SVET Reports
SVET Markets Weekly Update (August 19–23, 2024)
On Week 34, data revealed weaker job growth, indicating a cooling labor market. Powell’s speech at the Jackson Hole confirmed expectations for an interest rate cut in September and fueled a market rally.
On global markets, the dollar fell to an eight-month low, while gold reached a record high amid geopolitical tensions and economic uncertainty. Oil prices fluctuated due to a deteriorating global economy and rising Middle East tensions. Despite previous cuts, China’s central bank kept interest rates unchanged, shifting focus to rate tools for economic stimulation.
In the crypto market, BTC and ETH broke monthly ranges, reaching 64K and 2.7, respectively, driven by optimism about monetary easing and support for Trump from Robert Kennedy.
On Monday, stocks maintained their upward trend, capitalizing on the previous week’s gains and adding over $3 trillion in value from this month’s lows. The S&P and the Nasdaq marked their eighth consecutive day of gains. Investor optimism is high ahead of a key speech by Powell. Globally, the euro, yen, and British pound are up sharply as the dollar dropped to its eight-month low on renewed hopes for Fed cuts. Gold is at its highs as geopolitics remain tense. Meanwhile, BTC and ETH are stuck under $60K and $2.6K amid political uncertainties.
Crypto
The Wisconsin Investment Board recently revealed significant investments in BTC ETF in a filing with the SEC. It now holds about $100 million in BlackRock’s Bitcoin ETF, increasing its shares from approximately 2.45 million in May to about 2.9 million as of June 30. Notably, it no longer holds shares in the Grayscale Bitcoin Trust, which it had previously invested in. This board manages Wisconsin’s public retirement and trust funds, typically focusing on traditional financial assets. (source)
World Markets
Malaysian economy continues to grow. Malaysia’s imports surged 25.4% in July, hitting a record high. Strong domestic demand drove growth across sectors, especially manufacturing and agriculture. Imports from major partners like Chin and the US increased, while those from Saudi Arabia declined. 1Y trend: “Up” (Dosm)
Thailand’s economy grew by 2.3% YoY — faster than expected in Q2, driven by exports and increased government spending. While private consumption slowed due to high costs, industrial output rebounded. The overall outlook is positive, with expected growth between 2.3% and 2.8% for the year, boosted by tourism recovery. 1Y trend: “Side” (Nesdc)
Currencies
The dollar is falling to its eight months low, as investors bet on Fed rate cuts. Weak economic data and recession fears are driving the decline. The yen, Aussie, and kiwi are gaining ground against the dollar. Markets await Fed Chair Powell’s speech for further clues on interest rates. 1Y trend: “Up”
Commodities
Gold holds near its record high amid geopolitical tensions and economic uncertainty. Investors seek safe haven as US-Middle East conflict escalates and Ukraine-Russia tensions rise. Market expects Fed rate cuts but awaits Powell’s speech for clarity. 1Y trend: “Up”
Oil market continued to oscillate between deteriorating world’s economy and rising Middle East tensions. Prices plunged over 2% as ceasefire talks in Gaza and weak Chinese demand weigh on the market. Secretary of State Blinken is pushing for a ceasefire to ease geopolitical tensions. OPEC and IEA cut demand forecasts, adding pressure to oil prices. 1Y trend: “Up”
Comment: World’s Status
Markets are in disarray. Geopolitics is being pushed towards confrontations from all sides. With weakening resistance from the dominant world power, whose internal political struggles overshadow any external policies, the global landscape is increasingly unstable.
Additionally, due to the over-tightening of the Fed, the world’s economy is actively declining, leading to growing unemployment. Exceptions include certain localities in Southeast Asia, like Malaysia and Taiwan, which are benefiting from businesses relocating their activities from China.
The dollar is down, but other currencies are fluctuating as central bankers begin to weaken their policies in response to deteriorating local economies. Overall, we are on the brink of stagflation. Bankers will fear cutting rates enough to boost the economy because of inflation concerns, while entrepreneurs will be reluctant to produce as rates remain high and costs continue to rise, exacerbated by ongoing energy inflation and increased geopolitical tensions.
