SVET Markets Weekly Update (January 02–05, 2024)

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10 hours ago

On Week 1, the Nasdaq and S&P closed 1.8% and 3.8% lower, respectively, while the Dow Jones was down 0.7%. Meanwhile, BTC initially rose sharply, breaking the 45K barrier, but later stumbled due to massive profit-taking, leading to a downturn in the entire crypto market, with some coins falling by more than 10%.

On the macroeconomic front, the unemployment rate remained at 3.7%, with manufacturing and service sectors contracting both domestically and globally. In the global market, oil prices spiked due to geopolitical tensions, whereas food prices decreased worldwide.

On Tuesday, Nasdaq and other stock indexes started 2024 in red after a strong 2023 as traders continue to fix their gains. Investors are assessing economic and monetary policy ahead of releases this week. Tech stocks, particularly Apple, performed poorly due to rising Treasury yields and a downgrade by Barclays. Tesla was flat despite beating delivery estimates.

Also, the majority of World’s main stocks indexes (including, Shanghai Composite, JP225, FTSE 100, CAC 40, Ibovespa and JSE All) were in red with exception of German’s DAX 40 and Italian IT40 which went flat.

At the same time, BTC rose sharply, breaking the 45K barrier, with ETH and other alts still lingering below their key resistance levels.

Details

The S&P Global US Manufacturing PMI for December was revised down to 47.9, indicating a worsening in manufacturing conditions. Output, new orders, and employment decreased while input buying, inflation, and selling prices increased. Despite this, business confidence improved slightly.

Currencies

The dollar index held above 102, supported by a rebound in Treasury yields, selloff on Wall Street, and heightened geopolitical tensions in the Middle East. Investors scaled back bets on the scale of interest rate cuts from major central banks this year. The dollar strengthened across the board, with the most pronounced buying activity seen against the kiwi and the euro, ahead of key US jobs data and the latest Federal Reserve policy meeting minutes.

World Economy

• China: the Shanghai Composite rose slightly while the Shenzhen Component fell as mainland stocks struggled for direction amid weak global sentiment. A private survey showed that China’s manufacturing sector growth unexpectedly accelerated in December, contrasting with official data indicating contraction.
• Germany: the DAX 40 pared back early gains to trade near the flat line at 16,760 points as bond yields rose and investors awaited key data. The index had earlier risen to an all-time high amid hopes of interest rate cuts. Siemens and Allianz reached all-time and over two-decade highs, respectively. Sartorius, Fresenius, and Commerzbank were the top performers.
• Britain: the FTSE 100 closed 0.2% lower at 7,721 as markets assessed the validity of looser monetary policy for the year. Insurers, including Prudential, were among the sharpest losers. Food inflation slowed in December, strengthening hopes of disinflation and looser financial conditions. Shares for key grocery chains, including Marks & Spencer and B & M, booked gains.
• France: the CAC 40 index closed 0.16% lower at 7,531 due to a global bond yield rally and caution ahead of key Euro Area inflation data and the US jobs report. Rising oil prices and inflationary fears weighed down tech and luxury shares, including Dassault Systèmes and Pernod Ricard. Losses were partially offset by a 3.1% rise in TotalEnergies.
• Brazil: the Ibovespa fell 0.7% to below 133,100 as future interest rates rose, reducing risk appetite. Stubborn inflation and steady GDP growth reduced urgency for Selic rate cuts, causing the consumer discretionary sector to drag the index down. Gol and Atacadao performed the worst. Commodity-linked giants Petrobras and Vale limited the decline due to rising oil benchmarks and iron ore prices.
• South Africa: the JSE All Share index fell 1.5% to 75,709 due to rising oil prices and mixed Chinese data, negatively impacting heavyweight resource-linked shares. Impala Platinum, Gold Fields, and Exxaro Resources were the biggest laggards. RMB Holdings was the only winner, rising 4.6%.

