Friday's Markets Update (January 12, 2024)

12 Jan 2024 by rate3

On Friday, major indexes were volatile as traders digested mixed earnings reports and easing PPI. The S&P 500 and Nasdaq shifted into the negative zone, while the Dow Jones dropped nearly 300 points. Bank of America, and Wells Fargo saw declines, while Delta Airlines sank on earnings news and Tesla lost value due to production delays caused by conflicts in the Red Sea and associated shifts in transport routes.

BTC were in deep red, as prices got down to 43K, after the first spot Bitcoin ETFs began trading and investors started to sell the news following yesterday's frenzy, causing an increasing amount of long liquidations.

Details

Producer prices (PPI) unexpectedly fell 0.1% in December 2023, (source BLS) matching November's decline. Goods costs dropped due to lower diesel fuel prices. Services prices were unchanged. Core PPI was flat, below expectations. Year-on-year, headline PPI rose to 1%, below forecasts, while core PPI fell to 1.8%.

Crypto

Spot Bitcoin BTC/USD saw a 5.55% drop, with trading volumes reaching $4.5 billion, with a 700K individual transactions recorded on its first day of trading, largely driven by the Grayscale Bitcoin Trust and BlackRock's iShares Bitcoin Trust ETFs. While the day's trading volumes were significant, the true measure of organic inflows into these ETFs remains unclear, according to market observers.

World Markets

In December 2023, Chinese banks issued CNY 1.17 trillion in new loans, below expectations (source PBC). M2 money supply and outstanding yuan loans also missed forecasts. The central bank may increase liquidity and cut interest rates to support the economy, which saw a record CNY 22.75 trillion in new lending in 2023.
European stocks rose on expectations of loose monetary policy, closing the week in a green, driven by soft US inflation and ECB dovish rhetoric. The Eurozone's Stoxx 50 and pan-European Stoxx 600 gained 0.7% and 0.8% respectively, with industrial giants leading the gains. However, luxury giants in Paris closed in the red due to Burberry's profit warning.
India's industrial production growth slowed to 2.4% in November 2023, (source Indian Ministry of Statistics) below expectations and the lowest since March 2022. Manufacturing, mining, and electricity output all decelerated. Industrial production for April-November 2023 increased by 6.4%. Also, India's inflation rate rose to 5.69% in December 2023 due to higher food prices, (source's the same) particularly for vegetables, pulses, spices, and fruits. El Niño caused a five-year low in monsoon rainfall, impacting agricultural production.
Russia's annual inflation rate fell to 7.4% in December 2023, (source: the Russian Statistical Service) below expectations and supporting earlier interest rate cuts. Consumer prices rose at a slower pace for services but faster for food and non-food goods. Monthly consumer prices increased by 0.7%, down from 1.1% in the previous period.

Commodities

Wheat futures fell to below $5.95 per bushel (lowest in a month) in January due to strong global supply expectations. The USDA revised up its global wheat supply forecasts for the current marketing year. Revised counts showed higher wheat stocks in Ukraine and production in Russia, lifting export expectations. Strong harvests in Canada and Australia also lifted export forecasts, while increased feed and residual use in India and the EU revised global consumption higher.
Soybean futures fell below $12.1 per bushel (lowest in 24 months) due to a USDA report showing larger-than-expected US corn and wheat stocks. Soybean stocks also exceeded expectations. The market faces pressure from excess old-crop soybeans and favorable weather conditions in Brazil, the largest soybean exporter. Recent rains in Brazil have boosted crop yields and led to projections of a significant rise in soybean exports in January compared to the previous year.

Comment: On the Bitcoin ETF.

Spot Bitcoin ETFs represent a new investment model in the crypto industry that aligns investors' interests with the current market price of the cryptocurrency, rather than futures contracts. This shift to physical BTC holdings provides a more transparent and direct investment strategy, decreasing complexities and increasing demand for "physical" BTC. Mainstream institutions have now had a high bandwidth compliant channel to invest in this asset class with the approval of spot Bitcoin ETFs, which is expected to drive a demand shock, followed by a supply shock in April due to the Bitcoin halving.

On Week 3, key data includes retail sales, Michigan consumer confidence, export/import prices, housing indicators, and earnings reports from major companies. Fed officials will also give speeches. China will release Q4 GDP growth, retail sales, industrial production, unemployment rates, and house price index data. The global economic picture will be painted by UK and Canada inflation rates and retail sales, as well as Germany's ZEW Economic Sentiment index and Japan's inflation figures. In the Euro Area, investors will monitor ECB President Lagarde's speeches and balance of trade and industrial production data.