SVET Markets Weekly Update (September 16–20, 2024)

On Week 38, stocks posted gains after the Fed’s 50 basis point rate cut. Accordingly, gold prices surged, reaching a new ATH, buoyed by the Fed’s easing measures. In contrast, the Central Banks of China and Japan held rates steady. In the crypto market, BTC initially rose but faced resistance at its 200-day moving average, retreating to around $63K. ETH followed a similar trend but moved more slowly, barely reaching $2.6K before pulling back.

On Monday, stocks traded mixed, with investors awaiting the Fed’s interest rate decision on Wednesday. The Dow hit a new ATH, while expectations for a larger rate cut increased, and the energy and financial sectors outperformed as chipmaker stocks fell. Internationally, gold reached a new ATH again, while silver jumped to $31. Meanwhile, BTC and ETH returned to their bearish ranges of $57K and $2.3K after a short-lived attempt at recovery initiated by MicroStrategy’s $1B buy-in.

Details

• The NY Empire State Manufacturing Index unexpectedly rose in September to 11.5 — the highest in 2 years — indicating a growth in business activity for the first time in nearly a year. New orders and shipments increased, while labor market conditions remained soft. Firms’ optimism about future conditions improved, but capital spending declined. 1Y trend: “Side” (NYFed)

Crypto

• High-net-worth families in North America, Asia Pacific, and Europe are expected to significantly increase their wealth over the next decade by growing their fortunes from $5.5 trillion today to $9.5 trillion in 2030. North American families are projected to experience the largest growth, with their wealth increasing by 258% from $1.12 trillion in 2019 to $4 trillion in 2030. Asia Pacific families are expected to see their wealth grow by 208%, from $650 billion to $2 trillion. Meanwhile, European families are projected to increase their wealth by 157%, from $1.1 trillion to $2.8 trillion. Ultra-high-net-worth individuals are typically defined as those with investable assets of at least $30 million. (source)

World Markets

• Hourly labor costs in the Euro Area rose by 4.7% in Q2 2024, down from 5% in Q1. Wage growth slowed, while non-wage costs increased. Construction, industry, and services saw significant labor cost increases. Germany, France, and Italy experienced moderate rises, while Bulgaria, Croatia, and Romania recorded substantial increases. 1Y trend: “Up” (EU)
• Turkish motor vehicle production fell sharply in August 2024, down 26.7% from the previous year. This decline marks the lowest production level since August 1980. Overall, car production in Turkey has averaged 51,550 units per month since 1974, with a record high of 163,460 units in November 2017. 1Y trend: “Down” (OSD)
• Peru’s economy grew significantly (+4.47%) in July YoY, driven by strong manufacturing, mining, and construction sectors. Other sectors like utilities, fishing, and telecommunications also expanded. However, agriculture declined due to adverse weather conditions and early harvesting. Overall, the economy grew by 2.78% in the first seven months of 2024. (PE)

Commodities

• Gold prices reached a new record high (2590), driven by a weaker dollar, lower bond yields, and growing expectations for a significant US interest rate cut. The Fed is likely to cut rates by 50 basis points, according to market expectations. This follows recent economic data showing a softening labor market and declining inflation. The ECB’s rate cut also supported gold prices. 1Y trend: “Up”
• Silver prices surged to a two-month high (31), driven by rising expectations of a more aggressive Fed rate cut. Market sentiment shifted towards a larger 50 basis point cut, influenced by signs of a slowing labor market and weaker-than-expected Chinese economic data. 1Y trend: “Up”

On Tuesday, stocks traded flat to the red as investors awaited the Fed’s rate decision tomorrow. The market is divided on the size of the expected rate cut (25 or 50 points). Mega-cap stocks showed mixed performance. Retail sales unexpectedly rose in August, defying expectations. Internationally, the economic sentiment for the Euro Area dropped to an eleven-month low. BTC and ETH attempted to surge yet again, with BTC reaching above $60K, where it was met by strong bear resistance, unlikely to soften before political uncertainties ease.

