Tuesday's Markets Update (March 19, 2024)

19 Mar 2024 by rate3

On Tuesday, stocks are flat ahead of the Fed meeting, ignoring the sudden surge in building permits. No rate hike is expected. Internationally, Japan increased its key interest rates to 0.1% for the first time in eight years. The crypto market was hit by a second wave of correction, with Bitcoin reaching 62.4K and Ethereum down to 3.2K. Some altcoins, including Solana, Polkadot, and Cardano, slid more than 7%.

Details

Building permits jump 1.9% to a 1.52M annual rate in February, exceeding expectations and hitting a post-August high. Gains in Midwest and Northeast offset declines in other regions. (CNS)

Crypto

Former Treasury Secretary says a forgotten method (Arthur Okun’s pre-1983 system) shows inflation is much worse (18% vs official 4.1%) as it considers housing costs and interest rates. "Price indexes do not include borrowing costs. Thus, when interest rates jumped last year, official inflation did not fully capture the effects it would have on consumer well-being". (source)
Over $122 million poured into 27 projects in a week on the Solana, driven by memecoin craze and booming DEX activity. (source)
Grayscale Bitcoin Trust sees biggest outflow ever ($640 million) as Bitcoin dips and investor sentiment sours. (source)

World Markets

Breaking with 8 years of negative rates, Japan hikes rates to 0.1% to combat inflation and support rising wages. They're also scaling back asset purchases with some flexibility to adjust. (BoJ)
Eurozone economic sentiment surges to a 14-month high (33.5) in March, with analysts mostly expecting stable activity. However, inflation expectations remain deeply negative (-64.3) and the current economic situation is still seen as weak (-54.8).
Russia's borrowing costs soar (13.4% yield on 10-year bond) due to high inflation (is on 7.7%, with the 4% target), weak consumer response to rate hikes, and government spending concerns (budget deficit is RUB 1.474B in Jan-Feb). (source)

Currencies

Euro weakens near $1.08 as dovish ECB signals (possible rate cuts) counter slowing wage growth. 5 out of 26 members of the central bank governors (Spain, the Netherlands, Ireland, Greece, Slovakia) have publicly supported rate cut in June.
British pound tumbles to 2-week low ($1.27) as investors eye key inflation data and central bank decisions this week. BoE likely to hold rates, but mull August cuts unlike ECB and Fed's expected June moves.

Comment: Fed's Created Inflation Is Confirmed.

That is what I was always arguing for when I said that the Fed's old hypocrites have created non-core inflation (excluding food and energy) by themselves, through their stupid-high interest rates.

Now, the fact that governments are simply manufacturing their numbers is confirmed by non other than the former Treasure Secretary Mr. Summers himself. Of course, no one paying attention, again :)

Note that Japanese bankers kept their rates at a negative level (!) throughout that time, achieving better results in "suppressing inflation" by doing absolutely nothing (in fact, even printing more money). In Japan, inflation is about 2% now.

All main-stream economists' counter-arguments suggesting that the Japanese economy is "structurally different" are inconsistent with the concept of "global financial markets" and the fact that Japan imports almost all of its energy from abroad, thus facing inflationary prices like everyone else.

Bottom line, almost all non-core inflation stemmed from producers and service providers simply factoring the Fed's rates into product prices and salaries.