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Friday's Markets Update (January 5, 2024)

On Friday, the Nasdaq and other major stock indexes ended flat after a volatile session, halting a nine-week winning streak. Nvidia and AMD shares rose, airlines rebounded, and healthcare shares underperformed. The economy added 216K payrolls in December, exceeding estimates, with wages accelerating. The service sector contracted, signaling a slowing economy under Fed pressure. Meanwhile, BTC and ETH entered correction mode but maintained a bullish pattern.

On the macroeconomic front, oil prices jumped due to geopolitical tensions, while food prices continued to subside worldwide. Additionally, the German car market slumped under high ECB rates and rising energy costs, whereas the Italian construction sector expanded, buoyed by subsidies.

Details

The employment situation is unchanged: The unemployment rate held steady at 3.7% in December, slightly below the market consensus of 3.8%, influenced by a slowdown in new entries into the labor force. The activity rate declined, and the number of unemployed individuals increased while the count of employed individuals dropped.

The government continues to expand with a record speed: government payrolls rose by 52K in December 2023, with gains in local (+37K) and state (+8K) government. Across 2023, the government added an average of 50K jobs monthly, more than doubling the 2022 average monthly gain.

The service sector contracted succumbing to Fed's rate pressure: In December, the ISM Services PMI unexpectedly fell to 50.6, the lowest reading in seven months, with new orders slowing sharply and both employment and inventories contracting. Production growth accelerated and price pressures eased. Respondents expressed concerns related to economic uncertainty, geopolitical events, and labor constraints.

Crypto

Crypto attracted more than USD 2B into CeFi products in 2023: Cryptocurrency investment products saw inflows of around $2.2 billion over the last year, with Bitcoin-focused products attracting $1.93 billion from institutional investors. Solana ($SOL) was a leading altcoin with inflows of $167 million, surpassing those for Ethereum ($ETH). XRP and Cardano ETPs also saw significant inflows.
Crypto on a rise: Celestia (TIA), Lido Daq (LDO), Maker (MKR)

World Economy

Germany's car sector is under the pressure of rising energy costs: Germany's new car registrations plummeted 23% to 241,883 units in December 2023, worsening from a 5.7% drop previously. Historically, the rate has averaged 3.51% since 1959, with a peak in April 2021 and a low in April 2020.
Italy construction sector expanded with an unprecedented during past 10 years speed on government's subsidies: Italy's Construction PMI climbed to 55.2 in December, marking the highest level since April 2022 and showing strong sector recovery, supported by government incentives. Output and new orders surged, boosting employment and purchasing, despite high input costs. Builder confidence improved.
Italy is on a brink of deflation as ECB has over-tighten its policy in the past 2 years: Italy's annual inflation rate dipped to 0.6% in December 2023, below the 0.7% expected, reflecting ECB's tight monetary policy. Net inflation slowed to 3.1%. Energy prices continued to fall, while costs for processed food and services also eased.
Brazil's industrial production keeps expanding: Brazil's industrial production grew by 1.3% year-on-year in November 2023, marking the fourth consecutive month of growth and the strongest in six months, surpassing market estimates of a 0.7% increase.

Commodities

Oil rises on growing geopolitical tensions: WTI crude futures rose over 2% to $73 amid Middle East tensions ahead of Blinken's visit. The increase comes despite Thursday's decline after a record US gasoline inventory surge and significant distillate stockpile growth. Libyan protests and a deadly incident in Iran also influenced the market.
Food: The FAO Food Price Index hit its lowest since February 2021, falling to 118.5 in December. Vegetable oil and sugar prices significantly dropped, while meat prices also decreased. Conversely, cereal and dairy costs rose slightly. The 2023 annual drop was the largest since 2015.