Details

• Retail sales rose slightly in August, defying expectations of a decline. Sales increased in various categories, including miscellaneous stores, nonstore retailers, and health and personal care stores. However, sales fell in sectors like gasoline stations, electronics, and food. Excluding certain categories, retail sales rose 0.3% in August. YoY retail sales rose 2.1% in August compared to the previous year, following a revised 2.9% increase in July. Since 1993, retail sales have averaged 4.75% year-over-year growth, with a record high of 52.5% in April 2021 and a record low of -19.9% in April 2020. 1Y trend: “Down” (Census)
• Industrial production remained unchanged in August YoY. Manufacturing output rose slightly, but mining and utilities production declined. 1Y trend: “Side” (FED)
• The NAHB/Wells Fargo Housing Market Index increased in September, breaking a streak of declines. The gauge for current sales conditions, sales expectations, and buyer traffic all improved. The share of builders cutting prices also decreased. This suggests a slight improvement in the housing market. 1Y trend: “Down” (Nahab)

Crypto

• 65 countries are actively exploring CBDCs. All G20 nations are involved, with 19 in advanced stages. 44 countries are piloting CBDCs, it’s 22% increase from previous year. This global trend is driven by declining cash usage and concerns about cryptocurrencies and tech giants’ influence on money creation. (source)

World Markets

• The ZEW Indicator of Economic Sentiment for the Euro Area continued to decline in September, reaching an eleven-month low. This reflects growing uncertainty about the economy and monetary policies. Analysts are divided on the outlook, with more expecting no change or a deterioration. The current economic situation and inflation expectations have also worsened. 1Y trend: “Down” (ZEW)
• Japan’s trade deficit narrowed in August, but remained above expectations. Exports increased for the ninth consecutive month, but at a slower pace than forecast. Imports grew at the slowest rate in five months, falling short of estimates. 1Y trend: “Up (improved)” (JP)
• India’s trade deficit widened to $29.7 billion in August, the highest in ten months. Exports declined by 9.3%, while imports increased by 3.3%. Rising shipping costs and a slowdown in China are impacting exports. 1Y trend: “Down (worsen)” (IN)
• Mongolia’s trade surplus narrowed in August, primarily due to a surge in imports, particularly of vehicles, machinery, and appliances. Exports grew at a slower pace, led by sales of natural stones and precious metals. China was Mongolia’s largest trading partner (exports — 91.9%, imports — 40.2%; Russian exports — 25%), both for imports and exports. 1Y trend: “Down (worsen)” (MN)
• Indonesia’s trade surplus narrowed in August despite a surge in exports. Exports to major markets like the US, Japan, ASEAN, and the EU grew significantly. However, imports also rose due to government import duties. For the year, Indonesia’s trade balance remains positive but has declined compared to the previous year. 1Y trend: “Side” (ID)

Commodities

• Sugar prices have risen (20) due to lower production in Brazil and rising oil prices. While India’s large crop and Thailand’s production challenges have influenced prices, overall global supply concerns remain. 1Y trend: “Down”
• Palladium prices hit a five-month high (1040), driven by increased ETF holdings, primarily due to rising European demand. Analysts predict that palladium prices may face downward pressure in the long term due to potential decreases in global vehicle production and the substitution of palladium with platinum in autocatalysts. 1Y trend: “Side”

Comment: What’s Up With International Trade

From the yearly trends, it is evident that, despite the nationalistic rhetoric from politicians and the buoyant patriotic sentiments among consumers worldwide, there is already a clear delineation between the winners and losers in this childish yet brutal game of ‘millennia-old national prestige and hereditary honor.’

As expected, the winners are economies characterized by a strong technological base and a focus on high-quality machinery exports, such as Belgium and Japan. In contrast, the losers are primarily natural resources exports orientated nations and major agricultural goods producers, such as Mongolia, Indonesia and India.

It is important to note that this does not imply that these economies are not experiencing growth. For instance, India reported a year-on-year GDP increase of 8–9%, making it the best-performing economy on Earth in 2024. However, this growth is driven by low-tech industries and service-oriented internal consumption, particularly in densely populated countries.

Additionally, the exports from resource-driven economies have been significantly impacted by the slowing Chinese market, which, due to the policies of CCP, has become increasingly closed off to external goods and services.

As a result, the world is gradually entering a new era marked by self-isolation from advancements in technology under the guise of ‘sovereignty.’ Many nations are relying on their large and still-growing populations and internal markets, which have been bolstered over the past 40 years by unprecedented economic openness and cooperation.

This shift may lead to a sharp drop in the standard of living, particularly for the lower-income strata of the population. Also, it could also exacerbate internal conflicts, ultimately resulting in increased migratory movements of people driven by desperation.

