SVET Markets Weekly Update (December 23–27, 2024)
On Week 52, traders’ optimism was visibly shaken by a politically motivated Fed’s decision to significantly slow its pace of rate easing, undermining previously rosy outlooks for 2025. The Brazilian real further weakened against the dollar due to concerns over fiscal policy and rising inflation expectations. Meanwhile, the Turkish lira hit a record low, and the South Korean won plunged to a 16-year low amid escalating political turmoil. In Japan, the Bank of Japan maintained its key interest rate at 0.25%. BTC surged to $100K, diverging again from ETH, which stagnated under $3.5. However, BTC then experienced a decline, dropping below $95K as traders reacted to movements in the stock market.
On Monday, equities closed higher, driven by gains in technology and semiconductor stocks. Despite weak consumer confidence, the market rallied, with Nvidia, TSMC, Broadcom, and AMD leading the gains. The dollar’s growth receded as the Brazilian real weakened further amid rising inflation expectations. BTC (96K) and ETH (3.4K) continued to recover slowly after a difficult week.
Details
- The Chicago Fed National Activity Index increased to -0.12 in November, indicating a slight improvement in economic growth. Production, sales, and employment indicators showed modest improvement. However, consumer spending and housing remained weak. 1Y trend: “Down” (Cfed)
- Durable goods orders declined 1.1% in November, worse than expected. Transportation equipment led the decline. However, orders for non-defense capital goods excluding aircraft increased, suggesting some resilience in business investment. 1Y trend: “Side” (Census)
- New home sales rose 5.9% in November, exceeding expectations. Sales increased in the South and Midwest but declined in the West and Northeast. The median and average home prices remained elevated. 1Y trend: “Up” (Census)
World Markets
- The Brazilian real weakened further against the dollar amid concerns over fiscal policy and rising inflation expectations. Despite recent spending cuts, uncertainties remain, and inflation forecasts have risen. The Fed’s hawkish stance on interest rates also supported dollar strength. 1Y trend: “Up, Depreciating”. At the same time, Foreign Direct Investment in Brazil increased by $7B in November. FDI in Brazil has averaged $4.01B since 1995, reaching ATH of $16.27B in December 2010 and ATL of -$5.18B in December 2021. 1Y trend: “Up” (BR)
Comment: What’s Up With Elon Musk?
The world has been divided not only from without but also from within. One lesson that business has learned from its past is to stay as far away from politics as possible. Not only it is dangerous to play those ruthless, brainless games of muscle against muscle and sword against sword, but it also frightens away many customers. Those who break that rule perish sooner or later.
However, bureaucrats want to be rich too, so they do whatever it takes to not only meddle in business under the pretext of “customer protection” but also to draw in as many entrepreneurs as they can. Alas, many talented but politically naive businesspeople still fall into that trap. They immediately find it impossible to retain the professional, impersonal cool that helped them serve humanity best; their motivation becomes irrational and emotional, filled with prejudices and foolishness.
After that, an entrepreneur finds that bureaucrats force them to divide the world into “us,” representing “everything good,” and “them,” representing “everything bad.” This is especially true in our times, when the deep chasm dividing our world into the “individualist” North and the “collectivist” South has become so apparent and increasingly violent. Many good entrepreneurs find it difficult to use only two colors for their brushes — black and white. The more they do so, the worse their businesses will be. Some of them may become pure machines of evil, as has happened so often in the not-so-distant past.
The only solution is the complete decentralization, or better yet, alienation of business from any type of bureaucratic government, which are run by the “will of dear leaders” and not by direct democracy or algorithmic-based consensus mechanisms.
On Tuesday, equities rose during the shorter trading session on Christmas Eve, led by Nvidia, Tesla, and Amazon, despite a slightly improving regional manufacturing situation (Richmond) as the market anticipates a pause in interest rate hikes by the Fed. The Brazilian real, South African rand, and New Zealand kiwi weakened against the dollar. New Zealand currency was further impacted by its economy entering a technical recession. BTC and ETH continued to edge higher as some traders tried to regain the New Year rally spirit.