This situation will persist until a political change occurs, bringing new leaders who embrace a more practical, less ideological approach to politics. In the meantime, the trader’s game is volatility.
On Tuesday, stocks fell, after breaking a 20-year record streak of higher highs, as investors await clues from the Fed regarding rate cuts. Tech and consumer stocks led the gains, while energy and materials declined. Internationally, inflation in the Eurozone rose unexpectedly, and gold reached a new ATH as global investors face increased economic and political risks. BTC and ETH remain unchanged, staying within their ranges of $59K-$60K and $2.5K-$2.6K, respectively.
World Markets
Eurozone inflation rose to 2.6% in July, exceeding expectations. Energy and non-energy industrial goods prices surged, while food inflation eased slightly. Core inflation held steady at 2.9%. France and Germany saw higher inflation compared to Italy. (Eurostat)
China kept interest rates unchanged, despite earlier cuts. The central bank is shifting focus from quantitative targets to interest rate tools to stimulate the economy. This follows recent comments about avoiding drastic measures. 1Y trend: “Down”
Commodities
Gold prices hit a new record high as investors anticipate interest rate cuts from major central banks. Slower inflation fuels expectations of Fed rate reductions, while other central banks, including the ECB, BoE, and Riksbank, also signal easing monetary policy. Global economic uncertainties and geopolitical tensions boost gold’s safe-haven appeal. 1Y trend: “Up”
Oil prices steadied after a sharp drop, driven by hopes for a Middle East ceasefire and rising Libyan production. However, concerns about China’s economy and potential US interest rate cuts are weighing on prices. 1Y trend: “Up”
On Wednesday stock growth slowed as prices edged toward a key resistance level and investors weighed economic data and expectations for Fed rate cuts. The BLS revised down job growth numbers, adding to concerns about a softer labor market. The Fed is likely to cut rates in September and potentially more this year. Globally, oil dropped to six-month lows due to a weakening economy, while gold reached a new ATH on the growing probability of rate cuts around the world. BTC and ETH attempted to break out of a descending wedge formation but remained constrained at roughly the same monthly levels.
Details
Recent data shows job growth was weaker than previously reported with 818K fewer jobs added, suggesting a cooling job market. July’s job numbers were also disappointing, further indicating a slowdown in the economy. 1Y trend: “Down” (BLS)
The average interest rate for 30-year fixed-rate mortgages fell to 6.50%, the lowest in over a year. This marks a 32-basis point drop in four weeks and an 81-basis point decline compared to a year ago. 1Y trend: “Down” (MBA)
World Markets
Argentina’s economy shrank in June, with sharp declines in utilities, construction, and manufacturing. Growth slowed in other sectors. This marks the second-worst contraction of the year. 1Y trend: “Down” (Indec)
Japan’s exports rose to a 7-month high in July, driven by cars, machinery, and electronics. Growth accelerated to 10.3%, but missed forecasts. Exports to major markets like China and the US increased, while those to Thailand, Germany, and Russia declined. 1Y trend: “Up” (MOF)
Currencies
The dollar fell to its lowest point in 2024 after the Fed hinted at a possible rate cut. Weaker US job data and a stronger Euro, Pound, and Yen contributed to the dollar’s decline. 1Y trend: “Side”
Commodities
Oil prices fell as investors reacted to Fed rate cut expectations and weaker-than-expected job growth. Lower oil inventories couldn’t offset concerns about China’s economy and Middle East tensions. 1Y trend: “Side”
Gold prices rose as central banks eased monetary policies. The downward revision of nonfarm payrolls reinforced concerns about the US labor market and strengthened the case for aggressive rate cuts. Central banks in Sweden, China, the Eurozone, and the UK have all lowered rates. 1Y trend: “Up”
On Thursday, stocks are down due to a technical correction and anticipation of Powell’s speech at the Jackson Hole conference. Tech stocks led the decline, while financials and real estate sectors gained. The market pullback was not deterred by rising jobless claims. Globally, Eurozone manufacturing is slowing as economic activity decreases and inflation rises. Meanwhile, the British pound has reached a one-year high due to its strong local economy, whereas the Indian rupee is at a record low as the country’s central bank struggles to support exporters. BTC and ETH have remained unchanged, hovering around their monthly levels of 60K and 2.5K.
