On Week 51, the Nasdaq soared above the 22K mark for the first time. However, this upward momentum was short-lived. On Wednesday, stocks experienced a sharp decline after the Fed announced a 25 point cut but signaled fewer cuts than the market had anticipated. This led to a significant sell-off. The Dow marked its longest streak of downfall since 1974. Dollar appreciated, reaching a 24-month high, while the Chinese yuan weakened. BTC initially reached a new ATH but then plummeted to 90K following the stock market downturn.
On Monday, the S&P and Nasdaq rose, breaking the 22K mark for the first time, driven by gains in Tesla, Broadcom, Alphabet, and Apple. However, the Dow Jones continued to decline, reflecting deterioration in the manufacturing sector. Investors are focused on the Fed’s interest rate decision in two days. In the EU, production declined once again. India’s trade deficit reached a record high as its economy continued to worsen. Nigeria’s inflation rate surged to a near 30-year high, accelerating the pace of crypto adoption. BTC reached a new all-time high of $107K on the weekend and has since settled down, while ETH breached $4K prior to that.
Details
- The NY Empire State Manufacturing Index fell sharply in December, indicating a slowdown in business activity in New York State. While some indicators like delivery times and input prices improved, overall sentiment remains cautious. 1Y trend: “Up” (NYF)
- The private sector activity expanded at the fastest pace in ten months in December. The services sector led the growth, while manufacturing continued to contract. However, business optimism improved, suggesting a positive outlook for the economy. 1Y trend: “Up” (PMI)
Crypto
- Crypto startups have raised over $1B in venture funding since Trump’s election. This surge in investment is driven by optimism around pro-crypto policies and regulatory clarity. Key areas of investment include blockchain infrastructure, DeFi, and crypto mining. (source)
World Markets
- European stocks declined as investors assessed the economic outlook and awaited central bank decisions. Weak economic data from the Eurozone and concerns about French political stability contributed to the market’s downturn. Automakers were particularly hit hard due to concerns about Chinese competition. Moody’s downed France’s rating to Aa3 from Aa2. Scholz received non-confidence vote, now German elections will be held late February. 1Y trend: “Up”
- The Eurozone’s private sector activity contracted at a slower pace in December. While manufacturing remained weak, the services sector expanded. However, new orders declined, and job cuts accelerated. Despite this, business optimism improved slightly. 1Y trend: “Up” (PMI)
- India’s trade deficit reached a record high of $37.8B in November. This was due to a surge in imports and a decline in exports. 1Y trend: “Up” (IN)
- Nigeria’s inflation rate surged to a near 30-year high of 34.6% in November, driven by rising food and core inflation. This indicates a worsening cost-of-living crisis in the country. 1Y trend: “Up” (NG)
Currencies
- The Chinese yuan weakened to 7.28 as mixed economic data raised concerns about the country’s economic recovery. While industrial production and fixed-asset investment showed some improvement, retail sales growth slowed down. The expected loosening of monetary policy and potential US trade pressures are also contributing to the yuan’s weakness. 1Y trend: “Up, Depreciating”
On Tuesday the Dow extended its downward streak to nine days — the longest since 1978. The S&P and Nasdaq also declined. Tech stocks like Nvidia and Broadcom fell, while Tesla continued to gain. EU economic sentiment improved but remained subdued. BTC reached a new ATH of ~$108K but continued to correct as whales kept closing their positions en masse, transferring BTC holdings to corporations.
