Wednesday's Markets Update (January 15, 2025)

16 Jan 2025 by rate3

On Wednesday, stocks jumped after reports showed that core inflation dropped on lowering housing prices while annual inflation rose due to energy costs, which, nonetheless, reinvigorated traders' fading optimism. Strong earnings from major banks also boosted investor sentiment. Still, manufacturing returned to a contraction zone, and the weekly growth rate of mortgage applications jumped to the highest level in five years as the Fed slowed the rate of decrease. Meanwhile, EU industrial production was confirmed to be down as German GDP contracted for the second year in a row. BTC reached $99K, and ETH - $2.4K, continuing to rise as crypto traders followed the main markets surge.

Details

Annual inflation rose to 2.9% in December, driven by higher energy, food, and transportation costs. Shelter inflation slowed, and used car prices continued to decline. 1Y trend: "Side". CPI increased 0.4% MoM in December, exceeding expectations. Energy prices, particularly gasoline, rose significantly. Food prices and shelter also increased. 1Y trend: "Side". Annual core consumer price inflation eased to 3.2% in December, down slightly from the previous month. The shelter index rose 4.6% YoY, the smallest increase since January 2022. On a monthly basis, core consumer prices rose by 0.2% in December. 1Y trend: "Side".(BLS)
The NY Empire State Manufacturing Index tumbled to -12.6 in January, signaling a sharp return to contraction. New orders and shipments declined, while inventories remained positive. Labor market indicators were mixed. Input and selling price inflation increased slightly. 1Y trend: "Up". (NFed)
Mortgage applications surged by 33.3% in the week ending January 10th, the sharpest increase since 2020. This surge occurred despite rising mortgage rates, as homebuyers rushed to lock in borrowing costs before potential further interest rate hikes. (MBA)

World Markets

Industrial production in the Euro Area decreased by 1.90% YoY in November. Industrial Production in the Euro Area averaged 0.87% since 1991, reaching a high of 41.60% in April 2021 and a low of -28.40% in April 2020. 1Y trend: "Up" (EU)
Germany's GDP contracted by 0.2% in 2024, following a contraction in 2023. Manufacturing and construction sectors experienced significant declines, while service sector growth was limited. Household consumption increased slightly, but foreign trade remained weak. 4Y trend: "Down" (DE)
The People's Bank of China (PBoC) injected a second-to-record amount of liquidity (CNY 958.4B) into the market through seven-day reverse repurchase agreements. This move aimed to offset the impact of maturing MLF loans, increased cash demand ahead of the Lunar New Year, and peak tax season pressures. The PBoC has recently shifted its policy approach, increasing reliance on seven-day reverse repo operations to manage market liquidity. (PBC)

Commodities

WTI crude oil prices surged to a 5-month high, driven by lower-than-expected inflation, leading to expectations of lower interest rates. A larger-than-expected draw in crude inventories further supported the price increase. While the IEA noted uncertainty surrounding the impact of US sanctions on Russian oil, OPEC maintained its forecast for global oil demand growth. 1Y trend: "Side"

Comment: Voluntary Lumpenization Under Authoritarian Democracies

The dream of escaping the rat race and achieving financial independence has long captivated the minds of the middle class, particularly those under 35. However, in today’s world, this aspiration is increasingly out of reach. Centralized bureaucracies have transformed into self-protecting machines, coining themselves as "authoritarian democracies," where stringent controls are placed on the populace to prevent any perceived "extremes." This shift has rendered vertical social mobility virtually impossible.

In times of instability—when bureaucratic structures falter—opportunities arise for new, unregulated markets to emerge, leading to the rapid growth of a new class of millionaires. Yet, contemporary bureaucracies feel threatened by the vigor and innovation offered by new entrepreneurs. Rather than embracing these disruptors, they brand them as "extremists" and impose regulatory frameworks under the guise of "consumer protection." These regulations primarily serve to shield government and corporate interests from competition, stifling the burgeoning markets that could offer genuine pathways to wealth for the ambitious.

As the complexity and volume of regulations soar to astronomical levels, the middle class finds itself cornered, with little hope for upward mobility. The cost of maintaining middle-class status has skyrocketed, juxtaposed against the meager returns that such a status offers. With the barriers to entry into a higher economic class growing insurmountable, many may find themselves contemplating a radical strategy: voluntary lumpenization.

Voluntary lumpenization—a conscious decision to embrace a lower class status—may, at first glance, seem counterintuitive. Yet, for many in the middle class, it could represent a rational response to their current plight. By opting out of the relentless pursuit of a status that provides diminishing returns, individuals can potentially free themselves from the economic pressures and bureaucratic entanglements that stifle their aspirations.