SVET Markets Weekly Update (Jan 8–12, 2024)

12 Jan 2024 by rate3

On Week 2, the SEC approved 11 Bitcoin spot ETFs, which was followed by BTC sell-off within the next two days and by ETH soaring to $2.7K on traders’ expectations of an SEC-approved spot Ethereum ETF.

On the macroeconomic side, the inflation rate rose to 3.4% YoY, but the Producer Price Index (PPI) unexpectedly fell 0.1% in December, confusing traders and leading to higher volatility in the markets. Meanwhile, consumer credit saw a significant increase, mortgage applications jumped, and jobless claims dropped, pointing to a strong economy despite the high Fed rates.

On Monday, Nasdaq and other stocks rose sharply led by tech shares and chip makers. Dow gained despite Boeing’s 8% drop on 737 MAX 9 Jets issue. Oil giants fell as oil prices sank on Saudi output rise and price cuts. Investors await CPI data and big bank earnings reports. BTC rose more than 6% leading cryptocurrency gains, with ETH following with +4%.

Details

In November 2023,consumer credit saw a significant increase of $23.7 billion, surpassing expectations of $9 billion and marking a significant growth from the previous month’s $5.7 billion increase. This growth was driven by a $19.1 billion jump in revolving credit, such as credit card debt, which rose by 17.7% year-on-year. Non-revolving credit, including auto and student loans, also increased by $4.6 billion, or 1.5% compared to the previous month.
On Tuesday, the Nasdaq and other major stocks were mixed, following a tech-driven rally. Worst performers included real estate, materials, industrials, and utilities. Small business sentiment improved in December but remained pessimistic. Apple, Amazon, Alphabet, Netflix, and NVIDIA shares rose after initially trading lower, while Tesla dropped. BTC corrected slightly after reaching to 47K in the previous session. ETH’s in red at 2.2K still lagging behind Bitcoin.

Details

In December, the NFIB Small Business Optimism Index rose to 91.9, the highest in five months. Inflation was the top concern for 23% of owners, replacing labor quality. Expectations for better business conditions and raised compensation increased, while selling prices and real sales outlook remained stable. However, small business owners remain pessimistic about the economy.
The RealClearMarkets/TIPP Economic Optimism Index improved to 44.7 in January 2024, highest in eight months, beating expectations but still negative. Economic Outlook and Personal Financial Outlook increased, with investor optimism up 20% and non-investors up 5%.
On Wednesday, Nasdaq, Dow and SP indexes edged up as traders remained cautious ahead of key inflation data and the start of earnings season. Consumer discretionary and tech led gains while energy lagged. NVIDIA, Microsoft, and Meta rose to multi-week highs, while Exxon and Chevron dropped to 4-week lows. On a crypto side, SEC approved the spot BTC ETF. ETH is surging ahead with a +5% gain, breaking 2.5K resistance, leading the charge in the cryptocurrency market. Following behind is BTC, which has posted a more modest increase, reaching to 46.6K.

Details

Wholesale inventories fell 0.2% in November, the second straight monthly decrease, led by a 0.5% drop in nondurables such as chemicals, apparel, and groceries. Durable goods inventories were flat for the second month, with increases in some categories offset by declines in others. Wholesale inventories were down 3% year-over-year.
Mortgage applications jumped 9.9% in the first week of 2023, the most in a year, rebounding after a 10.7% previous slump as expectations grow of a Fed rate cut in Q1, pushing mortgage rates down from October highs and spurring demand especially for refinances, up 19%, while purchase applications rose 6%.
World Markets

Chinese stocks fell to over 3-year lows as lack of aggressive stimulus weighed, with the Shanghai Composite down 0.54% and Shenzhen Component off 0.55%; investors await economic data amid bets authorities will have to ease policy further to combat deflation and spur recovery. Wantai, Changan, Muyuan Foods, Ganfeng Lithium and Shenzhen Silver saw notable declines.
European shares closed moderately lower as ECB comments highlighted weak growth outlook but need for further evidence of declining inflation before rate cuts, weighing on equities. Financial companies were among the worst hit, with Santander, Allianz, BNP Paribas, AXA and Flutter Entertainment posting notable declines.
The Baltic Exchange’s main sea freight index fell for the third straight day to a over 2-month low at 1,664 points on Wednesday, with the capesize, panamax and supramax indices all declining due to seasonally weak demand around the Lunar New Year holiday. The capesize index saw its biggest daily drop since December 7th.
Ukraine’s annual inflation rate stayed at 5.1% in December 2023, the lowest since 2020, with a slowdown in most sectors except for a rise in food & non-alcoholic beverage prices; monthly consumer prices increased by 0.7%.
Belarus’s annual inflation rate rose to 5.8% in December 2023, the highest since March, as consumer prices increased most for services (8.1%) and food (6.8%), while non-food goods rose just 2.9%. On a monthly basis, consumer prices were up 0.9%.
Ghana’s annual inflation rate eased for the fifth consecutive month to 23.2% in December, the lowest since March 2022, on slowing food and non-food price growth. However, inflation remains well above the central bank’s 6–10% target range. On a monthly basis, consumer prices rose 1.2% in December after increasing 1.5% in November.
The Philippines saw a 29.6% annual drop in foreign direct investment (FDI) to USD 0.66 billion in October, with declines across all major components like debt instruments, equity capital and reinvestment of earnings. For the first 10 months of the year, FDI net inflows fell 17.5% year-on-year.
Commodities

Natural gas futures fell over 6% from an 8-week high to below $3/MMBtu on Wednesday despite forecasts for extremely cold weather next week driving record demand. Traders expect lower gas usage on the January 15 holiday to limit demand. Additionally, a projected storage surplus and forecast return to warmer temperatures on January 23–24 weighed on prices, after a jump to colder than normal from January 13–22.
Comment: On Ghana’s High Inflation.