Details
- Retail sales increased by 0.7% in November, exceeding expectations. While some sectors like motor vehicles and non-store retailers saw strong growth, others like food services and clothing experienced declines. Overall, consumer spending remained weaker than average. YoY retails increased 3.8%, the highest annual growth rate since December 2023 (average: 4.74 (1993–2024); ATH: 52.50 (April 2021); ATL: -19.90 (April, 2020)). 1Y trend: “Up”. (Census)
- Industrial production declined in November , driven by weakness in mining and utilities. Manufacturing output showed marginal growth, but concerns remain about potential trade pressures under the incoming Trump administration. 1Y trend: “Down” (Fed)
- The NAHB/Wells Fargo Housing Market Index remained at 46 in December, slightly below the expected 47. Future sales expectations rose to 66, the highest since April 2022, driven by hopes for regulatory relief post-election. Additionally, 31% of builders reduced home prices by an average of 5%, with 60% using sales incentives, unchanged from November. 1Y trend: “Side” (NAHB)
World Markets
- The ZEW Indicator of Economic Sentiment for the Euro Area rose significantly in December, driven by improved economic outlook and expectations of lower interest rates. However, current economic conditions remain weak. 1Y trend: “Down (ZEW) In October the Euro Area recorded a trade surplus of €6.81B, which didn’t change the picture of EU trade situation worsening (average: 5580.29M (1999–2024), ATH: 29946.10M (July, 2015); ATL: -55050.80M (August, 2022). 1Y trend: “Down” (EU)
On Wednesday, stocks plummeted after the Fed cut interest rates by 25 basis points but signaled fewer cuts than anticipated. This sparked a market sell-off, with the S&P and Nasdaq falling by approximately 3% and 4%, respectively, while the Dow dropped 1,123 points — its longest downward spiral (10 days) since 1974. A record current account deficit was reached due to the AI-driven import of semiconductors. The euro and yuan hit their yearly minimums, while the dollar rose to a 24-month high. Meanwhile, the South Korean won reached a 16-year low amid continuing political turmoil. BTC dropped below $100K, while ETH reached $3.4K following the stock market avalanche. BTC ETFs have surpassed gold ETFs.
Details
- The Fed cut interest rates by 25 basis points in December 2024 to the 4.25%-4.5% range, but signaled fewer rate cuts (2 cuts, 50 points) for 2025 than previously anticipated (4 cuts, 100 points). The Fed also revised its economic projections upward (2.5% vs to 2% in 2024; 2025 (2.1% vs 2%); 2% for 2026), with higher core inflation growth (2024 (2.8% vs 2.6%), 2025 (2.5% vs 2.2%), 2026 (2.2% vs 2%)) and lower unemployment (2024 (4.2% vs 4.4%), 2025 (4.3% vs 4.4%), 4.3% for 2026) forecasts. 1Y trend: “Down” (FED)
- Building permits surged 6.1% in November, reaching the highest level in nearly a year. This strong growth was driven by increases in permits for single-family homes and buildings with five or more units. 1Y trend: “Down” (Census)
- Mortgage applications declined slightly to 5.4% in the week ending December 13th, following a significant surge in the previous week. While purchase applications increased, refinance applications fell due to rising interest rates. 1Y trend: “Down” (MBA)
- A record-high current account deficit of $310.9B was reached in Q3 2024. This was driven by a widening goods deficit (imports of capital goods, including computer accessories, semiconductors, and electric apparatus) and an increase in secondary income deficits. 1Y trend: “Down, Increasing” (BEA)
- Housing starts unexpectedly declined 1.8% in November, driven by a sharp drop in multi-family housing starts. While single-family home starts increased, overall housing construction activity weakened. 1Y trend: “Down” (Census)
Crypto
- BTC ETFs have surpassed gold ETFs in total assets under management, reaching $129B. This milestone, achieved in less than a year since the launch of spot BTC ETFs, signifies a shift in institutional investor preferences towards BTC. (source)
World Markets
- Eurozone inflation rose slightly to 2.2% in November. While energy price declines slowed, inflation for services and food eased. Core inflation remained steady at 2.7%. 1Y trend: “Down” (EU)
- Argentina’s unemployment rate fell to 6.9% in the third quarter of 2024, reaching its lowest level since Q4 2023. 1Y trend: “Down” (AR)
Currencies
- The dollar surged to a 24-month high after the Fed cut interest rates by 25bps but signaled a less dovish path for 2025. The Fed’s hawkish outlook, along with revised economic projections, boosted the dollar against major currencies. 1Y trend: “Up”
- The South Korean won plunged to 16-year low. This was driven by a combination of factors, including the Fed’s hawkish stance, the BoK’s dovish outlook, and political uncertainty in South Korea. 1Y trend: “Up, Depreciating”
Comment: What’s Up with the Fed?
That I am fundamentally against the existence of the Fed shall not be a secret to my readers. The Fed is a 110-year-old relic of the Marxist-Keynesian past, which was included in Stalin’s and Mussolini’s playbook of the ‘scientific management’ of all aspects of human life, first and foremost their economic and financial activities.
