Wednesday's Markets Update (January 17, 2024)

17 Jan 2024 by rate3

On Wednesday, mortgage rates continue to fall, retail sales jumped thanks to auto and industrial production rose, resulting in 20-Y Bonds increasing to 4.423%. As a result, stocks traded lower as traders tempered their expectations of March Fed rate cuts, with the S&P 500 down ~1%, Nasdaq off ~1%, megacaps like Alphabet, Amazon and Nvidia down over 1%, and Apple losing 0.7% on a ban of certain watch sales in Germany. On the macroeconomic side, China's economy grew but China's population continued to decrease. EU inflation ticked up leading among other things to increasing 10-Y UK Treasuries (Gilts) prices. Gold prices dropped as the dollar index rose. BTC and ETH are experiencing around 3% declines both on technical indicators showing volatility.

Details

The average contract interest rate for 30-year fixed-rate mortgages fell to 6.75% as mortgages applications grew to 10.4% (MBA) in the second week of 2024, the lowest rate in three weeks, following Treasury yields lower. As a result, housing market sentiment improved in January 2024 NAHB, driven by expectations of a rate cut by the Fed.
Retail sales jumped 0.6% in December, exceeding forecasts, driven by auto sales (Census Bureau). Core retail sales, excluding autos, gas, building materials, and food services, saw a robust 0.8% increase.
Industrial production unexpectedly rose 0.1% in December (Fed), driven by manufacturing and mining gains. Capacity utilization remained unchanged at 78.6%. For Q4, industrial production fell 3.1% and manufacturing output decreased 2.2% at an annualized rate.

Crypto

FYI: MiCA, which is set to come into effect on December 30, 2024, will establish a prohibitive regulatory framework for cryptocurrencies across the EU (source). It will mandate that crypto service providers—including crypto exchanges, payment processors, miners, custodians, brokers, crypto ATM operators, and token issuers—in all 27 member countries obtain national licenses and adhere to over-stringent financial compliance standards. These standards include increased share capital requirements, which will wipe off smaller and medium-sized enterprises from the market. Essentially, this will result in major financial corporations dominating the cryptocurrency industry within the EU, relegating small and medium-sized crypto enterprises to gray areas or outside of EU. It will lead to the flourishing of DeFi and the emergence of groundbreaking innovations that could subvert what they refer to as 'regulations' - Draconian restrictions that, once again, may only favor a select few at the top, to the detriment of the Humanity.
Binance Labs invested in over 25 Web3 projects (source) in 2023, including Optimism, LayerZero, Celestia, Aptos, Mysten Labs, Trust Wallet, Neutron, Helio, Radiant, Pendle and Arkham.

World Markets

China's economy grew a seasonally adjusted 1.0% in Q4 2023 (5.2% YoY in Q4 of 2023, faster than a 4.9% YoY growth in Q3 but less than market forecasts of 5.3%), matching expectations but slowing from an upwardly revised 1.5% in Q3, the 6th straight quarterly expansion though still dragged by property sector weakness, while government stimulus is limited by debt concerns though some infrastructure spending and PBoC liquidity injections continue; the China statistics bureau said effective policies are needed to vitalize the economy and consolidation recovery momentum.
China's population declined by 2.08 million in 2023 to 1.409 billion, the second straight annual drop since 1961, with births at 9.02 million the lowest since 1949, as the pandemic and economy impacted the birth rate; the working-age population was 61.3% of the total and those over 60 were 21.1%, the male population totaled 720.32 million and the female population 689.35 million. (China's Statistics Bureau)
In December 2023, the Euro Area's inflation rate rose to 2.9% from November's 2.4% (Eurostat), driven by energy-related effects. Czechia led the race with 7.6 percent. The core rate fell to 3.4%, its lowest since March 2022, while consumer prices increased by 0.2%. At the same time, in December 2023, the core inflation rate, excluding food and energy, dropped to 3.4%, the lowest since March 2022. It averaged 1.89% from 1991-2023, peaking at 5.70% in March 2023.
European stocks fell 1-1.2% to multi-week lows as hawkish ECB comments tempered expectations for near-term rate cuts, with rate-sensitive real estate companies hit hard, while investors also reduced hopes for early Fed cuts following strong US retail sales data and Britain's inflation rose to 4% in December.

Commodities

Gold prices dropped to around $2,020 as a hawkish US Fed official's remarks bolstered the dollar and yields, reducing the likelihood of a March rate cut.
WTI crude fell below $72 as a stronger dollar, due to reduced expectations of a March Fed rate cut, outweighed Middle East tensions affecting oil shipments.

Currencies

The dollar index rose for a third day to 103.5 Wednesday as better-than-expected retail sales reinforced expectations the Fed may not cut rates as early as thought, with March cut bets now at 56% versus 77% earlier, while Fed officials like Waller say no need to cut rapidly with inflation falling gradually; dollar saw biggest gains versus the yen, franc and Aussie.
The Indian rupee depreciated past 83.1 per USD after hitting a 4-month high of 82.2 on January 15th as expectations of a Fed rate cut delay strengthened the dollar and emerging market currencies, though. The Indian rupee depreciated past 83.1 per USD record high Sensex, and persistent RBI intervention to prevent the rupee from sinking past its record low of 83.4 limited the downturn.