SVET Reports
Tuesday's Markets Update (November 26, 2024)
On Tuesday, the S&P and Dow reached new highs on Trump-optimism and inflow of foreign capitals, despite new home sales plummeting to a 17-year low and Fed minutes indicating growing hawkishness among FOMC members. Tech stocks outperformed, while automakers and companies with exposure to Mexican trade faced declines. EU markets fell, the yuan hit a 4-month low, and the Mexican peso dropped to a 2-year base, while the Canadian dollar reached a 4-year bottom due to Trump’s threats to impose 10% tariffs on China and 25% on neighboring countries. BTC is sharply down (91K) as it follows a classic Wyckoff pattern, where large corporate traders, who currently dominate the market, are trying to shake off smaller competitors as they accumulate assets before a decisive breakout above 100K. ETH and other altcoins followed suit, while traders, facing an absence of retail buyers, were unable to maintain momentum without corporate support.
Details
Building permits declined 0.4% in October. Multi-family permits decreased, while single-family permits increased slightly. Regional data showed declines in the Midwest, South, and West, but a significant increase in the Northeast. 1Y trend: "Down" (Census)
Home prices rose 4.6% YoY in September, the slowest pace in a year. While some cities like New York and Chicago saw significant growth, others like Denver and Portland experienced slower growth. MoM, prices declined slightly. 1Y trend: "Up" (SP)
New home sales plunged 17.3% in October, reaching a 14-year low. This sharp decline was primarily due to hurricanes impacting the South and ongoing affordability challenges. While the median and average sales prices increased, the inventory of unsold homes rose to 9.5 months of supply. 1Y trend: "Side" (Census)
The Fifth District (Richmond) manufacturing index remained unchanged at -14 in November, indicating continued weakness. While some indicators like employment and wages showed improvement, others like shipments, new orders, and capacity utilization worsened. Input and output prices remained elevated. 1Y trend: "Down The Dallas Fed general business activity index for Texas' service sector rose to 9.2 in November, indicating improved business conditions. This was driven by increased revenue, hours worked, capital expenditures, and employment. While input costs remained high, businesses were able to moderate price increases. 1Y trend: "Up (RFed)
Crypto
Many pro-crypto candidates have won their races, with about 270 pro-crypto candidates securing seats in Congress. Election Day polling showed that nearly half of crypto voters skewed Republican, contributing to Trump's strong popular vote. DEM missed the chance to attract these voters, as their campaign focused more on opposing Trump than on crypto advocacy. (source)
World Markets
Retail sales in Argentina increased 161% YoY in September, a significant slowdown from the previous month, as an inflationary prices push starts to dissipate. While sales grew across various categories, the pace of growth slowed down. When adjusted for inflation, retail sales actually contracted by 1.3%. 1Y trend: "Up (AR)
Currencies
The Mexican peso dropped over 2% to above 20.7 per USD, marking its lowest level since March 2022, after Trump threatened a 25% tariff on imports from Mexico and Canada. In response, Sheinbaum proposed retaliatory tariffs. The peso has weakened by about 20% this year due to concerns over increased government spending and debt under Sheinbaum's administration. 1Y trend: "Up, Weakening
The Canadian dollar fell nearly 1% to above 1.41 per USD, its lowest since mid-2020, following Trump's threats of increased tariffs, including a 10% hike on China and 25% on Mexico and Canada. Oil and gas remain Canada’s top exports to the US. The Bank of Canada is still expected to cut interest rates next month, but the chance of a 50bps reduction has decreased following a rise in core inflation to 2.6% in October, above expectations. 1Y trend: "Up, Weakening
The offshore yuan weakened to a three-month low as concerns about US-China trade tensions increased. Trump's threat of additional tariffs on Chinese goods has dampened market sentiment. The PBoC maintained its cautious monetary policy stance, keeping key interest rates unchanged. Investors are looking towards Chinese PMI data for clues on the country's economic health. 1Y trend: "Up, Weakening
Commodities
Gold prices held steady around $2,620 per ounce after the release of the Fed's November meeting minutes. The Fed expressed confidence in the ongoing decline of inflation and the strength of the labor market, suggesting a gradual path for interest rate cuts. However, uncertainties surrounding inflation and potential fiscal policies have tempered expectations for aggressive rate cuts. 1Y trend: "Up
Comment: What's Up With Tariffs and D.O.G.E?
In the 5th (Richmond) Fed District, we see a pattern similar to nearly all other districts: the manufacturing sector is declining while the services sector is rising, with employment remaining stubbornly steady.
There seems to be a plausible explanation for this employment stability: corporations are hesitant to lay off employees primarily due to political reasons. With Washington bureaucrats consolidating their power and initiating legal battles against major businesses, executives are keeping a low profile to avoid antagonizing the political elites, who seem oblivious to the principles of a free market.
As for the new Administration starting January 20, it’s hard to reconcile their claims of a dramatic shift toward "liberating" businesses and "de-bureaucratizing" Washington while simultaneously appointing multiple "czars," which inherently centralizes bureaucratic power and meddles in areas that have remained relatively free.
Now, regarding the decline in manufacturing, remedying this with tariff policies is, from an economic perspective, utterly absurd. The primary reason manufacturing shifted overseas was to cut costs due to excessive bureaucracy and high labor expenses. Imposing tariffs will not change this; such trade wars will only lead other countries to retaliate with their own tariffs. The idea that a country can thrive while being closed off from exports and resources is sheer lunacy. Just think back to the sudden shortages of protective masks and toilet paper in 2020.
The real reasons behind the manufacturing decline stem from local and global economic downturns driven by reckless and delusional "my-turf-first" policies of Boomers generations of megalomaniacs and feudal-type bureaucrats, along with the Fed's misguided, lawyer-driven approach to rate hikes aimed at "de-inflation." A reminder from Japan: the Bank of Japan maintained a negative interest rate throughout and had consistently lower inflation rates than the EU and the Americas, while the Fed's aggressive hikes have decimated manufacturing and investment worldwide.
Now, they expect us to believe they can fix all that gigantic stagflation mess in a year or two by targeting "aliens," building towering walls, and, yes, pumping up D.O.G.E. :)
If we're discussing the positives to balance the negatives, I can only point out that we have even more ridiculous "leaders" on the other side of the Atlantic. Their "regulate-and-then-think" approach has ensured that capital is fleeing to the "less-dirty-shirt" side of the ocean. This influx of capital will sustain the markets for a while, but what happens after that?
That's why I advocate for the creation of a new, 100% libertarian country where people with both capital and intelligence can live freely without hereditary politicians and bureaucratic interference.
And please don’t tell me that this is impossible or idealistic, especially considering more than 120 million "displaced" people begging for someone to take them in. Not to mention, the money, practical experiences of running tremendous companies / organization, knowledge and technology we all possess today.