Details
- The Richmond Fed Manufacturing Index improved slightly in December, rising from -14 to -10. New orders and shipments stabilized, while employment remained positive. Business optimism increased, with firms expecting stronger future activity. 1Y trend: “Down” (RFed)
Crypto
- One of largest cryptocurrency exchanges, saw a 683% surge in Gen Z users after the 2024 presidential election. Trump’s pro-crypto policies and market growth fueled this increase. Gen Z, representing 53.8% of new users, is increasingly influential in crypto, driven by their digital-native mindset and openness to alternative finance. This trend has global implications for cryptocurrency adoption. (source)
World Markets
- Car sales in Thailand continued to decline sharply in November, falling 31.34% YoY (reaching to lowest points of 2020, 2008 and 2000). This marks the 18th consecutive month of decline, driven by rising household debt and tighter lending conditions. The FTI revised its car sales and production forecasts for 2024 downward. 1Y trend: “Down” (Tai)
Currencies
- The South African rand weakened to a multi-month low against the US dollar. The Fed’s hawkish stance and stronger dollar increased pressure on emerging markets. While South Africa’s inflation remains low, economic growth has slowed, and political uncertainty persists. 1Y trend: “Side”
- The New Zealand dollar remained weak near a 2-year low. Expectations of further interest rate cuts by the RBNZ, following weaker-than-expected economic data, weighed on the currency. GDP contracted by 1% QQ after -1.1% in the previous period, officially pushing the country into recession. A slight easing of the US dollar provided some brief support. 1Y trend: “Down”
Commodities
- Rice futures fell to a 3-year low amid expectations of increased supply. India’s record rice reserves could boost exports and lower prices. The USDA slightly lowered global rice supply and consumption forecasts for 2024/25, with India’s higher reserves contributing to increased ending stocks. 1Y trend: “Down”
On Wednesday, despite the markets being closed for Christmas, BTC surged to 100K, diverging again from ETH, which stagnated under 3.5K. In other news, the Bank of China and the Bank of Japan both maintained their key rates at 2% and 0.25%, respectively. Singapore has surpassed Hong Kong and Estonia as a global leader in blockchain technology.
Crypto
- Singapore tops a recent study as the global leader in blockchain technology, surpassing Hong Kong and Estonia. The study ranked countries based on blockchain patents, jobs, and crypto exchanges. (source)
World Markets
- The PBoC injected CNY 300B into the financial system via MLF on December 25th, while withdrawing a significant amount of maturing loans. The MLF rate remained unchanged at 2.0%. Despite a recent shift to a “moderately loose” monetary policy, the PBoC has maintained a cautious approach, likely due to concerns about potential trade impacts from US policies. 1Y trend: “Down” (PBC)
- The Bank of Japan maintained its key interest rate at 0.25% in its final meeting of 2024. While one board member favored a rate hike, the BoJ emphasized the need to assess American economic policies and wage growth. The bank expects a moderate recovery in Japan, with inflation remaining elevated. 1Y trend: “Up” (BoJ)
On Thursday, equities marginally recovered after the Christmas holidays. Although the market is still driven by tech performance and expectations of continued AI growth, its optimism was visibly shaken by politically motivated Fed actions, which undermined its previous dovish stance. Additionally, the money supply (M2) is almost at an ATH as a result of increasing throughout 2024, pointing to stagflation. The South Korean won plunged to a 16-year low amid growing calls for the president’s impeachment, while the Turkish lira hit an ATL as the country entered into a technical recession. Furthermore, France’s unemployment rose to a two-year high as Spanish producer prices started to grow for the first time in 20 months. BTC stumbled, falling back to 95K as traders suddenly sold off the recent spike, casting doubts on the Santa rally, while ETH lowered to 3.3K.
Details
- Initial jobless claims fell to 219K in the second week of December, lower than expected. This suggests a tight labor market, aligning with the Fed’s assessment. However, outstanding claims rose, indicating a longer job search duration. 1Y trend: “Up”. (DOL)
- Money Supply M2 increased slightly to $21,221.20B in September (average: $5,389.55B since 1959; ATH: $21,723.20B in April 2022; ATL: $286.60B in January 1959). (Fed)
Crypto
- Over 15 million South Koreans, representing more than 30% of the population, now hold cryptocurrency. This surge follows the US presidential election and Trump’s pro-crypto stance. Crypto holdings and daily transaction volumes have significantly increased, approaching stock market levels. (source)
World Markets
- Producer prices in Spain rose 0.9% YoY in November, ending a 20-month decline. Energy prices rebounded, while costs for capital and consumer goods also increased. On a monthly basis, producer prices surged 2.7%. 1Y trend: “Up”. (INE)
- Unemployment in France rose sharply in November 2024, reaching its highest level since August 2022. The increase was most pronounced among core-aged workers. 1Y trend: “Up”. (Dares)
- The Turkish lira hit a record low (35.2), plunging 16.3% in 2024. Weak economic growth, aggressive interest rate cuts by the central bank, and reduced currency interventions contributed to the lira’s decline. Turkey entered into the technical recession in Q3.
