SVET Markets Weekly Update (February 12–16, 2024)

On Week 7, monthly inflation rose higher than expected, but the economy continued to show signs of slowing down, confusing traders and leading to a sideways move on stock markets. The Euro Area economy stagnated, while Japan entered a recession. Oil prices increased due to geopolitical tensions and the OPEC+ response. In the crypto markets, BTC hovered around 52K, and traders’ attention switched to ETH after Templeton filed for a spot Ethereum ETF.

On Monday, stocks were mostly flat near record highs ahead of the CPI release, as earnings season continued. The S&P 500 and Nasdaq 100 hit ATH again and then slightly declined. Investors awaited remarks from Fed officials for signs of potential interest rate cuts. On global markets, EU stocks reached record highs, following N. American indexes, while oil and gold prices held steady, awaiting Fed comments and inflation data. The cryptocurrency market saw significant gains, with Bitcoin adding 4% and surpassing $50K for the first time since December 2021. Major altcoins followed suit, with Polygon and Ethereum leading the charge, each increasing by about 5%.

Details

• The budget deficit decreased to $22 billion in January 2024, compared to $39 billion the previous year, due to record-high receipts and lower tax refunds. Outlays grew by 3% to $499 billion, while receipts increased by 7% to $477 billion. The deficit for the first four months of the fiscal year rose by 16% to $532 billion.(BFS)

Crypto

• Franklin Templeton files for spot Ethereum ETF, joining other asset managers seeking SEC approval. The ETF will reflect the price of ether, with Coinbase and Bank of New York Mellon as custodians.(source)
• ERC-404 token market cap experiences high volatility, plunging 30% before partially recovering. The ERC-404 standard combines ERC-20 (fungible) and ERC-721 (non-fungible) token standards, linking tokens to NFTs. (source)
• Torrevieja, a coastal city in Spain, has initiated a plan to become Europe’s first “crypto-friendly” city. The Association of Small and Medium-sized Merchants of Torrevieja (APYMECO) and the Torrevieja City Council aim to transform the city into a blockchain hub through a three-phased plan, focusing on cryptocurrency trade, sustainability, and job creation.(source)

World Markets

• European stocks closed higher on Monday as markets evaluated new corporate earnings and anticipated macroeconomic data. The Eurozone’s Stoxx 50 and Stoxx 600 reached record highs. Financial companies led the gains, with Axa and UniCredit advancing close to 2%. Consumer goods also advanced, with strong performances by LVMH and L’Oreal. Saab jumped nearly 6%, while Siemens Energy advanced 5.7%.
• India’s industrial production grew by 3.8% in December 2023, exceeding expectations, with manufacturing output increasing by 3.9%. Mining and electricity output slowed compared to the previous month. From April to December, industrial production rose by 6.1%. Manufacturing production averaged 5.82% growth from 2006 to 2023. (MOSPI)
• The Philippines saw a 27.8% year-on-year increase in net foreign direct investment (FDI) to a near two-year high of USD 1.05 billion in November 2023, driven by an expansion of net inflows for net debt instruments. Inflows dropped for equity capital (-52.5% to USD 0.09B). Equity capital mainly came from Japan and the United States, channeled to manufacturing, real estate, and construction industries.
• Russia’s trade surplus in 2023 plunged by 2.4 times to USD 140 billion, with exports down 28.3% to USD 425.1 billion and the share of mineral products declining to 61.2%. Destinations shifted, with decreases to European (-68%) and South/North American (-40.4%) countries, but increases to Asian (5.6%) and African countries (42.9%). Imports rose by 11.7% to USD 285.1 billion. Among imports, machinery, equipment, and vehicles increased by 5.1 percentage points to 51.1%, and chemical products by 2.8 percentage points to 19.5%.

Currencies

• The dollar index (DXY) rose slightly above 104 as investors awaited consumer inflation data, which may indicate interest rate trends. January’s headline inflation is expected to fall to 3%, while the core rate may reach 3.8%.

Commodities

• WTI crude at $76.92/bbl, supported by Middle East tensions, but global supply and demand concerns limit further gains.
• Gold prices were subdued around $2,020 an ounce on Monday as many Asian markets were closed for holidays. Investors are awaiting key US inflation data that could impact interest rate expectations. Despite a smaller than expected increase in December CPI, gold did not gain ground. Markets still expect a possible Fed rate cut in May.