On Wednesday, Nasdaq and other major stock indexes fell for the 4th straight day as investors digested FOMC minutes, finding little insight on future rate cuts. Tech stocks led declines, with Tesla, Broadcom, and Nvidia down. Energy shares rose, with Chevron and Exxon Mobil gaining due to rising oil prices. ISM Manufacturing PMI showed contraction in the manufacturing sector.

Meanwhile, crypto whales used this as an opportunity to fixate their profits, sending both BTC and ETH below their month-old support levels of 41K and 2.1K, respectively. After a fast recovery, BTC and ETH now stand at 43K and 2.2K.

Additionally, major European market indexes are predominantly down, and Asian markets closed mixed after the Shanghai Composite finished in the green due to online gaming stocks rising following Beijing’s removal of a bureaucrat overseeing the gaming sector.

Details

According to the recently issued FOMC Minutes: the members expect real GDP growth to slow in 2024, with the labor market rebalancing and some increase in unemployment. Inflation projections for 2023 and beyond were revised down due to better-than-expected data, leading to a view of more balanced risks for inflation and employment. However, participants remained cautious about inflation risks.

Participants revised down the following key macroeconomic projections for 2023:

• GDP growth: 2.6% (revised) — 2.1% (September projection);
• PCE inflation: 2.8% — 3.3%;
• core PCE inflation: 3.2% — 3.7%;
• Year-end unemployment: 3.8% — 3.8% (unchanged).

and for 2024:

• GDP growth: 1.4% — 1.5%;
• PCE inflation: 2.4% — 2.5%;
• core PCE inflation: 2.4% — 2.6%;
• Year-end unemployment: 4.1% — 4.1% (unchanged)
• Year-end federal funds rate: 4.6% — 5.1%.

Overall, the FOMC minutes showed that FOMC participants’ positions have softened suddenly during the inter-meeting period, but the possibility of a new rate hike still remains elevated due to the FOMC members’ ideological rigidity in setting 2% as a ‘normalized’ inflation target and their anticipation that it might suddenly return.

Allegedly, this sudden shift in FOMC members’ opinion happened due to political, not economic, reasons. Most indications of rapidly softening inflation were obvious to the great majority of non-affiliated market observers at least six months before the FOMC’s December meeting.

Also, the ISM Manufacturing PMI rose slightly to 47.4 in Dec 2023, but still indicated a 14th month of factory activity contraction. Production rebounded, but new orders, employment, and inventories shrank. Price pressures decreased, and supplier delivery times increased slightly.

Crypto

Based on CoinTelegraph citing Messari data, the total VC deal volume saw a remarkable 81% increase in the final quarter of 2023, reaching $3.83 billion. Some seed investment rounds in the past three months included USD 8M for Bitcoin and cash back rewards startup, $1.2M for the sequencer on Avalanche Subnet and $8M for Web3 technology for digital assets education.

Commodities

• WTI crude oil futures rose to $73 per barrel due to supply concerns from Libya’s oilfield shutdown and Iran’s warship deployment in the Red Sea. Prices had dropped almost 2% the previous day due to reduced expectations of significant interest rate cuts by major central banks. Geopolitical tensions and rising global supplies weighed on the market.
• Uranium prices hit 16-year highs in early Jan 2023 due to strong demand and supply risks. 21 countries, led by China, plan to triple nuclear power by 2050. Supply threats include Western utilities shunning Russian uranium and potential US import ban, Niger coup, and Canadian mine issues.
• Steel rebar futures fell in early Jan to CNY 3,920/tonne, a two-week low, due to ample supply despite expectations of robust demand. Chinese steel mills plan to maintain high output, but concerns over China’s property market and reduced dependence on construction limit the steel demand outlook.

World Economy

• Brazil: Ibovespa rose 0.2% to 132,250 on Wednesday, led by oil giant Petrobras and Petro Rio due to supply concerns in Libya. Retail sector fell, with Lojas Renner, Magazine Luiza, and Casas Bahia down. Vale lost 0.4% despite rising iron ore prices. Traders digested FOMC minutes.
• India: India’s equities dropped 0.5% to 71,513.5, with tech stocks leading the decline. Nifty IT fell 2.2%, while metal and auto stocks also dropped. Traders took profit booking amid slowing factory activity growth and ahead of key US economic data.

