SVET Markets Weekly Update (August 12–16, 2024)

18 Aug 2024 by rate3

On Week 33, stocks surged, fueled by lower-than-expected producer inflation data and fewer unemployment benefit claims, easing recession worries while maintaining hopes for Fed rate cuts. Meanwhile, BTC and ETH stalled at $60K and $2.7K, respectively, despite the stock market’s upswing. In global markets, gold reached an all-time high and oil prices rose due to growing geopolitical tensions.

On Monday stocks wavered, mostly in the red, as investors awaited key economic data. Inflation expectations fell to a record low, while tech stocks outperformed other sectors. Megacap stocks were mixed, with Tesla and Home Depot leading the declines. Internationally, oil rose by approximately 4% due to geopolitical tensions once again. BTC dipped below 60K, while ETH continued to be rejected by the 2.7K sales wall.

Crypto

Scientists used a supercomputer to simulate how social norms change over time. They found that norms can influence behavior and disappear. The study was conducted by scientists from the RIKEN Center for Computational Science in Japan. “The research shows that cooperative norms are difficult to sustain if the population consists of a single well-mixed community. However, if the population is subdivided into several smaller communities, cooperative norms evolve more easily”. As we always have been saying the decentralization is the key to our future. (source)
World Markets

India’s annual inflation rate plunged to 3.54% (the RBI’s target range is 4%) in July, well below forecasts.> This is the lowest in nearly five years, but likely temporary due to base effects. Food prices eased, while fuel costs dropped faster. Overall, consumer prices rose 1.4% from June. 1Y trend: “Down” (MOSPI)
Turkey’s unemployment rate surged to 9.2% in June, the highest in 10 months, as job losses outpaced new hires. Youth unemployment also jumped significantly. 1Y trend: “Down” (TU)
Commodities

Oil prices surged above 77.5 on supply concerns amid Middle East tensions and positive economic data. OPEC cut demand forecasts and extended production cuts, while the IEA is expected to lower its forecast. 1Y trend: “Up”
On Tuesday, stocks surged, fueled by lower-than-expected producers inflation (PPI) data, raising hopes for larger Fed rate cuts. Tech and consumer stocks led the rally, with notable gains from Nvidia, AMD, Qualcomm, Amazon, Tesla, and Starbucks. Globally, gold is poised to reach an all-time high as tensions in the Middle East heat up once again. BTC and ETH paused at 60K and 2.7K, respectively, as traders expect more bullish macro signals to emerge.

Details

Small business optimism improved in July but remains below average. Inflation is the top challenge, forcing businesses to raise prices and wages. Despite optimism, economic uncertainty persists, with owners facing rising costs and an unclear future. 1Y trend: “Down” (NFIB)
Factory gate prices rose slightly in July, driven by higher energy costs, especially gasoline. However, service prices fell due to trade services decline. While overall producer inflation eased, core inflation unexpectedly accelerated, raising concerns about persistent price pressures. 1Y trend: “Side” (BLS)
Crypto

The presidential race has recently shifted, with Kamala Harris now leading in Polymarket’s predictions market, holding a 52% chance of winning supported by over $61 million in bets. This rise follows Joe Biden’s exit, when Harris’s chances were only 1%. Her momentum, boosted by Tim Walz as her running mate, has allowed her to surpass Donald Trump, who is at 45%. The total amount wagered on Polymarket is over $575 million, indicating heightened interest in the election. (source)
World Markets

Eurozone economic sentiment plunged in August, reaching a nine-month low. Analysts are pessimistic about the economy with inflation and economic growth expectations worsening. 1Y trend: “Up” (ZEW)
Currencies

The Mexican Peso is trading at 19 per USD, close to its December 2022 low, due to a dovish stance from the Bank of Mexico after weak economic data. Consumer confidence dropped to 46.9 in July, and Banxico Governor Rodríguez Ceja supported a recent interest rate cut to 10.75%. Despite inflation at 5.57%, she believes the cut is justified by declining core prices and expects inflation to return to target by late 2025, potentially lowering the Peso’s attractiveness. 1Y trend: “Up”
In August, the Indian rupee hovered near its record low of 84 per USD, as investors evaluated the RBI’s monetary policy amid a weakening dollar. The central bank avoided strengthening the rupee to maintain the competitiveness of Indian exports. Despite recent gains in the yen and yuan, the rupee fell due to shifts in Asian currency carry trades. Additionally, India’s inflation dropped to a near five-year low in July, mainly due to base effects, but the RBI anticipates higher inflation in the months ahead. 1Y trend: “Up”
The British pound weakened above $1.28 as stronger-than-expected UK job market data complicated forecasts for more BOE rate cuts. The unemployment rate fell to 4.2%, while wage growth moderated slightly. Despite a drop in wage growth including bonuses to 4.5%, tight labor market conditions may make the BOE cautious about cutting rates further. The dollar weakened as US data increased expectations for a Federal Reserve rate cut in September. 1Y trend: “Up”
Commodities