Details
The Chicago Fed National Activity Index (CFNAI) fell in July, indicating economic weakness. Production, sales, and employment all contributed to the decline. However, personal consumption and housing showed signs of strength. 1Y trend: “Side” (CFed)
Initial jobless claims rose to 232K exceeding expectations. This reinforces the softening labor market trend, supporting expectations for Fed rate cuts. Outstanding claims also increased, while the four-week moving average declined. 1Y trend: “Up” (DOL)
The business sector continues to grow for the 19th month, but the pace slowed in August. The service sector remains strong, while manufacturing faces challenges. Inflation eased, but input costs remain elevated. 1Y trend: “Up” (SPI)
The Kansas Fed Composite Index rose to -3 in August from -13 in July, exceeding expectations. This marks an improvement in economic conditions in the region. 1Y trend: “Down” (KFed)
World Markets
The Eurozone’s private sector expanded in August, led by services. Manufacturing continued to decline, though new orders for services increased. Employment growth slowed, and inflation rose. 1Y trend: “Up” (SP)
Consumer confidence in the Eurozone and EU fell in August, defying expectations. This suggests growing pessimism among consumers despite recent economic improvements. 1Y trend: “Up” (EU)
Currencies
The dollar index stabilized after four consecutive declines as investors await Fed Chair Powell’s speech. The Fed is likely to cut rates in September due to moderating labor market and weaker economic data. The dollar has weakened against major currencies this week. 1Y trend: “Side”
The Indian rupee fell to near its record low (84) against the dollar in August. The RBI’s efforts to support exports and expectations of a weaker US dollar were overshadowed by concerns about inflation and monetary policy. While inflation has eased, the RBI expects it to remain elevated. 1Y trend: “Up”
The British pound has risen to a 12-month high (1.3) due to stronger-than-expected UK economic data. Manufacturing and services sectors saw growth, boosted by increased spending. The pound’s strength is also supported by a weaker dollar as investors anticipate lower interest rates. 1Y trend: “Up”
The Euro declined as slower wage growth in the Eurozone supported expectations for more ECB rate cuts. Markets now see a high probability of a rate cut in September and further reductions by year-end. Business activity in the Eurozone is mixed, with strong growth in France and a decline in Germany. In the US, the Fed is likely to cut rates in September. 1Y trend: “Side”
Commodities
Oil prices rebounded after a four-day slump. The recovery was driven by a decline in oil inventories despite concerns about a US economic slowdown and increased oil supply. Traders are watching for clues on US economic policy from the Fed Chair’s speech. 1Y trend: “Side”
On Friday, stocks rallied, led by technology and semiconductor stocks, after Powell signaled rate cuts in his Town Hall speech. Traders now anticipate a 70% chance of a 25 basis point rate cut in September. Globally, gold prices rose as the dollar weakened sharply while other major currencies gained value. Meanwhile, BTC and ETH broke through their monthly ranges, reaching 64K and 2.7K, respectively, boosted by traders’ enthusiasm about impending monetary easing and Robert Kennedy’s announcement of support for Donald Trump.
Details
During his speech at the Jackson Hole Economic Symposium, Powell indicated that an interest rate cut is likely in the September meeting. He observed a rapid cooling in the labor market due to a weaker July jobs report and revised payroll figures. Powell expressed growing confidence that inflation is nearing the 2% target, suggesting it’s time for less restrictive monetary policy. Additionally, recent Fed meeting minutes showed broad agreement among policymakers on the need to lower rates this quarter.