The real reason behind that “management” is not, of course, the desire to make people’s lives better by avoiding “economic crises.” In all 110+ years of the Fed’s existence, they have proven to be absolutely incapable of doing so. The real reason is to gain additional and very powerful leverage to control individuals, especially those with more brains and, therefore, wealth than others.
Despite all my natural skepticism, more often than not, I can’t suppress my bewilderment at how low the professional qualifications of those running this atrocious institution are and how large their preoccupation with their own bureaucratic and political egos and careers is.
That is what happened today. All fundamentals have been showing slowing production, slowing employment, and yes, even slowing consumer consumption. So, all core inflation factors were indicating that the economy is entering stagflation, especially as non-core inflation (energy and food) has started to rise since around May-June of 2024.
However, despite them saying themselves that non-core inflation is out of their reach and that the employment situation has started to look worrisome, they not only decided to cut 25 points, which was expected, instead of the urgently needed 50, but Powell also found it necessary to briskly change his outlook for future 2025 rate cuts from more-or-less dovish (4 cuts) to nearly hawkish (two cuts, maybe).
It must be absolutely obvious to anyone with expertise in economics and markets that this will lead to a swift market reaction. That is exactly what happened. Now everyone, including corporate traders, is confused as to whether the reasons for that abrupt change are more politically driven — trying to influence Trump’s lower-tax-higher-tariff policies before they are actually implemented.
Indeed, if we now have a situation on our hands similar to but in reverse of that in Brazil, where Lula is fighting his central bank for his pro-spending, socialist policies, if Powell starts to fight Trump for his pro-capitalist tax-easing policies, we’ll indeed have such volatility in the markets in 2025 for which any hedge manager would sell his soul.
On Thursday, equities were in the red. The Fed’s hawkish outlook on future rate cuts dampened market sentiment. New macro data showed a weakening of manufacturing conditions in several regions. The dollar continued to rise, while EU markets reacted with a sharp downturn. Central bankers in both England and Japan held their key rates, citing worsening geopolitical conditions. BTC and ETH continued to fall as corporate investors, faced with market jitters, tried to secure profits in risk-on assets before the start of 2025.
Details
- Core PCE prices increased 2.2% in Q3 2024, slower than a 2.8% gain in the previous quarter. This metric averaged 3.23% since 1959, reaching a high of 11.9% in 1974 and a low of -0.8% in 2020. 1Y trend: “Down” (BEA)
- The Philly Fed Business Conditions Index went down to 30.70 in December, from 56.60 in November. This index has averaged 33.83 since 1968, reaching a high of 91.00 in 1975 and a low of -39.70 in 1973. 1Y trend: “Up” (PFed)
- The Philadelphia Fed Manufacturing Index plunged to -16.4 in December, indicating a significant weakening in regional manufacturing activity. New orders and shipments declined, while input costs remained elevated. Despite the downturn, firms remain somewhat optimistic about future growth. 1Y trend: “Down” (PFed)
- Existing home sales rose 4.8% in November, reaching an eight-month high. Increased housing inventory and job growth contributed to the rise. The median home price increased by 4.7% YoY. 1Y trend: “Side” (NAR)
- The Kansas Fed Composite Index declined to -4 points in December, down from -2 points in November. The index has averaged 5.06 points since 2001, with a high of 32.00 and a low of -30.00. 1Y trend: “Side” (KFed)
- The economy grew at an annualized rate of 3.1% in Q3 2024, exceeding previous estimates. Strong consumer spending and investment contributed to the growth. 1Y trend: “Side” (BEA)
- Initial jobless claims fell more than expected in the first week of December, easing concerns about a weakening labor market. This supports the Fed’s view that further interest rate cuts may be limited. 1Y trend: “Up” (DOL)
- Net Purchases of Treasury Bonds and Notes increased by $92.1B in October. Foreign Bond Investment has averaged $10.68B since 1978, reaching a high of $175.16B in August 2022 and a low of -$310.79B in March 2020. 1Y trend: “Up” (GOV)
Crypto