European natural gas futures have fallen to about €39 per megawatt-hour, as Russian gas continues to flow through Ukraine, easing recent price increases. Earlier this month, prices had surged to an eight-month high due to geopolitical tensions in the Middle East and Eastern Europe. Now, with a 9% price rise since early August and strong gas inventories, the market is stabilizing, although a risk premium from ongoing tensions in the Middle East still remains. 1Y trend: “Up”
Gold dipped slightly below $2,470 per ounce, remaining close to record highs due to its safe-haven status amid rising geopolitical tensions from recent military strikes in Israel and Ukraine’s border advancements. Investors await US consumer price data on Wednesday for insights into inflation and the Federal Reserve’s monetary policy. While expectations for a September rate cut are consistent, opinions vary on whether it will be 50 or 25 basis points, impacting the allure of gold as a non-interest-bearing asset. 1Y trend: “Up”
Comment: BTC and ETH positioning

Although stocks are up and the Nasdaq has rebounded, it’s still in a bearish trend (wave D). However, unless it’s forming a gigantic triple top on monthly graphs, signifying a massive bear market starting in September 2026, it’s unlikely that it can drop below 14–15K, even if the current downtrend persists until February 2025. The latter is our base thesis.

Accordingly, we can expect ETH to hit 3.0–3.2K before continuing downward to the 1.4–1.2K range reached in February — March 2025. With that, we can also expect higher volatility in the October — November period due to geopolitical reasons. So, the best strategy is to accumulate cash while occasionally staking short-term on high but temporary price recoveries.

On Wednesday, stocks were mostly unchanged after the CPI report met expectations. Tech stocks led gains while utilities lagged. Microsoft, Apple, Nvidia, Amazon, and Meta rose, while Alphabet and Tesla fell. Internationally, steel prices reached an eight-year low due to weak Chinese demand. BTC and ETH continued to trade in a narrowing range around 60K and 2.7K as traders awaited signals from broader markets.

Details

Inflation cooled to 2.9% YoY for the fourth straight month in July, hitting a two-year low. Prices for shelter, transportation, and apparel fell. However, energy costs rose slightly. Core inflation also declined. 1Y trend: “Down” (BLS)
30-year mortgage rates dropped to a five-month low (6.54%). This follows a recent decline in Treasury yields as investors anticipate Fed rate cuts. Jumbo mortgage rates increased slightly, while FHA rates remained unchanged. 1Y trend: “Up” (MB)
Crypto

The government has transferred $590 million worth of BTC seized from Silk Road to Coinbase. This is part of a larger 203,200 BTC stash valued at $12 billion. Future sales of these government-held Bitcoins could significantly impact the cryptocurrency market. (source)
World Markets

Eurozone economy grew 0.3% in Q2, matching Q1. France, Italy, and Spain led growth, while Germany unexpectedly shrank. Overall, Eurozone expanded 0.6% year-on-year, with expectations for 0.8% growth in 2023. 1Y trend: “Up” (EUROSTAT)
New Zealand’s central bank unexpectedly cut interest rates by 25 bp to 5.25% for the first time in four years. Inflation has slowed down, bringing it back within the target range. This move signals a potential shift towards looser monetary policy. 1Y trend: “Side” (RBNZ)
Fitch downgraded Ukraine’s credit rating to “Restricted Default” due to missed debt payments. The country is seeking debt restructuring amid the war. This downgrade negatively impacts Ukraine’s ability to borrow money internationally.
Commodities

Steel rebar prices plunged to an eight-year low amid weak Chinese demand. The country’s struggling real estate sector, coupled with new government regulations, led to a supply glut. To offset falling domestic sales, mills increased exports, further depressing prices. 1Y trend: “Down”
On Thursday, stocks surged, boosted by stronger-than-expected retail sales. Investors are less worried about a recession, despite a sharp drop in manufacturing output. Tech and retail giants like Cisco, Walmart, and Apple led the rally. Globally, oil and gold continued to appreciate due to geopolitical factors. BTC and ETH declined again, driven by technical trends.