Building permits fell in July but less than initially estimated. Single-family permits rose slightly, while multi-family permits plummeted. Regional data shows declines in most areas except the Northeast. 1Y trend: “Down” (Census)
Crypto
Robert F. Kennedy Jr. paused his independent presidential campaign on Friday, announcing his support for Donald Trump, a fellow BTC advocate. Speaking in Phoenix, he thanked his volunteers and hinted at a campaign conclusion but clarified that he would only withdraw his name from the ballot in swing states to avoid aiding Democratic candidate Kamala Harris. Kennedy’s campaign has not ended entirely, as he seeks to navigate his path forward in the election. (source)
Recent data from the decentralized prediction market Polymarket indicates that Donald Trump is ahead of Kamala Harris in 2024 election odds, following Robert Kennedy Jr.’s campaign suspension. Trump has a 51% chance of winning, while Harris’s odds have decreased to 48% after she replaced Joe Biden as the Democratic nominee. The market will confirm a “Yes” outcome if Trump wins the election; otherwise, it will resolve to “No.” (source)
World Markets
The Bank of Japan (BoJ) remains committed to raising interest rates if inflation consistently reaches the 2% target, despite global market instability, Governor Kazuo Ueda said in Parliament. He emphasized that the BoJ is monitoring market volatility after its July interest hike. Ueda stated that any changes to monetary easing would depend on economic and price trends. He also noted that fluctuations in the yen could impact inflation forecasts, prompting discussions on potential policy adjustments if significant risks arise. 1Y trend: “Up” (JP)
Iceland’s producer prices rose in July (by 6.2% YoY) at the fastest pace in 7 months. Marine products and metal prices surged, while food and other manufacturing prices slowed. Export prices rose faster than domestic prices. 1Y trend: “Up” (IS)
Currencies
The dollar weakened below 101 after Fed Chair Powell hinted at rate cuts. Markets are now expecting multiple cuts this year. The yen strengthened as Japan’s central bank signaled potential rate hikes. 1Y trend: “Side”
Commodities
Gold prices surged to near-record highs as the Fed signaled rate cuts. Powell’s dovish tone at Jackson Hole fueled expectations for a rate cut in September, 100bps in total this year. Lower interest rates boost demand for gold, which doesn’t pay interest. 1Y trend: “Up”
WTI crude oil futures rose above $74 per barrel, rebounding from a low of $71.9 on August 21 as markets evaluated major suppliers’ responses to declining energy demand. Reports of reduced consumption from top fuel consumers, along with a weak S&P PMI indicating lower manufacturing activity in August, fueled concerns. This led markets to speculate that OPEC+ might postpone phasing out output cuts in the fourth quarter, further affecting supply from major oil exporters. 1Y trend: “Side”
On Week 35, investors will be closely watching a number of key economic indicators. Locally, the second estimate of GDP growth, core PCE price index, durable goods orders, and the Dallas Fed manufacturing index will be released. Internationally, the Eurozone economic sentiment, German consumer confidence and inflation, French unemployment claims and inflation, and the Chinese manufacturing PMI will be of interest.
Comment: What’s Up?
Investors are swinging from one extreme to another, oscillating between concerns about impending stagflation and excitement over anticipated Fed easing. This shifting sentiment influences how market participants interpret economic data.
As a result, rising unemployment is viewed by traders as either a bullish signal, because it reinforces the narrative of Fed cutting rate soon, or alternatively, as a bearish indication if investors choose to view it as an indicator of a slowing economy.
Currently, there are two distinct groups dominating the markets — long-term investors, who focus on economic fundamentals, and short-term traders, who closely follow the Powell’s every word. Both are trading simultaneously with high volumes, leading to heightened volatility that characterizes today’s market environment.
That is compounded by the inherent instability in global commodities markets as geopolitical tensions around the world escalate. This is reflected in oil prices, which rise due to heating conflicts in Eastern Europe and the Middle East, or fall suddenly as investors reassess their outlook for slowing economies in China and the EU, anticipating a long-term decline that will impact regions worldwide and lead to downward pressure on oil prices.
At the same time, we have bursts of growth in various regions of the world, driven by local factors. For instance, production is rising in Malaysia and Indonesia due to businesses relocating from China, where CPC policies have done little to stimulate the economy. Similarly, the services sector in the EU has seen an expected boost during the two-week Olympics event.