Currencies
- The South Korean won plunged to a 16-year low amid escalating political turmoil. The impeachment of acting President Han Duck-soo and a hawkish Fed are weighing heavily on the currency. 1Y trend: “Up”
On Friday, equities fell, led by declines in major tech stocks. Despite weekly gains, rising Treasury yields reaching yearly highs and concerns about the Fed’s changed rate-easing policy are weighing on investors. Profits for China’s industrial firms declined. EU gas prices increased notably due to geopolitical factors. BTC and ETH continued to edge down, following the decline in stocks. BlackRock’s ETF was reported to hold over 1M ETH.
Details
- The 10-year Treasury yield rose above 4.6%, driven by Fed’s sudden policy reversal to seeing inflation as a greater threat to the economy than a slowing labor market. 1Y trend: “Up”
Crypto
- BlackRock’s ETH ETF now holds over 1M ETH, worth over $3.5B. This indicates growing institutional investor confidence in ETH, despite its recent price struggles compared to BTC. The ETF allows investors to gain exposure to ETH without directly holding the cryptocurrency. (source)
World Markets
- Profits of China’s industrial firms declined by 4.7% YoY in the first 11 months of 2024. Weak demand, deflation risks, and the property downturn weighed on profits. Profits fell across various sectors, including ferrous metals, chemicals, and cars. Monthly profits shrank 7.3% in November, on track for the sharpest annual decline on record. 1Y trend: “Down” (CN)
- Retail sales in Spain grew 1% YoY in November, slower than expected. Growth slowed in both food and non-food categories. On a monthly basis, retail sales declined 0.6%. 1Y trend: “Up” (INE)
Commodities
- WTI crude oil prices rose 1.4%, supported by a larger-than-expected decline in oil inventories. However, concerns about lower Chinese demand and increased non-OPEC+ supply weighed on prices. Uncertainty surrounding energy policies under the new administration also impacted market sentiment. Despite geopolitical jitters, oil prices has remained uncharacteristically stable for a fourth month in a row, pointing at World’s economic stagnation. 1Y trend: “Side”
- European natural gas futures rose 2% due to concerns over potential disruptions to Russian gas supplies. The current transit agreement with Ukraine expires this year, and negotiations for a new deal face challenges. A potential loss of Ukrainian gas could increase Europe’s reliance on other sources. 1Y trend: “Up”
- Steel rebar futures in China declined by 17% in 2024, driven by weak demand amid the country’s economic slowdown. The property crisis and sluggish construction activity have significantly impacted demand for steel. Despite government support measures, economic activity remains weak, and the manufacturing sector continues to contract. 1Y trend: “Down”
On Week 1, there will be ISM Manufacturing PMI, offering traders further clues on the state of the weakening manufacturing sector. Also we’ll see EU Manufacturing PMI, which will provide an updated picture of slowing manufacturing activity in the EU. Chinese Caixin Manufacturing PMI will shed more light on the state of China’s decelerating manufacturing sector. Other Key Releases include Case-Shiller Home Price YoY, which will provide further insights into slowdown of housing market.
Comment: What’s Up With 2025?
Investment banks have started to publish their 2025 “investment outlooks.” Here’s how it goes.
Saxo Bank stands out with its “Outrageous Predictions” among which are: “Trump 2.0 blows up the US dollar,” “China unleashes CNY 50T stimulus to reflate the economy,” “A natural disaster bankrupts a large insurance company,” and “Pound erases post-Brexit discounts versus the Euro.”
Regardless, Citibank remains upbeat: “The global economy has ‘broken the rules’ by growing despite usually reliable recession signals. We believe this expansion can continue in 2025 and 2026…” It is supported by HSBC, which states: “Cyclical support for portfolios should principally come from earnings growth and continued rate cuts…” Barclays simply says: “The macro backdrop is attractive.” Smaller banks, like NatWest, also fall into that narrative: “We have been leaning into ‘risky’ assets… such as stocks and high-yield bonds…”
Two banks, BNP Paribas and Deutsche Bank, put America first. BNP: “Our regional preference remains the US. Enthusiasm for artificial intelligence was the primary driver of rising earnings in 2024…” Deutsche Bank: “… the U.S. will remain the center of gravity.”
UBS sounds more cautious: “A key question is whether political change might extend or end the Roaring 20s. The upside scenario would see lower taxes, deregulation, and trade deals… The risk scenario is that trade tariffs, excessive fiscal deficits, and geopolitical strife will contribute to higher inflation, weaker growth, and market volatility.”
Overall, however, the tone of almost all “outlooks” I have read so far is overly optimistic. It seems that corporate “analysts” are overcompensating for their “inflation-stagnation” type projections of 2023–24. Therefore, it is almost certain that those “rosy” scenarios are unlikely to be realized.
I stand by my already expressed opinion that in the epoch of a global, once-in-a-century generational shift, the only viable strategy is to play volatility. Importantly, though, this volatility might be stupendous.
Merry Christmas and a Happy New Year!