On Wednesday, stocks finished lower after the Fed cut rates by 50 basis points. While the initial market reaction was positive — during which the S&P hit a new ATH (5692) — Powell’s comments tempered optimism. Overall, investors remain cautious despite the aggressive rate cut, as the Fed hinted at a slower pace of future cuts. Tech stocks, including Nvidia, Microsoft, Oracle, and AMD, declined, while Apple gained. Internationally, many smaller central banks, which are overly dependent on the dollar in their oil trade, such as Saudi Arabia, the UAE, Bahrain, Qatar, and Kuwait, cut their rates in unison with the Fed by 25 to 50 basis points. BTC jumped above $61K but quickly retreated due to short-lived investor optimism about the Fed’s jumbo rate cut, while ETH remained unperturbed.

Details

• The Fed cut interest rates by 50 basis points to 4.75%-5%, marking the first rate reduction since the pandemic. They forecast further rate cuts in the coming years to slow inflation. While inflation projections were lowered, economic growth forecasts were slightly reduced. The unemployment rate is expected to rise slightly. Interest Rate Projection — 1st Yr 3.4%; 2nd Yr 2.9%; 3rd Yr 2.9%; Longer 2.9%. 1Y trend: “Up” (Fed)
• Building permits increased in August, reaching a five-month high. Multi-family and single-family permits both rose, with the Midwest seeing the largest increase. The West was the only region with a decline. 1Y trend: “Down” (Census)
• Housing starts in the US rebounded in August, increasing by 9.6% from the previous month (ATH 29.30, July 1982; ATL -26.40, March 1984). This follows a revised decline of 6.9% in July. The annualized rate of housing starts reached 1.356 million units in August. 1Y trend: “Up” (Census)

Crypto

• Bhutan has secretly amassed significantly more BTC than El Salvador, making it a major player in the crypto space. While El Salvador has been publicly embracing BTC, Bhutan has quietly accumulated 13,029 BTC (compare to 2,381 BTC accumulated by El Salvador), valued at over $758 million. This revelation highlights Bhutan’s growing influence in the crypto world and suggests a broader trend of nations adopting cryptocurrency. (source)

World Markets

• Eurozone inflation slowed to a two-year low (2.2% from 2.6%) in August, primarily due to lower energy prices. Core inflation also declined slightly (2.8% from 2.9%). Most major economies saw inflation rates decrease with a sharp drops observed in Germany (2% vs 2.6%) and France (2.2% vs 2.7%), but a few smaller countries experienced increases (Latvia, Malta, Finland and Slovakia). The ECB forecasts inflation to remain above its target for the next few years. 1Y trend: “Down” (EC)
• The Central Bank of Brazil raised its interest rate by 25 basis points to 10.75% in September after more than a year-long cuts (reducing the rate from 13.75% to 10.5%). This decision was in line with expectations and aimed to address inflation concerns. The stronger-than-expected economy and labor market, along with rising inflation projections, prompted the rate hike. Future rate adjustments will depend on inflation trends and economic conditions. 1Y trend: “Down” (BCB)
• Ghana’s economy grew at its fastest pace (+6.9%) in five years in Q2 2024, driven by growth in services, industry, and agriculture. The gold sector continued to expand growing by 23.6% for the third consecutive quarter, while cocoa production declined. Ghana is recovering from a debt restructuring and is implementing IMF austerity measures. (GH)

Currencies

• The dollar index fell to a July low (100.4) after the Fed announced a larger-than-expected rate cut. While the cut was expected, the central bank hinted at further easing, causing the dollar to weaken against major currencies. However, Fed Chair Powell emphasized that the central bank is not in a hurry to cut rates. 1Y trend: “Side”

Commodities

• Gold prices surged to a new record high (2594) after the Fed cut interest rates by 50 basis points, marking the first rate cut in over four years. The Fed also signaled plans for further rate reductions by the end of the year. 1Y trend: “Up”

Comment: What’s Up With Argentina?

The Merval, Argentina’s main stock market index, surged by 885,999 points — or an 95.30% — since the beginning of the year. However, the GDP contracted by 1.70 percent in the second quarter of 2024. Historically, Argentina’s GDP growth rate averaged a modest 0.46 percent from 1993 until 2024, with significant fluctuations. How can the stock market thrive amid a contracting economy? It suggests that certain sectors may be experiencing growth, even as the broader economy struggles.