- A recent poll by Emerson College shows that nearly one-third of young American voters under 40 use cryptocurrencies, with usage decreasing with age. About 20% of all registered voters have engaged with digital assets, but 81% haven’t. Men are twice as likely to use crypto compared to women (26% vs. 13%). Furthermore, around one-third of Asian, Hispanic, and Black voters are involved in cryptocurrency, compared to 14% of white voters. The survey had a margin of error of ±3%. (source)
World Markets
- EU stocks fell sharply, driven by the Fed’s hawkish outlook on future rate cuts. Tech and industrial stocks were hit hard. The BoE held rates steady, while the Swedish Riksbank cut rates. 1Y trend: “Up”
- The Bank of England held its key interest rate steady at 4.75% in December. While some policymakers favored a rate cut, the bank emphasized the need to maintain a restrictive monetary policy to combat geopolitical instability. 1Y trend: “Up” (BoE)
- The Bank of Japan maintained its key interest rate at 0.25% in its final meeting of the year. While one board member voted for a rate hike, the BoJ emphasized the need to carefully assess economic risks, including Americans’ policies and wage growth. The bank expects a moderate economic recovery in Japan, with inflation remaining elevated. 1Y trend: “Up” (BoJ)
- Angola’s economy grew by 5.5% YoY in Q3 2024, the strongest growth in nearly a decade. Key contributors to this growth included oil and gas extraction, trade, agriculture, and manufacturing. 1Y trend: “Up” (NEA)
On Friday, stocks rallied, recovering from earlier losses as core PCE prices increased the least since May. Part of the market now hopes that the Fed will reassess its stance. The dollar fluctuated near a 2-year high. EU consumer confidence reached a 6-month low. The Bank of China kept its rates unchanged. UK car production dropped to ATL since 1980. BTC and ETH attempted to recover after falling ~10% and ~25%, respectively.
Details
- Annual PCE inflation rose to 2.4% in November, slightly below expectations. Since 1960, PCE inflation has averaged 3.29%, reaching a high of 11.6% in 1980 and a low of -1.47% in 2009. Core PCE inflation rose 0.1% MoM in November, the smallest increase in six months. Annual core PCE inflation unexpectedly remained steady at 2.8%. 1Y trend: “Down” (BEA)
- The University of Michigan consumer sentiment index rose to 74 in December, the highest level since April , driven by improved expectations for future economic conditions. While consumers believe the economy has improved, inflation concerns remain. 1Y trend: “Up” (UMC)
Crypto
- The American stock market has surpassed $64T, adding $40T in 10 years, and reaching 74% of the World’s market. Tech giants have fueled this growth. (source)
World Markets
- Eurozone consumer confidence fell to -14.5 in December, reaching a six-month low. This decline was slightly worse than expected, with consumers becoming less optimistic about the economic outlook. 1Y trend: “Up” (EC)
- Brazilian consumer confidence declined in December, reaching a six-month low. This was primarily driven by worsening expectations for the future, likely influenced by rising interest rates and inflationary pressures, particularly on food prices. 1Y trend: “Up”
- The People’s Bank of China kept its key lending rates unchanged in December. This follows a pledge to increase the budget deficit and shift to a “moderately loose” monetary policy next year to boost economic growth. The central bank also indicated potential for further reserve requirement ratio (RRR) cuts. 1Y trend: “Down” (PBC)
- UK car production plummeted 30% in November, reaching a 44-year low. Falling demand and concerns about government EV targets are impacting the industry. Automakers are urging the government to support the sector and review regulations to avoid factory closures. 1Y trend: “Side” (Smmt)
- Japan’s core inflation rose to 2.7% in November, exceeding expectations. This continues a period of inflation above the Bank of Japan’s 2% target, influencing its monetary policy decisions. While the BoJ maintained rates in December, the central bank remains cautious about potential future hikes. 1Y trend: “Up” (JP)
Currencies
- The dollar index eased from 2-year high of 108.5 as lower-than-expected core PCE inflation raised hopes for further Fed rate cuts. 1Y trend: “Up”
On Week 52, following the FOMC’s announcement, expect a pause in macroeconomic data. Key reports to watch include Durable Goods Orders and New Home Sales for November, providing insights into manufacturing and housing. Additionally, the API Crude Oil Stock Change will offer trends in energy supplies, while Initial Jobless Claims will give insights into the labor market. Lastly, the Goods Trade Balance Advanced for November will be crucial for understanding trade dynamics.