Friday's Markets Update (April 12, 2024)

12 Apr 2024 by rate3

On Friday, import prices rose as consumer confidence dipped, serving as a catalyst for a major stock technical sale. This was compounded by big banks' disappointment with earnings and China's anti-foreign-processor policy which worried tech investors. Tech stocks were hit especially hard, with AMD and Intel down sharply. In the world's markets, the dollar, gold, oil (including gasoline), and other resources continue to surge due to intensifying geopolitical risks and traders' uncertainties towards economic policies. BTC and ETH significantly dipped, with BTC briskly touching 65K and ETH reaching 3K. The rest of the crypto market plunged heavily, with some coins including ChainLink, Cardano, Algorand, Polkadot, Avalanche, and Polygon depreciating by 15% or more.

Details

Import prices rose for a third month straight (0.4% in March), the most since mid-2022. Fuel imports led the increase (up 4.7%), while non-fuel imports were slightly higher (0.1%). Overall, import prices are now slightly higher than a year ago for the first time in over a year. (BLS)
Consumer confidence (Michigan Consumer Sentiment survey) dipped in April, below expectations. This follows a recent high in March. People are cautious due to the upcoming election's potential effect on the economy. Inflation expectations are also ticking up slightly. (SCA)

Crypto

A fifth of BlackRock's new ETF investments this quarter went into their Bitcoin ETF (IBIT). This Bitcoin fund attracted $13.9 billion, the fastest-growing ETF ever for BlackRock, despite only launching in January. Overall, BlackRock saw strong inflows across its ETFs, with $67 billion entering in the first 3 months. (source)

World Markets

China's trade surplus fell sharply in March (to $58.55 billion) compared to last year, missing expectations. Exports dropped more than imports (7.5% vs 1.9%). Despite the monthly decline, China still has a surplus of $183.71 billion for the first quarter, driven by a slight increase in both exports and imports. (CN)
India's annual inflation dropped to a 10-month low of 4.85% in March, better than expected. Food inflation eased, with vegetables leading the decline. Prices for clothing, housing, and fuel also saw slower increases. (Mospi)
Brazilian currency hit a new low in April due to global tensions and expectations of lower interest rates. Despite this, lower inflation and strong retail sales suggest a resilient Brazilian economy.
Spain's inflation rose slightly in March (3.2%) after hitting a 6-month low in February. Housing, utilities (due to VAT increase), transportation (fuels), and recreation costs all saw price increases. Food inflation slowed down. Core inflation also dipped (3.3%) to its lowest level since February 2022. Both national and EU-harmonized inflation rose slightly compared to February. (INE)
Italian factory sales plunged 3.1% in January, the biggest drop in almost 4 years. This follows a small rise in December. Both foreign and domestic demand fell. Sales were down across all categories, from car parts (intermediate goods) to furniture (consumer goods). This extends a year-long trend of declining factory sales. (Istat)

Currencies

Dollar (DXY) reached a near 5-month high (106) in April on expectations of higher interest rates and geopolitical tensions. The dollar rose across the board, with the biggest gains against the Australian, New Zealand dollars, Euro and British Pound.

Commodities

Believe it or not but cocoa prices continued its crazy and absolutely unprecedented 6 months run, hitting a new record high (over $10,800/tonne, 5x compare to Nov 23). It is blamed on worries about lower supply. Extreme weather lead to poor harvests in West Africa, a key producer. Traders are concerned about the upcoming mid-crop season in Ivory Coast, where dry weather could further limit output. Data shows cocoa shipments from Ivory Coast are already down significantly year-on-year.
Gold prices soared to a new record high (over 2.4K) in April due to safe-haven demand amid fears of war in the Middle East. Strong physical demand from China also bolstered gold prices.
Gasoline prices surged in April to a one-year high(2.82 per gallon) on fears of war in the Middle East. Despite a surprise rise in domestic gasoline supplies, concerns about oil disruptions from the region outweighed this, pushing prices up.

On Week 16, earnings season kicks off with big names like Goldman Sachs and Netflix reporting. Retail sales and Fed speeches are also on tap. China's GDP and Europe's inflation rate are key global events to watch.

Comment: The World Divided Two Ways

This week illustrates the politics-over-economics trend as global regions, "The East" and "The West," diverge politically and financially. Central banks' policies reflect these shifts.

"The East," serving as a low-cost manufacturing hub for "The West," experiences faster inflation declines due to lower production costs, primarily food and energy. Conversely, "The West's" reduced consumption, influenced by higher Fed rates and energy prices, slows Eastern manufacturing growth.

Despite its population size, Eastern markets lack wealth and infrastructure, hindering governments' ability to stimulate economies with cheap credit, like China's past efforts, where disparity, notably in real estate, persists.

Meanwhile, the West excels in services, aided by technology, specially in USA, while manufacturing stagnates, particularly evident in leading EU economies like Germany and France. As a result, America's stubborn inflation surprises Fed officials.

Adding "The South-East" and "The South-West," politically aligned with East and West respectively, complicates matters. "The South-West" benefits from preferential treatment, lowering local inflation. Conversely, "The South-East" struggles due to inadequate Eastern demand for exports and sheep imports.

Non-aligned countries like India and Saudi Arabia play their resource card to stabilize economies amid tariff threats. However, this strategy's sustainability is questionable.

The economic divide deepens as political confrontations intensify (even leading to kinetic, military clashes) impacting central bank rates, budgets, investments, and trade. The West's advantage lies in broader market instruments (treasures, debts) liquidity, allowing expansive government spending without sharp currency devaluations.

Conversely, the East moves towards government-steered economies, consolidating monopolies and controlling consumer habits. This shift, coupled with potential currency independence, challenges Western investors and leads to prolonged price pressures.

Tariff wars exacerbate these tensions, worsening Western consumer markets. Bitcoin, gold, and other anti-inflationary assets signal anticipation of economic upheaval amidst geopolitical strife.