SVET Reports
SVET Markets Weekly Update (March 18–22, 2024)
On Week 12, the Fed kept its rate unchanged while hinting at a hawkish policy reversal. Stock markets reacted with new ATHs, while BTC and ETH still lingered after the massive 10% correction following the quarterly options expiration. In world markets, stock indexes rallied when major central banks, including those in China and Brazil, began pivoting their policies from anti-inflationary to pro-growth. The ECB also signaled a softening of its rate hike rhetoric.
On Monday, stocks rebounded as investors focused on AI advancements ahead of the Fed meeting, overshadowing interest rate hike concerns underpinned by homebuilders’ rising confidence. Apple and Alphabet benefited from news of AI integration. On the world’s markets, Chinese manufacturing sector added 7% unexpectedly, while oil prices continued to grow on worsening geopolitics and lower supplies. The crypto market was in the red, experiencing a continuing correction with BTC hovering slightly above 67K and ETH dipping below 3.5K. Among major alts, only Avalanche (+7%) continued to rise.
Details
Homebuilder confidence jumps to 8-month high (51) in March as low existing inventory pushes buyers to new construction. Mortgage rate dip below fall’s peak further fuels demand. (NAHB)
Crypto
Digital assets see record inflows for two straight weeks, reaching $2.9 billion last week. This pushes the yearly total to $13.2 billion, surpassing 2021’s bull run. BTC dominates with nearly all inflows (99.9%), while overall trading volume remains steady at $43B — 47% of overall global BTC volumes. (source)
Despite China’s strict crypto regulations, Chinese investors made $1.15B, contributing to the global total of nearly $38B. The US remains the leader with $9.4 billion in crypto earnings, followed by the UK at $1.4B. Hong Kong, a part of China, also saw significant crypto activity with $250M in gains. (source)
BlackRock’s BTC trust sees high trading activity with an average daily trade size of $13K, suggesting retail investor interest (~250K trades in a day, a trade size is ~326 shares, or ~$13K). (source)
El Salvador accumulated over $65 million in unrealized BTC profit. According to a survey conducted by the Central American University, only 12% of the local population have used BTC at least once to pay for goods and services in 2023. (source)
World Markets
China’s manufacturing output roared back in Jan-Feb, growing 7% YoY, exceeding expectations (5%) by far. This is the fastest pace in nearly two years, driven by strong manufacturing and utilities. (CN)
Currencies
Brazilian real tumbles to a 4-month low (over 5 per USD) as investors weigh potential interest rate cuts in Brazil vs. expected hikes by the Fed.
Commodities
Oil prices jump 2% to hit a high of $82.72 per barrel (highest since October) due to several factors: lower exports from Iraq and Saudi Arabia, signs of rising demand in China and the US, and ongoing geopolitical tensions impacting supply.
Copper prices surge to a new high since April 2023 (above $4.1 per pound) on strong Chinese economic data (factory output +7%, retail sales +5.5% yoy). Smelter production cuts due to low concentrate prices also contribute to the rise. However, a 9% decline in property investment remains a concern.
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.
On Wednesday, stocks soar to new ATHs after Fed maintains rate cut plans. Tech leads rally, with mega-caps like Meta and Apple up over 1%. In world markets, gold set a new record at $2222. The crypto market surged back with BTC and ETH gaining about 7%.
Details
Fed holds rates at a 23-year high of 5.25%-5.5% but promises three cuts later in 2024, with projections for stronger economic growth but slightly higher inflation. They see unemployment falling to 4% this year. (FED)
Crypto
With BTC ETFs approved, the pressure is on for ETH ETFs. Several companies are vying for a green light from the SEC, with deadlines approaching. Despite regulatory hurdles and DeFi challenges, analysts remain optimistic about Ethereum’s strength and growing DeFi ecosystem. DeFi protocols surged 80.3% YoY to $51B, with a 21.6% increase in wallet addresses. (source)
World Markets
Brazil cuts rates 50bps to 10.75% as inflation eases but remains above target. They aim to boost the economy cautiously while keeping inflation in check. (BCB)
Commodities
Gold rises to $2222, setting a new record, after mixed central bank signals. Fed to hold rates, but hints at cuts later in 2024. BoE eyed for future rate cut clues.
On Thursday, manufacturing activity is down, service sectors cools a bit, home sales grows unexpectedly, stocks soar on continuing tech lead rally with Micron up 16% on strong earnings. Reddit debuts on NYSE, but Apple tumbles on DOJ lawsuit. Internationally, EU manufacturing sector continue to soften, as Swiss Bank cut its key rate while Bank of England kept its rate unchanged but showed signs of softening its anti-inflationary stance. Despite that, crypto market turned red correcting after yesterday’s surge on Fed turning dovish enthusiasm. BTC’s trading slightly above 65K, ETH — 3.4K. Among few coins which are still in a green are XRP (+7%) and LTC (+1%).
