Wednesday's Markets Update (January 31, 2024)

01 Feb 2024 by rate3

On Wednesday, the Fed kept the rate unchanged at 5.5% but hinted at no cuts in March; as a result, stocks tumbled, with the Dow, S&P 500, and Nasdaq showing deep losses in the communication services, tech, and energy sectors. In the world markets, China's manufacturing is unexpectedly stable, while Brazil's Central Bank cut its rate to 11.25%, and South Korean exports surged due to a more than 50% increase in chip sales. The crypto market is in the red, following Wall Street, with Solana and Polygon dropping 3% and 2%, respectively. Both BTC and ETH are down 1%.

Details

Fed maintained the funds rate at 5.25%-5.5% in January 2024, as expected. Policymakers indicated rates would not be reduced until inflation moves sustainably towards 2%. Powell suggested rate cuts may begin this year, but not in March. The Fed removed reference to further rate hikes and noted inflation has eased, but remains elevated.(FOMC Minutes)
Mortgage applications in the US decreased by 7.2% in the week ending January 26, 2023. Applications to buy a home dropped by 11.4%, while those to refinance a home loan increased by 1.6%. The average contract interest rate for 30-year fixed-rate mortgages remained unchanged at 6.78%. Low existing housing supply is limiting options for prospective buyers and keeping home-price growth elevated, which is constraining home purchase activity.(MBA)
Private businesses added 107K jobs in January 2024, below expectations. Leisure and hospitality led the growth with 28K jobs followed by trade, transportation and utilities (23K), construction (22K), education/health services (17K) and financial activities (7K). Pay growth slowed, with job-stayers seeing a 5.2% increase and job changers a 7.2% gain.(ADP)
The Chicago PMI fell to 46 points in January 2024, down from 47.20 points in December 2023. This was below the historical average of 54.66 points, indicating a contraction in manufacturing activity. The index had reached a record high of 81.00 points in November 1973 and a record low of 20.70 points in June 1980. (ISM)

Crypto

Coinbase and Ripple are major donors to the Fairshake super PAC, which supports pro-crypto politicians. Coinbase has contributed $24.5 million, with CEO Brian Armstrong donating an additional $1 million. Ripple has donated $20 million, while Andreessen Horowitz and Electric Capital have donated $20 million and $500,000 respectively, according to Bloomberg.(source)
Bitcoin miners transferred over 4,000 BTC (~$173 million) to cryptocurrency exchanges, marking the largest single-day selling since May 16, 2023. However, the selling pressure did not impact mining portfolio reserves, which have remained stable since January, according to on-chain analytics firm CryptoQuant.(source)
Binance has regained its position as the world's most dominant crypto exchange, capturing nearly 50% of the global market share. The resurgence can be attributed to a spike in trading volume fueled by Binance's zero-fee promotion in December 2023 and the hype surrounding the United States Securities and Exchange Commission (SEC) approving several spot Bitcoin exchange-traded funds (ETFs) (source).

World Markets

China's Caixin Manufacturing PMI remained unchanged at 50.8 in January 2024, beating market expectations of 50.6. This marked the third consecutive month of growth in factory activity. The reading indicates that manufacturing activity in China is expanding, as a PMI above 50 indicates growth, while a reading below 50 indicates contraction.(SP)
Brazil's central bank cut the Selic rate by 50 bps to 11.25% in January 2024, as expected. The committee noted economic activity indicators align with an anticipated slowdown and consumer headline inflation continues to decrease. Committee members anticipate a similar reduction in upcoming meetings to sustain the necessary contractionary monetary policy for disinflation. The total easing cycle's magnitude will depend on factors such as inflation dynamics and long-term expectations.(BCB)
Japan's 10-year government bond yield rose above 0.7%, hitting its strongest level in six weeks, as BOJ Governor Kazuo Ueda's comments revived speculation about a possible shift in monetary policy. Ueda suggested that the BOJ will reexamine its massive stimulus program if wage rises continue to increase the likelihood of achieving the 2% inflation target. However, the BOJ maintained its ultra-loose monetary policy at its first meeting this year, keeping its key short-term interest rate at -0.1% and retaining the 1% upper limit on the 10-year Japanese government bond yield. Japan's unemployment rate fell to 2.4% in December, while domestic industrial production and retail sales grew less than expected.
In December 2023, Spain's retail trade grew by 3.1% YoY, marking the 13th straight month of growth, driven by non-food sales, particularly personal equipment and other goods. Annual retail sales increased by 6%. However, on a monthly basis, retail trade decreased by 0.7% - the 5th month of a slowing growth rate.(INE)
Italy's unemployment rate fell to 7.2% in December 2023, the lowest in 16 years, beating market forecasts of 7.6%. Youth unemployment also declined to 20.1%, the lowest since July 2007, pointing to a resilient labor market.(ISTAT)
Brazil's Q4 2023 unemployment rate fell to 7.4%, below the expected 7.6%, marking the lowest rate since February 2015. The number of employed individuals reached a record high of 100.985 million, with the employment rate rising to 57.6%.(IBGE)
South Korean exports in January 2024 rose 18% YoY, beating expectations, due to a surge in semiconductor exports. Sales of chips, cars, display products, and home appliances increased. Exports to the US and China grew, reversing a decline in 2023 caused by falls in chip sales and global economic uncertainties.(MOTIES)

Currencies

The Russian ruble weakened past 89 per USD, near its lowest level in three weeks, due to uncertainty caused by conflicting views between the Central Bank and the government on currency controls. While the government proposed extending capital controls until the end of the year, the CBR officials declined the idea. The ruble remained supported by the central bank's FX interventions and reduced demand for yuan and greenback due to seasonal factors.