The high inflation rate in Ghana in December 2023 can be attributed to several factors. Prices rose significantly in the categories of housing, water, electricity, gas, and other fuels, up 82.34% year-on-year, as well as furnishings and household equipment, and transport. Food and non-alcoholic beverages inflation was also high at 59.71% year-on-year

The country’s worst economic crisis in a generation, the slumping cedi currency, government spending cuts, and central bank interest rate hikes have all contributed to the high inflation. Additionally, the gradual deceleration in overall inflation is primarily attributed to base effects compared to the previous year. These factors, along with aggressive monetary policy tightening, have influenced the high inflation rate in Ghana compared to other African countries and even to the war-affected Ukraine.

Comment: On the Philippine’s FDI decline.

The Philippines’ foreign direct investment (FDI) inflows have lagged behind its regional peers in the Association of Southeast Asian Nations (ASEAN) since 2010. In 2022, the FDI inflows shrank to USD 9.2 billion, down 23% from the previous year. (re: 1, 2)

Compared to Indonesia and Malaysia, the Philippines has faced challenges that have made it less attractive to foreign investors. Some of these challenges include closed sectors of the economy to 100% foreign ownership, poor infrastructure, high power costs, slow broadband connections, regulatory inconsistencies, a complex judicial system, and barriers to doing business such as traffic congestion.

Time and time again, we can see that, independent of geography, the further government bureaucrats stay out of the economy, the better it performs.

On Thursday, The Nasdaq, S&P 500, and the Dow Jones turned negative as investors processed a CPI report showing higher headline inflation but a lower core rate. Bets for a rate cut decreased, with utilities as the worst-performing sector. Apple and Tesla fell, while Microsoft’s gain made it the most valuable US company, overtaking Apple. JPMorgan, Bank of America, Wells Fargo, and Citigroup were in the red.

In the crypto market, Bitcoin briefly surged above $49K before dropping below $47K on the first trading day after the SEC approved the first spot bitcoin ETFs, ranging from BlackRock to Ark Invest. Concurrently, Ethereum soared to $2.7K on traders’ expectations of an SEC-approved spot Ethereum ETF, despite repeated government denials.

Details

The inflation rate rose to 3.4% YoY in December, driven by slower decreases in energy prices and a rise in food pricing as well as a softening in the pace of price increases for various goods and services. Core inflation eased, while consumer prices (CPI) overall increased by 0.3% compared to the previous month.
The core inflation rate, excluding food and energy, declined to 3.9% in December, the lowest in over two years. The shelter index, a significant component, slowed to 6.2%, and other indexes showed modest increases. Core consumer prices increased by 0.3% monthly, aligning with market expectations.
According to DLS, US jobless claims dropped to 202,000, below expectations, and continuing claims fell to 1,834,000, indicating a tight labor market that could support the Fed’s continued hawkish approach to combat inflation. Seasonal factors caused unadjusted claims to rise.
Crypto

The SEC approved 11 Bitcoin spot ETFs, with BlackRock’s iShares Bitcoin Trust (IBIT) gaining attention due to the firm’s stature and recent Bitcoin investments. IBIT opened at $28.05 but fell over 4%. (source) Its price saw a 24-hour volatility above 11% . While the ETFs mirror Bitcoin’s spot market moves, with BTC hitting $48,965 before pulling back, investors watch closely after anticipating institutional capital post-approval. The market response to these ETFs remains a point of global interest.
World Markets

China’s vehicle sales rose 23.5% in December 2023 (source China Association of Automobile Manufacturers), with annual sales exceeding 30 million for the first time; NEV sales surged 46.4% for the month, contributing 31.6% to the year’s total.
European equity markets closed lower due to higher-than-expected US inflation, raising doubts about a potential interest rate cut. Banks and luxury sector stocks were among the biggest losers. Grifols also experienced a significant decline after addressing a short-seller report.
Mexico’s industrial production growth slowed (according to INEGI) to 2.8% in November 2023, below expectations and the weakest since April, with declines in mining and manufacturing and slower growth in utilities and construction. Monthly output fell by 1%.
Commodities

According to the latest spot benchmarks from sellers to buyers priced in megawatts per hour (MWh), the price of electricity in Italy has increased to 113.26 by 2.20 EUR/MWh or 1.98% since the start of 2024. It is worth noting that the Italy Electricity Price reached its highest point ever recorded at 815.57 in September 2022.
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.