On Tuesday, yearly inflation continued to decrease (3.1%), but monthly core inflation rose higher than expected, coupled with technical indicators showing over-bought levels, causing markets to overreact, leading to all major stock indexes dropping sharply. Economic sentiments in the EU improved but the Euro hit a 3-month low due to lower chances of early rate cuts by the Fed. The crypto market was also in red, with BTC correcting more than 1% and ETH remaining flat. Litecoin (-6%), BCH (-4%), and Chainlink (-3%) declined more than the rest of the altcoin market. Additionally, the CoinBase reported that 8.2 million residents (27% of all adults) in CA own crypto.

Details

• Core consumer prices rose by 0.4% in January 2024, the highest increase since April 2023, driven by higher costs in shelter and transportation services. This challenges disinflation trends and supports FOMC hawks. The acceleration in costs of shelter and transportation services drove the increase, offsetting slowing inflation for goods such as used cars and trucks, apparel, and medical care commodities. (BLS)
• The annual inflation rate in the US decreased to 3.1% in January 2024 from 3.4% in December, although it was higher than market forecasts of 2.9%. Energy costs notably dropped, with gasoline declining by 6.4%, utility (piped) gas service falling by 11.8%, and fuel oil sinking by 14.2%. However, prices increased at a softer pace for food, shelter, new vehicles, apparel, medical care commodities, and transportation services, while the decline for used cars and trucks continued.(BLS)
• The NFIB Small Business Optimism Index dropped to 89.9 in January 2024, the lowest in eight months, due to labor quality and inflation concerns. Twenty percent of owners cited inflation as their top problem, while 39% reported unfilled job openings. Plans to create new jobs also softened, with a net 14% planning to hire in the next three months.(NFIB)

Crypto

• The Blockchain Association (BA) opposes Senator Elizabeth Warren’s proposed Digital Asset Anti-Money Laundering Act (DAAMLA). A letter from 80 individuals, including former U.S. government and military officials, argues that digital assets are vital for the nation’s strategic advantage. The letter suggests DAAMLA would be ineffectual against foreign illicit actors and could hinder innovation and economic growth in the digital asset industry. Additionally, it refutes Senator Warren’s claim that former defense, national security, and law enforcement officials were attempting to obstruct digital asset regulation.(source)
• Spot Bitcoin exchange-traded funds (ETFs) have experienced daily net inflows of approximately $125M during their first month. Grayscale’s Bitcoin Trust (GBTC) has seen significant outflows, but it remains a prominent player in the new product offerings.(source)
• According to a 2023 research 8.2M residents in California, accounting for 27% of the state’s adult population, own digital assets. Nearly 80% of these digital asset holders would be more likely to support pro-crypto political candidates. 40% of California crypto owners were aged between 18 and 34. Nationally, a majority (51%) of Millennials and Gen Z adults say they are likely to support crypto-friendly candidates in 2024. (source)
• Coinbase reported a 12% decline in its third quarter transaction revenue, amounting to $289 million. Despite this decrease, the company’s adjusted EBITDA, which represents earnings before interest, taxes, depreciation, and amortization, remained positive for the third consecutive quarter, totaling $181M. Some analysts predicted a 16% increase in Coinbase’s quarterly revenue, projecting it to rise from $674M to $784M YoY. (source)

World Markets

• The ZEW Indicator of Economic Sentiment for the Euro Area rose to 25 in February 2024, exceeding expectations. Analysts were split on economic activity forecasts, while the current economic situation improved. Inflation expectations decreased.()

Currencies

• The euro weakened to $1.07, its lowest since November 13th, as investors opted for the strong dollar after hotter-than-expected US inflation data reduced expectations of early Federal Reserve interest rate cuts.

Commodities

• Mining production in South Africa increased by 0.6% YoY in December 2023, with growth in PGMs, coal, chromium, nickel, and non-metallic minerals. However, output declined for iron ore, metallic minerals, manganese ore, and gold. Monthly production decreased by 4.2% in December. (StatsSA)
• Tin futures rose to around $25,500 per tonne due to supply risks. Delays in mine approvals in Indonesia and uncertain production in Myanmar led to reduced exports. Partial mining activities in Wa State may resume after the Chinese New Year, impacting the world’s 3rd largest tin producer.