Details
Service sector growth cools down in March, with PMI dipping to 51.7 (3-month low). New business slows, but employment rises. Businesses see higher inflation and are boosting marketing plans despite these mixed signals. (SP)
Philly Fed Index dips to 3.2 but beats forecasts (expected -2.3). Shipments and new orders improve, suggesting some expansion. Prices remain low, but future activity expectations rise.(PhilFed)
Existing home sales surged 9.5% to a 1-year high (4.38 million) in February, defying forecasts. More houses on the market are meeting buyer demand, with gains in all regions except the Northeast. (NAR)
Crypto
Massive real-world asset tokenization (such as $326 trillion in real estate or the gold market, valued at $12.39 trillion) could fuel the crypto market by boosting liquidity. That trend is confirmed by main-stream opinion’s leaders — the Boston Consulting Group and the BlackRock. (source).
India cracks down on foreign crypto exchanges like Binance and OKX, blocking their websites and prompting an exodus to local exchanges. Local exchanges see massive user inflows with the government’s unclear regulations and high taxes making things difficult for foreign players. (source)
World Markets
Bank of England holds rates at record 5.25% despite inflation dipping to 3.4% (lowest in nearly 30 months). One member voted for a cut, but policymakers wait for clearer signs inflation is under control before easing. (BoE)
German manufacturing PMI sinks to 41.6 (worst in 5 months) despite a slower decline in output. Backlogs and employment continue to fall, but sentiment improves. (SP)
French manufacturing PMI tumbles to 14-month low (45.8) as output and sales plummet. Despite some supply chain improvement, job cuts held steady.(SP)
EU car sales surge 10.1% in February (+12.1% previous), with strong growth in France and Italy. Battery electric cars hold 12% market share (up from 9%), boosted by Belgium, France, and Netherlands despite a German dip. (Acea)
Currencies
Mexican peso weakens after central bank cut rates (25bps to 11%). Inflation dips but remains above target (4.4%). Investors weigh the Bank of Mexico’s move against the Fed’s planned rate cuts later in 2024.
Commodities
Gold continued to increase, fueled by expectations of central bank easing. The Fed signaled rate cuts, and now the Bank of England holds steady, with one vote for a cut. Switzerland became the first major economy to cut rates, further boosting investor confidence in looser monetary policy.
On Friday, stocks cool off after record highs. Dow retreats, but weekly gains expected. Consumer discretionary stocks lag, while utilities and communication services rise. On worlds markets, Euro, Chinese Yuan and Indian Rupee weaken on rate cuts expectations, EU gas prices increased due to supplies concerns, cocoa market is in panic with prices quadrupling in past two months. The crypto market entered into a correction mode forming a sideway channel with major coins sliding down for more than 4%. BTC got under 64K and ETH dropped below 3.4K.
Crypto
BlackRock clients have much more interest in BTC than ETH. (source)
Minnesota UBI bill that would give up $300 to $1.2K every month for two years to low-income residents has already advanced through a House committee. The program would be funded with $200 million over two years. (source)
World Markets
El Salvador’s economy rebounds. Q4 growth hits 4.5%, the highest in 2 years. Trade and investment surge, but consumer spending slows. This marks a significant improvement from the previous quarter’s decline. (BCR)
Vietnamese stocks climb to 18-month highs, boosted by Wall Street’s record and hopes of US rate cuts this year. Local gains led by finance and construction sectors after Hanoi appoints new acting head of state.
Currencies
Dollar strengthens for a second week, hitting 3-week highs (104.2). Bets on earlier rate cuts by other central banks lift the dollar. Swiss National Bank cut rates, Bank of England paused, and Bank of Japan shifted policy, but remains dovish. The Fed held steady on rates and its plan for 3 cuts, but awaits signs of inflation easing.
China’s offshore yuan weakens to a 4-month low (7.25 per dollar) on expectations of more easing. The central bank hints at looser policies, and a strong dollar adds pressure. Investors await data to assess China’s economic health.
Euro falls to near $1.08, its lowest level in over 5 months, on hopes of ECB rate cuts. A hawkish ECB official signaled potential cuts before summer, aligning with market expectations of multiple reductions this year. The ECB remains data-driven, though, and future moves depend on inflation.
Indian rupee weakens to record low (83.5) after China’s currency move sparked Asian selloff. Despite the drop, strong economic growth (8.4% GDP) and high PMI (over 60) kept the rupee somewhat stable.
Commodities
European natural gas prices stay high near €29/MWh due to supply worries. Concerns include outages in Norway, repairs at a US terminal, and competition for gas from Asia. However, analysts expect prices to fall as winter ends, with more solar power and stable gas storage levels in Europe.
Cocoa prices keep surging, hitting a record high above $8,600 per pound (was ~2K at the start of the year). Fears of a global cocoa shortage intensify as reports emerge of processing slowdowns in West Africa and lower-than-expected harvests in Ivory Coast. Analysts predict a wider global cocoa deficit due to these supply concerns.
On Week 13, local investors will expect inflation data, Fed speeches, GDP. In EU they will watch for inflation and rates. Japan, Canada will see key data releases.
Comment: Fed’s Created Inflation Is Confirmed.
I was always arguing for that the Fed’s old bureaucrats have created non-core inflation (excluding food and energy) by themselves, through their stupid-high interest rates.
Now, the fact that governments are significantly altering their inflation statistics by not including in it the effect of rising rates is confirmed by non other than the former Treasure Secretary Mr. Summers himself.
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.
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