Thursday's Markets Update (January 25, 2024)

25 Jan 2024 by rate3

On Thursday, the economy expanded 3.3% due to rising exports, surpassing the 2% forecast, while PPI growth slowed. Unemployment claims increased, and the Kansas Fed Composite Index fell, indicating worsening economic conditions and leading to mixed stock performances: the S&P and Dow rose, but the Nasdaq remained flat as investor confusion persisted. Tesla's stock dropped over 12% due to lower earnings, whereas IBM's surged 9% thanks to an AI-driven revenue increase. On a macroeconomic side, oil prices surged on strong GDP data and ECB kept its key rate unchanged on 4.5%. In the cryptocurrency market, BTC and ETH are slightly up, but Chainlink, Avalanche, and Cardano experienced more than a 2% decline due to technical factors. Monero surged almost 3% to $157.

Details

The economy expanded 3.3% in Q4 2023, exceeding forecasts of a 2% rise, with consumer spending slowing and private inventories contributing less to growth. Exports accelerated and non-residential investment increased, led by equipment and intellectual property products. Full-year 2023 growth was 2.5%, compared to 1.9% in 2022.(BEA)
The new orders for manufactured durable goods were unchanged in Dec 2023, missing expectations of a 1.1% increase. Excluding transportation, orders rose 0.6%, and excluding defense, they increased 0.5%. Primary metals contributed to the increase.(Census Bureau)
Unemployment claims rose by 25K to 214K in the week ending January 20th, with continuing claims also increasing, suggesting that unemployed individuals are taking longer to find jobs. The data contrasts with recent hot labor figures and challenges the view that the labor market will remain historically strong. (DoL)
Durable goods orders excluding defense rose 0.5% in Dec 2023 after a 6.9% increase in Nov. The series has an average of 0.34% from 1992 to 2023, with a high of 28% in July 2014 and a low of -20.9% in Aug 2014.(Census Bureau)
Personal consumption expenditure price index grew 1.7% in Q4 2023, slowing from 2.6% in Q3 and marking the weakest growth since Q2 2020.(BEA)
The Kansas Fed Composite Index fell to -9 points in January 2024 from -1 points in December 2023, with an average of 5.49 points from 2001 to 2024. The index reached a high of 32 points in March 2022 and a low of -30 points in April 2020. (Kansas Fed)

Crypto

UK Govt proceeding cautiously on CBDC, no launch decision yet. Exploring feasibility, design, & developing criteria for a UK digital pound. No immediate plans for a UK central bank digital currency. UK governments are traditionally influenced by City moguls, so it's no wonder they have cold feet about CNBC, which will disintermediate all those banks. (source)
Tesla's Q4 2023 report reveals a consistent crypto strategy, maintaining its 9,720 BTC holdings valued at $386 million. The company's stock declined in after-hours trading, despite exceeding delivery predictions for Q4 with 484,507 vehicles sold. However, Tesla fell short of analyst estimates with adjusted earnings per share at $0.71 and revenue at $25.17 billion, missing expectations of $0.73 and $25.87 billion, respectively. (source)
In 2023, 62.1M users joined crypto, with Ethereum leading with 15.4M acquired users, followed by Polygon with 15.2M and Bitcoin with 10.7M. Solana, which saw a resurgence, acquired over 45% of its new users in May and December. (source).
Chinese investors continue to invest in Bitcoin despite the government's ban since 2021, as China's global ranking in terms of peer-to-peer trade volume jumped from 144th to 13th in 2023. The Chinese crypto market recorded an estimated $86.4 billion in transaction volume between July 2022 and June 2023, surpassing Hong Kong's $64 billion in crypto trading. The proportion of large retail transactions in China nearly doubled the global average of 3.6%. (source)

World Markets

The European Central Bank maintained interest rates at record highs in its first 2024 meeting, pledging to keep them restrictive until inflation reaches 2% despite concerns of a recession. The main refinancing operations rate stays at 4.5% for the third time, and the deposit facility rate remains at 4%. President Lagarde said officials agreed it's too early to discuss rate cuts. The ECB ended its rapid rate-hiking cycle in September but remains hawkish due to underlying price pressures and geopolitical uncertainties.(ECB)
The number of initial jobless claims in France decreased by 6.6 thousand in December 2023 from the previous month, with an average of -0.85 thousand claims from 1996 to 2023. Highs and lows were 818.6 thousand in April 2020 and -203.9 thousand in June 2020, respectively. (Dares)

Commodities

Brent crude futures rose over 3% to above $82 per barrel due to increased demand expectations, falling inventories, and positive market sentiment. US economic growth exceeded forecasts at 3.3% in Q4, and China's decision to reduce banks' reserve ratios contributed to the increase. Supply disruptions were also a concern, with US and UK forces striking against Houthi fighters in Yemen.

Comment: On the Fed's Ineffectiveness

In recent economic reports, concerning trends have emerged, calling into question the effectiveness of the Fed's current policies. The data suggests that urgent action is needed, advocating for a shift towards free market forces to rejuvenate the economy. The Fed must promptly lower interest rates before irreversible damage occurs.

The rise in unemployment claims by 25K to 214K and the decline in the Kansas Fed Composite Index to -9 points in January 2024 from -1 points concurrently paint a concerning picture. Such negative indicators necessitate a reevaluation of the Federal Reserve's approach. The central planning and bureaucratic interventions often lead to unintended consequences, hindering economic prosperity rather than facilitating it.

Durable goods orders excluding defense, which rose by 0.5% in December 2023 following a significant 6.9% increase in November, underscores the volatility of the current economic landscape. This volatility, when coupled with the Fed's apparent hesitancy to adapt swiftly, demands a rethinking of the prevailing monetary policy. Allowing the invisible hand to guide economic activities leads to a more efficient allocation of resources, fostering sustainable growth.

The Personal Consumption Expenditure Price Index growing at 1.7% in Q4 2023, a decline from the 2.6% in Q3, adds another layer to the argument for immediate rate cuts. Bureaucratic interventions often distort market signals, leading to artificial price fluctuations. A return to free market principles is a remedy to such distortions, allowing for a more natural and responsive economic equilibrium.

In the era of technological progress and AI, Fed's role is becoming obsolete. The dynamism of modern economies requires adaptive and agile measures, characteristics often associated with free market mechanisms. The Fed's interventions, far from being a panacea, might contribute to economic stagnation, particularly in times of rapid technological advancement.

In conclusion, the recent economic data signals a pressing need for the Fed to reconsider its current stance and promptly lower interest rates. Central planning and bureaucratic ambitions can inadvertently undermine economic stability.