Details

Retail sales surged +1% in July, beating expectations. Car sales led the gains, followed by electronics and appliances. Grocery, home improvement, and personal care items also saw increases. However, sales of miscellaneous items, sporting goods, and clothing declined. 1Y trend: “Side” (CB)
Jobless claims unexpectedly fell for the second straight week, defying recent labor market slowdown concerns. The decline adds pressure on the Federal Reserve to maintain its hawkish stance on inflation. 1Y trend: “Up” (DOL)
New York manufacturing activity slightly improved in August. Orders fell, but shipments held steady. Delivery times shortened, and inventories declined. Job market remains weak with fewer hours worked. Input prices rose slowly, while selling prices stayed low. Businesses are optimistic about the future. 1Y trend: “Up” (NY)
Manufacturing activity in the 3d District contracted sharply in August, according to the Philadelphia Fed index. Shipments, new orders, and employment all slowed significantly. Prices continued to rise, but at a slower pace. Future outlook is bleak, with expectations of a broader decline in the next six months. 1Y trend: “Up” (PH)
Retail sales surged in July (+1% MoM, +2.7% YoY), beating expectations. Car sales led the gains, followed by electronics and appliances. Grocery, home improvement, and personal care items also saw increases. However, sales of miscellaneous items and sporting goods declined. 1Y trend: “Side” (Census)
In July, industrial production dropped by 0.6%, the largest decline in six months, reversing June’s 0.3% growth and exceeding market expectations of a 0.3% decrease. 1Y trend: “Side” (FED)
In August , the NAHB/Wells Fargo Housing Market Index in dropped to 39, its lowest point this year, down from a revised 41 in July and below the expected 43. This decline in builder sentiment is attributed to affordability issues, high home prices, and elevated interest rates.(Nahb)
World Markets

Philippines central bank surprised markets by cutting interest rates by 25 bps to 6.25% despite recent inflation rise. The economy grew faster, but inflation is expected to ease. This move aims to support economic growth. 1Y trend: “Up” (BSP)
In July, China’s industrial production grew by 5.1% YoY, slightly below the expected 5.2% and down from 5.3% in June. This marked the third consecutive month of slowing growth and the lowest rate since March, driven by reduced manufacturing and utility output. Despite the slowdown, 33 of 41 major sectors saw growth, with notable increases in coal, chemicals, and electronics. 1Y trend: “Up” (CS)
Commodities

Gold prices rose after a dip, boosted by expectations of Fed rate cuts. Lower-than-expected US inflation tempered rate cut hopes, slightly cooling gold’s rally. However, geopolitical tensions and gold’s safe-haven appeal continue to support prices. 1Y trend: “Up”
Brent crude oil prices rose, boosted by stronger-than-expected US economic data and easing recession fears. However, gains were limited by unexpected increases in US oil inventories and geopolitical tensions. 1Y trend: “Side”
On Friday, stocks surged, fueled by improved consumer sentiment and a sharp decline in building permits, hinting at a possible Fed rate cut. This momentum set major indexes on track for their best week of the year. It seems investors are less concerned about a recession compared to a week ago. However, this sudden rally may also be attributed to an optimistic segment of traders stepping in to buy “cheaper stocks,” lured by technical indicators suggesting they are “oversold.” Globally, gold reached a new all-time high, as predicted. Meanwhile, BTC and ETH remain below 60K and 2.7K, respectively, with a rise in anti-crypto Democratic candidate polls cited as one of the reasons.

Details

Consumer sentiment (Michigan Consumer Sentiment) improved in August, ending a five-month decline. People feel better about their finances and the future economy. Inflation expectations remain steady. 1Y trend: “Down” (ISR)
In July, building permits dropped by 4% to an annual rate of 1.396M, marking a four-year low and falling short of expectations. Approvals for multi-unit buildings decreased by 12.4% to 408,000, while single-family authorizations fell slightly by 0.1% to 938,000. Permits declined in the Midwest, South, and West, while the Northeast saw a 16.2% increase. 1Y trend: “Side” (Census)
Crypto

Former President Donald Trump’s campaign has appointed co-chairs for his presidential transition team, known for its pro-crypto perspective. The team aims to shape policies supportive of the crypto industry while vetting candidates for key government positions and creating a business-friendly policy agenda. (source)
World Markets

China’s foreign direct investment continued to decline in July (to -29.60%), marking the lowest point since the 2009 financial crisis. This trend contrasts with the historical average and highlights current economic challenges. 1Y trend: “Down” (CN)
Malaysia’s economy surged in Q2, growing 5.9%. All sectors contributed, with services, manufacturing, and agriculture leading the way. Construction boomed while mining slowed. The economy is gaining momentum, but challenges remain. 1Y trend: “Up” (Dosm)
Currencies

The dollar index fell, nearing a seven-month low. Stronger-than-expected US economic data fueled expectations for a smaller Fed rate cut, but overall bets are on multiple cuts this year. A rebound in the UK and Japanese currencies also pressured the dollar. 1Y trend: “Up”
Commodities

Gold hits record high above 2.5K amid geopolitical tensions and Fed uncertainty. Housing market weakens as interest rates rise. Investors anticipate multiple Fed rate cuts but debate the pace.

On Week 34, traders’ focus will be on the FOMC Minutes, the S&P Global Composite PMI Flash, Existing Home Sales, as well as Fed Chair Powell’s speech. Internationally, key manufacturing and resource-producing countries, including Japan and Canada, will publish their inflation and industrial data.