles of decentralized systems, challenging the efficacy of centralized control in shaping public opinion and economic behavior. The Q4 GDP performance serves as a stellar confirmation that the public is carving its own path, guided less by traditional political narratives and more by decentralized and diverse sources of information.
World Economic
Japan's annual inflation rate fell to 2.8% in November from 3.3% in October, the lowest since July 2022. Price growth moderated across most categories, especially food and fuel, while core inflation also declined to 2.5%. Deflationary monthly price changes indicate easing inflationary pressures in Japan.
Comment: Do you need more proof that Fed is useless?
The news about Japan's inflation tanking while the Bank of Japan keeps rates in the basement, and the Fed cranks them up to the stratosphere, is a stark slap in the face to the supposed gospel of central banking. Despite Japan leaning on Chinese and EU markets and being heavily into oil imports, they keep their inflation numbers down just by waiting it out and recognizing that it has nothing to do with their central bank (BoJ) actions or non-actions.
All BoJ has been caring about all those post-enclosure years is to stimulate employers to raise (!) the wages of their employees in order to help them to keep up with the non-core inflation. Meanwhile, the U.S., which isn't as entangled in those oil/food messes, sees the Fed hiking rates like there's no tomorrow but still unable to combat the inflation as effectively as BoJ with its non-action approach.
The fact that Japan's inflation is doing a nose-dive, despite the BoJ keeping rate below zero, seriously questions our necessity in these Fed aging "wizards". The Fed's policy doesn't seem to have much grounding in reality. If anything, this stark contrast between Japan and the U.S. exposes the Fed's scam. Maybe it's time to ask if we're all just caught up in a central banking slavery for no reason at all.
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.
During Week 52, limited macroeconomic activity is anticipated, with traders having priced in potential declines reflected in regional Fed indexes, including the Chicago Fed National Activity Index (Tue), Richmond Fed Manufacturing Index (Wed), Dallas Fed Services Index (Wed), along with data on Pending Home Sales (Thur), Trade Balance (Thur), and Chicago PMI (Fr). Market attention may shift to geopolitical events and unforeseen trading strategies around Christmas. Globally, investors will focus on Japan's Unemployment Rate (Mon), China's Industrial Profits (Tue), and NBS Manufacturing PMI (Sat).