On Thursday, the Dow Jones rose, while the S&P 500 and Nasdaq fell, with the Nasdaq experiencing its longest red-candles streak since October. Investors await labor data amidst speculation of interest rate cuts and rising treasury yields. The financial sector rose, but energy and consumer stocks dropped. Early gains were halted as ADP’s strong jobs data and unemployment claims increased uncertainty about Fed rate cuts.

Meanwhile, BTC and ETH were in high demand, quickly recovering from yesterday’s slump and reaching USD 44.7K and USD 2.3K, respectively.

Additionally, global PMI data indicated that manufacturing and service sector activities continued to contract across most of the world’s leading economies, with the notable exceptions of China and Brazil.

Details

According to the Challenger Report in December, employers announced the least number of job cuts in five months, totaling 34,817. However, the annual job cuts in 2023 increased by 98% to 721,677, the highest annual total since 2020. Technology and retail industries experienced the most job cuts, with technology rising by 73% and retail by 274%. Health care/products manufacturers and financial firms also saw significant increases. Job cuts in 2023 were mainly due to market/economic conditions. Employers are expected to remain cautious and cost-cutting in Q1 2024, slowing the hiring process for job seekers.

The S&P Global US Composite PMI edged up to 50.9 in December 2023, indicating a marginal uptick in business activity, the fastest expansion since July. The service sector drove growth, while manufacturing production declined. Service providers experienced a surge in new sales, whereas goods producers faced a faster decline. Employment levels modestly increased, and input costs rose more rapidly, while selling price inflation slowed down.

World Economy

Europe:

• On the day the PMI indexes were announced for major EU economies, the data showed that overall manufacturing and service sector activities continued to contract across most countries, though the rate of contraction slowed in some cases.
• The exception was Spain, where the composite PMI index rose above the 50 no-change mark to 50.4 in December, up from 49.8 in November, signaling a return to growth. Also in the UK, the composite PMI increased to 52.1, pointing to a second consecutive monthly expansion.
• In Italy, the composite PMI rose but remained in contraction territory at 48.6, up from 48.1 previously.
• In France, the composite PMI was revised upwards to 44.8, surpassing initial estimates and rising slightly from November, though still indicating ongoing contraction for the seventh straight month in the eurozone’s second largest economy.
• Germany’s composite PMI was also revised up but remained below 50 at 47.4, pointing to a sixth consecutive month of private sector contraction as demand for goods and services continued to decline.
• Across the eurozone as a whole, both manufacturing and service sector output declined further in December, with contraction rates consistent with the prior month. Demand weakened while employment fell for only the second time in nearly three years. However, business sentiment and expectations for future growth showed some improvement.

Latin America

• In the largest LA economy — Brazil — services PMI fell slightly to 50.5 in December but remained above 50, signaling a third straight month of expansion. New orders and output grew but at a slower pace with employment also up marginally. Input costs rose at the slowest rate in over 3 years while selling prices continued to increase sharply. Firms maintained a positive outlook for growth.
• The annual inflation rate in Uruguay picked up to 5.11% in December of 2023 from 4.96% in the previous month. Producer Prices in Colombia decreased 5.79 percent in December of 2023 over the same month in the previous year. Producer Prices Change in Colombia averaged 5.52 percent from 2000 until 2023, reaching an all time high of 35.65 percent in April of 2022 and a record low of -6.55 percent in July of 2023.