The unemployment rate rose to 7.7% in the first quarter of 2024. Comparatively, the unemployment rate reached a record of 20% at the beginning of the 2000s. Increasing unemployment during a stock market boom indicates that the benefits of the market’s success are not being evenly distributed across the population.

Inflation in Argentina has been a longstanding challenge, with consumer prices skyrocketing by 236.7% in August 2024 alone. Historically, the inflation rate in Argentina has averaged 190.49% from 1944 to 2024, with a peak of a staggering 20,262.80% in March 1990. The volatility of inflation reflects the broader economic instability that affects many sectors of the economy and significantly undermines consumer confidence, which has remained suppressed, often staying below 30.

In response to slowing inflation, Argentina’s central bank decreased the benchmark interest rate from 50% to 40% on May 15, 2024. Traditionally, interest rates in Argentina have been exceedingly high, often exceeding 30%. The high rates are influenced by the tussle between populist governments that increase spending and monetary authorities striving to control inflation.

The interplay of these factors perpetuates a cycle of mistrust among the populace. With a legacy of oscillating between capitalism and socialism over the decades, Argentina’s citizens find themselves increasingly skeptical of governmental efficacy, leading to a surge in interest in cryptocurrencies as an alternative financial strategy.

On Thursday, stocks surged, fueled by optimism about a soft economic landing following the Fed’s rate cut, which was supported by a decline in weekly jobless claims. The Dow (42,000) and S&P reached new ATHs, led by tech stocks and sectors tied to economic growth. Internationally, several major stock indexes, including Germany’s DAX, India’s SENSEX, and Australia’s ASX200, hit new ATHs. At the same time, there might be a divergence in main central banks’ monetary policies, as the Bank of England left interest rates steady at 5%. Meanwhile, ETH (+4%) closed above 2.4K, outperforming BTC (63K, +2%) for the first time in several months, while the rest of the crypto market followed with SOL, BCH, and AVAX rising more than 7%.

Details

• The Philadelphia Fed Manufacturing Index rebounded in September to 1.7 from -7, but remained below optimistic forecasts. While current activity improved, new orders and shipments declined. Employment rose, and prices continued to increase. Businesses remain optimistic about future growth. 1Y trend: “Up” (PhFed)
• Existing home sales declined in August despite lower mortgage rates. The median home price decreased to $416,900, and the inventory of unsold homes increased. 1Y trend: “Down” (NAR)

Crypto

• Coinbase’s Stand With Crypto initiative has potentially registered over 140,000 people to vote in the 2024 elections through its voter registration tool. The campaign has seen significant engagement since its launch. (source)

World Markets

• Passenger car registrations in the EU declined sharply in August, reversing sharply by 18.3% the growth seen in July. All major markets experienced double-digit declines, with Germany and France suffering the steepest drops. Battery electric car registrations also fell significantly (-43.9%), with market share decreasing. However, overall car registrations for the year remained slightly positive, driven by growth in the first half. 1Y trend: “Up” (Acea)
• The Bank of England held its interest rate steady at 5% in September, despite expectations for a small cut. Inflation is expected to rise slightly due to energy price comparisons. Wage growth slowed, and GDP growth is forecast to recover. The Bank also decided to reduce its bond holdings by £100 billion. 1Y trend: “Up” (UK)
• The South African Reserve Bank cut its interest rate by 25 basis points to 8% due to easing inflation (4.4%). It’s SARB’s first policy easing since 2020. The central bank expects inflation to remain below its target range and economic growth to improve. 1Y trend: “Side”
• The Central Bank of Turkey kept its benchmark interest rate unchanged at 50% in August, despite slowing inflation. While the bank acknowledged the inflationary risks posed by high inflation expectations, it also noted the positive impact of high interest rates on domestic demand. The central bank emphasized its flexibility to adjust monetary policy as needed, indicating a potential shift away from its previous stance of only raising rates in response to economic challenges. 1Y trend: “Up” (TR)
• Malaysia’s trade surplus narrowed significantly in August (to MYR 5.7B from 17.2B YoY), falling to the lowest level in six years. Imports surged, while exports grew at a slower pace. For the first eight months of 2024, the trade surplus declined by nearly 50%, with imports outpacing exports. 1Y trend: “Down” (Dosm)

On Friday, stocks traded mixed, following a volatile week. The S&P and Nasdaq declined slightly, while the Dow rose. Fed policymakers had differing views on inflation, with one supporting a larger rate cut and another warning against premature action. For the week, stocks posted gains. Internationally, the Central Banks of China and Japan held their rates steady, while gold reached new ATH on the Fed’s easing. BTC rose until it hit its 200-day moving average and then retreated to around 63K. ETH followed but at a much slower pace, barely reaching 2.6K.

