Wednesday's Markets Update (January 3, 2024)

03 Jan 2024 by rate3

On Wednesday, Nasdaq and other major stock indexes fell for the 4th straight day as investors digested FOMC minutes, finding little insight on future rate cuts. Tech stocks led declines, with Tesla, Broadcom, and Nvidia down. Energy shares rose, with Chevron and Exxon Mobil gaining due to rising oil prices. ISM Manufacturing PMI showed contraction in the manufacturing sector.

Meanwhile, crypto whales used this as an opportunity to fixate their profits, sending temporarily both BTC and ETH below their month-old support levels of 41K and 2.1K, respectively. After a fast recovery, BTC and ETH now stand at 43K and 2.2K.

Additionally, major European market indexes are predominantly down, and Asian markets closed mixed after the Shanghai Composite finished in the green due to online gaming stocks rising following Beijing's removal of a bureaucrat overseeing the gaming sector.

Details

According to the recently issued FOMC Minutes: the members expect real GDP growth to slow in 2024, with the labor market rebalancing and some increase in unemployment. Inflation projections for 2023 and beyond were revised down due to better-than-expected data, leading to a view of more balanced risks for inflation and employment. However, participants remained cautious about inflation risks.

Participants revised down the following key macroeconomic projections for 2023:

GDP growth: 2.6% (revised) - 2.1% (September projection);
PCE inflation: 2.8% - 3.3%;
core PCE inflation: 3.2% - 3.7%;
Year-end unemployment: 3.8% - 3.8% (unchanged).

and for 2024:

GDP growth: 1.4% - 1.5%;
PCE inflation: 2.4% - 2.5%;
core PCE inflation: 2.4% - 2.6%;
Year-end unemployment: 4.1% - 4.1% (unchanged)
Year-end federal funds rate: 4.6% - 5.1%.

Overall, the FOMC minutes showed that FOMC participants' positions have softened suddenly during the inter-meeting period, but the possibility of a new rate hike still remains elevated due to the FOMC members' ideological rigidity in setting 2% as a 'normalized' inflation target and their anticipation that it might suddenly return.

Allegedly, this sudden shift in FOMC members' opinion happened due to political, not economic, reasons. Most indications of rapidly softening inflation were obvious to the great majority of non-affiliated market observers at least six months before the FOMC's December meeting.

Also, the US ISM Manufacturing PMI rose slightly to 47.4 in Dec 2023, but still indicated a 14th month of factory activity contraction. Production rebounded, but new orders, employment, and inventories shrank. Price pressures decreased, and supplier delivery times increased slightly.

Crypto

Based on CoinTelegraph citing Messari data, the total VC deal volume saw a remarkable 81% increase in the final quarter of 2023, reaching $3.83 billion. Some seed investment rounds in the past three months included USD 8M for Bitcoin and cash back rewards startup, $1.2M for the sequencer on Avalanche Subnet and $8M for Web3 technology for digital assets education.

Commodities

WTI crude oil futures rose to $73 per barrel due to supply concerns from Libya's oilfield shutdown and Iran's warship deployment in the Red Sea. Prices had dropped almost 2% the previous day due to reduced expectations of significant interest rate cuts by major central banks. Geopolitical tensions and rising global supplies weighed on the market.
Uranium prices hit 16-year highs in early Jan 2023 due to strong demand and supply risks. 21 countries, led by China, plan to triple nuclear power by 2050. Supply threats include Western utilities shunning Russian uranium and potential US import ban, Niger coup, and Canadian mine issues.
Steel rebar futures fell in early Jan to CNY 3,920/tonne, a two-week low, due to ample supply despite expectations of robust demand. Chinese steel mills plan to maintain high output, but concerns over China's property market and reduced dependence on construction limit the steel demand outlook.
World Economy

Brazil: Ibovespa rose 0.2% to 132,250 on Wednesday, led by oil giant Petrobras and Petro Rio due to supply concerns in Libya. Retail sector fell, with Lojas Renner, Magazine Luiza, and Casas Bahia down. Vale lost 0.4% despite rising iron ore prices. Traders digested FOMC minutes.
India: India's equities dropped 0.5% to 71,513.5, with tech stocks leading the decline. Nifty IT fell 2.2%, while metal and auto stocks also dropped. Traders took profit booking amid slowing factory activity growth and ahead of key US economic data.