Africa

• Nigerian stocks hit a record high, with financials, telecoms, and consumer goods leading gains. The market closed 2023 up 46%, buoyed by President Bola Tinubu’s market friendly reforms (including the removal of energy subsidies), strong corporate earnings, and new listings.
• South Africa’s PMI dropped to 49 in December, with the sharpest output decline since May and falling new orders. Supply delays and load shedding impacted sales. Purchase costs rose slowly, hinting at easing inflation. Future output expectations dipped but remained positive.
• Egypt’s PMI marginally improved to 48.5, still showing contraction. New orders saw the sharpest decrease since May due to currency weakness and inflation. Output fell slightly faster, but employment rose. Input and output cost inflation eased. Business outlook brightened significantly.
• Kenya’s PMI improved to 48.8, signaling the slowest contraction in four months due to marginally better demand. Manufacturing and construction still struggle with costs and weak demand. Input costs eased, but output charges increased, leading to reduced business optimism.

Asia

• China’s Caixin Services PMI rose to 52.9 in December, marking the fastest growth since July, driven by a surge in new business and export orders. Employment grew, inflation of input prices increased, while output cost inflation eased. Business confidence improved. At the same time, China’s Caixin Composite PMI reached 52.6 in December, the highest since May, with manufacturing and services expanding robustly. New orders surged to a seven-month peak, while new export declines slowed. Employment shrank as input costs rose amid competitive pricing.
• Japan’s Manufacturing PMI revised to 47.9 in December, indicating the sharpest contraction in factory activity since February. New orders and output declined, with foreign sales dropping significantly. Purchasing was curtailed sharply, while employment remained flat. Input costs rose, optimism improved slightly.
• Indian rupee nears record low at 83.4 amid foreign inflows, lenient monetary policy, and costly energy imports due to global disruptions. RBI interventions prevent further decline after foreign investors sell off government bonds.

On Friday, the Nasdaq and other major stock indexes ended flat after a volatile session, halting a nine-week winning streak. Nvidia and AMD shares rose, airlines rebounded, and healthcare shares underperformed. The economy added 216K payrolls in December, exceeding estimates, with wages accelerating. The service sector contracted, signaling a slowing economy under Fed pressure. Meanwhile, BTC and ETH entered correction mode but maintained a bullish pattern.

On the macroeconomic front, oil prices jumped due to geopolitical tensions, while food prices continued to subside worldwide. Additionally, the German car market slumped under high ECB rates and rising energy costs, whereas the Italian construction sector expanded, buoyed by subsidies.

Details

Crypto

World Economy

• Italy construction sector expanded with an unprecedented during past 10 years speed on government’s subsidies: Italy’s Construction PMI climbed to 55.2 in December, marking the highest level since April 2022 and showing strong sector recovery, supported by government incentives. Output and new orders surged, boosting employment and purchasing, despite high input costs. Builder confidence improved.
• Italy is on a brink of deflation as ECB has over-tighten its policy in the past 2 years: Italy’s annual inflation rate dipped to 0.6% in December 2023, below the 0.7% expected, reflecting ECB’s tight monetary policy. Net inflation slowed to 3.1%. Energy prices continued to fall, while costs for processed food and services also eased.
• Brazil’s industrial production keeps expanding: Brazil’s industrial production grew by 1.3% year-on-year in November 2023, marking the fourth consecutive month of growth and the strongest in six months, surpassing market estimates of a 0.7% increase.

Commodities

• Oil rises on growing geopolitical tensions: WTI crude futures rose over 2% to $73 amid Middle East tensions ahead of Blinken’s visit. The increase comes despite Thursday’s decline after a record US gasoline inventory surge and significant distillate stockpile growth. Libyan protests and a deadly incident in Iran also influenced the market.
• Food: The FAO Food Price Index hit its lowest since February 2021, falling to 118.5 in December. Vegetable oil and sugar prices significantly dropped, while meat prices also decreased. Conversely, cereal and dairy costs rose slightly. The 2023 annual drop was the largest since 2015.

On Week 2, traders are likely to push prices up and down waiting inflation data on Thursday, while foreign trade, producer prices, and Fed speeches will take center stage prior to that. On the world’s stage, CPI figures are due from Mexico, Brazil and India. China’s agenda includes inflation, trade data, and new yuan loans. Germany will report factory orders and trade, the UK will present GDP and industrial output, and unemployment rates are awaited from the Euro Area.

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