Crypto

• Solana (SOL) has over 75 million monthly active addresses. However, traders remain cautious about its prospects as technicals indicate a southward trend. This exemplifies how detrimental political considerations are for crypto markets, where even coins with rapidly growing user numbers are unable to perform well due to negative expectations about the regulatory climate.

World Markets

• Consumer confidence in the Euro Area and European Union improved in September, reaching the highest levels since early 2022 (-12.9) but still remained negative. This positive trend follows recent interest rate cuts by the European Central Bank. 1Y trend: “Up” (EC)
• The People’s Bank of China (PBoC) kept its key lending rates unchanged in September at 3.35%, aligning with market expectations. This decision came despite a rate-cutting cycle in the US and uncertainty in China’s economic recovery. The PBoC focused on short-term rates and delayed a medium-term lending facility operation. 1Y trend: “Down” (PBC)
• India’s foreign exchange reserves reached a new high of $689.5B in September, driven by strong capital inflows. The Sensex hit a record high, and the 10-year G-Sec yield fell below 6.8%. The RBI likely purchased foreign exchange to support Indian exports and maintain currency competitiveness. 1Y trend: “Up” (RBI)
• 1Y trend: “Up” (BoJ)
• Turkey’s government debt increased in August 2024 to a new ATH of 8.34T TRY. It’s 4x in 4 years. The debt has been on an upward trend in recent years, rising significantly from its record low of 15 TRY million in 1986. 1Y trend: “Up” (TR)
• Spain’s trade deficit narrowed in July to 3.2B (2016 level), with exports growing faster than imports. Exports increased in various sectors, led by food, energy, and raw materials. Imports also rose, but at a slower pace, with declines in automotive products, capital goods, and energy. 1Y trend: “Up (Decreasing)” (ES)
• Switzerland’s current account surplus rose to a 1.5-year high in Q2. The surplus increased due to a wider goods surplus and a narrower services deficit. Secondary income deficit declined sharply, while primary income deficit rose slightly. 1Y trend: “Up (Decreasing)” (CH)
• Namibia’s economy grew by 3.5% in Q2 2024, driven by financial services and trade. The financial services sector expanded by 30%, with insurance and banking subsectors leading the growth. Mining and quarrying contracted due to lower diamond and uranium production. Agriculture and forestry also shrank due to insufficient rainfall. 1Y trend: “Side” (NSA)

Currencies

• The Brazilian real appreciated against the dollar in September, reaching a one-month high (5.45). This was driven by the Brazilian central bank’s interest rate hike and the US Federal Reserve’s unexpected rate cut. While inflation in Brazil has eased, concerns about government spending and its long-term impact on inflation led to the rate hike. The larger interest rate differential between Brazil and the US also favored the real. 1Y trend: “Up (Depreciates)”

Commodities

• Gold prices hit a record high (2622) on Friday, driven by expectations of lower interest rates and rising geopolitical tensions. The Fed’s recent rate cut and projections for further cuts boosted gold’s appeal. Additionally, escalating tensions in the Middle East increased demand for gold as a safe-haven asset. 1Y trend: “Up”

Week 39, will feature inflation data, consumer spending, and Fed speeches. Globally, PMI data, interest rate decisions, and inflation reports will be released for various countries.

Comment: What’s Up With Spain?

Spain’s trade deficit is at its lowest level in nearly a decade. The country is uniquely positioned to benefit from the current imbalances in the global economy, as supply chains are periodically disrupted by poor global management, leading to the semi-enclosure of entire geographical regions. These disruptions have significantly impacted energy and food markets and have recently extended to technology access, which has been artificially restricted by producing countries citing “national security” concerns.

Spain, with its well-developed agricultural and industrial sectors, has the opportunity to capture market share in the European Union’s food market from Eastern European countries affected by the war, as well as from Africa, where agricultural producers are facing rising costs due to increasing prices of exported chemicals and agricultural machinery. Additionally, the decline in energy prices — resulting from the EU’s adjustment to the initial price shock — has enabled Spanish machinery producers to continue exporting their high-value-added industrial products.

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