On Wednesday, PPI came in lower than expected, and stocks rebounded with the Nasdaq climbing more than 1%. Semiconductors and crypto-related stocks, like Nvidia (+2.5%) and Coinbase (+14%), led gains. In the world’s markets, the Euro Area reported stagnation, as palladium prices rebounded from a low base. Crypto continued to surge as BTC increased by +4%, surpassing 52K and the $1T market cap mark. On the altcoins side, Avalanche (6%), Cardano (+6%), ETH (+5%), and Polygon (+5%) are leading the pack. In other news, the BlackRock ETF received an additional $0.5B in just one day.

Details

• Producer prices (PPI) decreased 0.2% monthly in December 2023, more than initially estimated, while core PPI dropped 0.1%. Excluding food, energy, and trade, producer prices rose 0.2%. The BLS adjusts its seasonal factor annually to account for price movements. November and October figures were unrevised.(source)
• Job openings rates fluctuated in several states in December, with some increasing and others decreasing. Nationally, the job market remained relatively stable with little change in job openings, hires, and separations rates.(BLS)

Crypto

• Bitcoin ETFs are seeing strong demand, with BlackRock’s iShares Bitcoin Trust receiving $493 million in inflows on a single day — this Tuesday — and now managing $5.1 billion in assets. This suggests strong investor interest in gaining exposure to Bitcoin through traditional investment vehicles. (source)

World Markets

• Luis de Guindos (ECB VP) speech summary: Economic activity stagnated in Q4 2023, with inflation driven by energy effects. Underlying inflation indicators are declining, reflecting a disinflationary trend. Financial stability concerns arise, especially for highly indebted corporates and real estate sectors. Euro area banking system remains resilient, but vigilance is needed. (ECB)
• In Q4 2023, the Euro Area economy stagnated due to high inflation, borrowing costs, and weak demand. Germany contracted by 0.3%, while France’s GDP stalled. Spain and Italy saw growth, and the Dutch economy ended its three-quarter contraction. The Eurozone economy advanced by 0.1% year-over-year, and full-year GDP growth in 2023 was 0.5%, a significant decline from previous years.(EuroStat)
• Industrial production in the Euro Area rose 2.6% monthly in December 2023, exceeding expectations and marking the largest gain since August 2022. Durable consumer and capital goods output rebounded, but energy, non-durable consumer, and intermediate goods production decreased. Annual industrial activity increased 1.2%, the first yearly rise in ten months.

Commodities

• Palladium prices rose above $900/ounce due to bargain buying amid recent price declines. Support also came from Eurozone avoiding recession and industrial production rebounding. Despite a surplus expected this year, major producers — South Africa (80th metric tons), Russia (74th mt.), Canada (17th mt.) and the US (14th mt.) — are maintaining output levels. Declining demand for catalytic converters due to EVs has impacted the market on the downside.

On Thursday, stocks rose, with 10 out of 11 S&P sectors finishing higher, led by energy, real estate, and materials. Silver prices also rose. Treasury yields declined, and traders assessed weak retail sales data. The crypto market is mostly flat, with BTC at $52K and ETH at $2.8K, both slightly in the green.

Details

• Retail sales fell 0.8% in January 2024, the largest drop since March, surpassing forecasted declines. Several sectors, including building materials and gasoline stations, saw significant decreases, while furniture stores and food services saw increases. (CB)
• The NY Empire State Manufacturing Index improved to -2.4 in February 2024 but remained in contraction territory. New orders and unfilled orders declined, while shipments rose. Employment was steady, and input price increases accelerated. Businesses were cautiously optimistic about the next six months.(NY Fed)
• The Philadelphia Fed Manufacturing Index rose to 5.2 in February 2024, surpassing forecasts. New orders remained negative, while shipments turned positive. Employment fell to its lowest since May 2020. Price increases were reported but remained below long-term averages. Indicators suggest optimism for growth in the next six months.(Phil Fed)

Crypto

• Chainalysis reported 29.5% drop drop in crypto sent to launder-friendly services from $31.5 billion in 2022 to $22.2 billion. The decline in laundering outpaced the overall transaction decrease, indicating a potentially cleaner crypto landscape. (source)
• Gibran Rakabuming Raka, son of Indonesia’s president, won the local elections with 60% of the vote, indicating the public’s growing embrace of digital technologies. His campaign promoted blockchain, crypto, AI, and cybersecurity, aligning with Indonesia’s goals to become a digital leader and bridge the divide.(source)

World Markets

• Peru’s GDP contracted by 0.74% in December 2023, against expectations. Declines were seen in fishing, financial & insurance, and manufacturing. Growth slowed in agriculture and mining, while utilities and accommodation & restaurants grew faster. The GDP for 2023 decreased by 0.55%.
• Tunisia’s economy contracted for a second straight quarter entering a technical recession, with declines in oil refining, manufacturing and agriculture offset slightly by growth in services like hotels, restaurants and finance; quarterly GDP rose slightly but annual growth was just 0.4% in 2023.(INS)

Commodities

• Silver prices rose to $23/ounce due to Fed rate cut possibility. Retail sales fell, while jobless claims dropped. Chicago Fed Goolsbee expressed caution about waiting too long before cutting rates, citing inflation data and 2% target.

On Friday, PPI unexpectedly increased, and major stock indexes fell on concerns about delayed Fed rate cuts. The real estate, tech, and consumer discretionary sectors underperformed. The Japanese economy entered a technical recession, while oil prices increased on OPEC+ decision. Soybean prices hit a 2-month low after an increased stocks forecast. The crypto market continued its sideways movement, with BTC (+52K) and ETH (+2.8K) wavering at their 2-year highs. At the same time, altcoins’ bulls used that pause to push major coins higher, with BNB, Algorand, and Polygon continuing their 2-day surge by adding another +2.5%.

Details

• Producer prices (PPI) rose 0.3% in January, the largest monthly increase in five months, driven by a 0.6% surge in service costs. Goods prices fell 0.2%, with gasoline dropping 3.6%. Year-on-year, PPI increased 0.9%, while core PPI rose 0.5% monthly and 2% annually, both above estimates.(BLS)
• Housing starts dropped 14.8% in January 2024 to 1.331 million, the lowest since August, missing forecasts. Single-family starts fell 4.7%, and multi-unit starts plunged 35.8%. All regions experienced declines.(CB)
• The University of Michigan consumer sentiment rose to 79.6 in February, a fresh high since July 2021 but below forecasts. Expectations improved, while current conditions dipped slightly. Inflation expectations for the year ahead increased to 3% and remained at 2.9% for the five-year outlook.(UM)

World Markets

• European stocks closed higher, with the Eurozone’s Stoxx 50 reaching a 23-year high and the broader Stoxx 600 jumping to ATH. Tech shares, led by ASML, and industrial companies, including Safran, BASF, and Air Liquide, fueled the gains. Additionally, ECB member de Galhau emphasized the rationale for an initial interest rate cut, while NatWest surged over 7% following strong results and a new CEO appointment.
• Japan’s Q4 2023 GDP unexpectedly shrank by 0.1%, missing forecasts and leading to a recession. Private consumption declined for the third consecutive quarter, capital expenditures were muted, and public investment decreased. However, net trade contributed positively due to stronger export growth.(Esri)
• The CBR kept its key rate at 16% in February, halting a series of hikes. Inflation has eased to 6.6% annually, and the CBR predicts it will fall below 4.5% by year-end, nearing the 4% target. Despite this, inflation risks remain, and the economy, impacted by sanctions and labor shortages due to mobilization, grew by 3.6%, above expectations.(CBR)

Commodities

• WTI crude futures hit a 3-months high at $79.19, supported by Middle East tensions, OPEC+ supply cuts, and a weaker dollar. However, the IEA warned of slowing global oil demand, revising its 2024 forecast downward, and anticipating a larger supply increase.
• Soybean futures are bearish at $11.7 per bushel, near the lowest levels since December 2020, due to increased US grain stocks forecast. Weakened Chinese demand, strong South American competition, and favorable rainfall in Argentina and Brazil contribute to the negative outlook.

On Week 8, investors will focus on FOMC minutes and global flash PMIs, including the US, Eurozone, Germany, France, UK, Japan, and India. Germany’s Ifo Business Climate, Turkey’s interest rate decision, and Canada’s inflation rate will also be closely watched.

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