SVET Markets Weekly Update (March 25–29, 2024)

On Week 13, the economy continued to show signs of slowing down, with major regional manufacturing indexes indicating weakness. Prices decelerated across main sectors, while FOMC members sent mixed signals about potential rate cuts, leading to mixed stock results. The S&P and DJ hit record highs, while Nasdaq underperformed and the dollar index rose.

Globally, gold reached a new ATH as major world banks softened their hawkish anti-inflationary rhetoric. Inflationary dynamics eased worldwide, although the yen stumbled as the Japanese economy showed some inflationary signs. The Chinese economy’s performance was still under question, despite upbeat government economic reports and promises to support the economy from CPC officials. Meanwhile, cocoa prices surged on pure speculative rush.

Crypto markets relented, with a double top pattern forming on BTC and ETH daily charts, leading many analysts to worry about a potential market reversal on a sell-the-news event after the upcoming BTC halving.

On Monday, new home sales decreased, Texas manufacturing slowed down while Chicago’s picked up, stocks paused after last week’s record highs. DJ fell, S&P dipped, Nasdaq remained flat. Consumer staples and industrials led declines, while energy outperformed. Intel and Microsoft dropped on China news (Intel processors ousted from government PCs). Chipmakers surged. Internationally, Yuan rose on government’s support while cocoa continued to rally. BTC and ETH led the crypto market, gaining over 6%, driven by technical factors and forming a ‘double top’ pattern.

Details

• New home sales dipped slightly in February (662Th annualized rate) compared to January, missing expectations. This aligns with rising mortgage rates. Sales dropped in some regions but rose in others. The median home price was $400,500. There’s currently an 8.4-month supply of new homes available. (Census)
• Chicago Fed’s economic growth index rose slightly to 0.05 in February, indicating a modest pick-up in economic activity. Improvement was seen in production, sales, and inventories compared to last month. (ChicagoFed)
• Texas manufacturing slowed down in March according to a Dallas Fed survey. Production, new orders, and shipments all fell. Business outlooks also weakened, with increased uncertainty. This suggests slower growth for Texas manufacturing. (DallasFed)
• 10-year Treasury yield rose as investors wait for clues on Fed rate cuts. Atlanta Fed Bostic expects a single cut instead of the two while Powell hinted on three cuts. Key inflation data and Fed official comments are eyed. Bets on a June rate cut are rising.

Crypto and Local Banks

• Iceland ditches Bitcoin mining for “real” farms. Worried about food security and energy use, the country prioritizes agriculture and self-sufficiency, aiming to feed its people and lessen reliance on imports. Renewable energy will focus on homes and essential industries, not digital currencies. (source)
• Hundreds of small banks are struggling after last year’s troubles. Sources analyzed about 4th institutions and found 282 with high levels of commercial real estate exposure and unrealized losses from the rate surge. Mergers have stalled. Behind doors, fearing publicity regulators are quietly pressuring banks to improve their finances. (CNBC)

World Markets

• Ghana’s central bank held interest rates at 29% to fight inflation. Inflation eased slightly to 23.2% but remains high. Economic growth in 2023 (+2.9%) exceeded targets (+2.3%), but the trade surplus narrowed due to lower exports.

Currencies

• China’s Yuan strengthened to 7.25 after state banks intervened and signaled support. This follows recent weakness on economic growth worries.

Commodities

• Rice futures prices fell to a 4-month low of $17.8 per hundredweight as the USDA forecast larger global rice supplies and slightly lower demand (Pakistan’s high stocks, India’s growing production).
• Cocoa prices continued its unprecedented rise, hitting a record high of $9.4K a ton (+45% in March). This explained by supply concerns in top growers Ivory Coast and Ghana. Poor harvests hurt by El Niño rains and heat. Ghana cut its production forecast. Prices may rise further as the smaller mid-crop season approaches.

On Tuesday, stocks were in the red as investors awaited inflation data and Fed clues. Durable goods orders surprised on the upside, but consumer confidence missed, and regional manufacturing activity continued to slow down. The financial and consumer discretionary sectors led, while utilities and energy lagged. Tesla and Reddit rose on news. In the world’s markets, the yen weakened despite Japanese government support, the Brazilian real is cheaper due to export concerns, and the Swiss franc fell against the USD due to its central bank’s rate easing move. BTC and ETH stumbled, meeting resistance at 70K and 3.6K, respectively, increasing the chances of forming medium-term side-channels on their price charts.

Details

• Home prices rose faster than expected in January (6.6% YoY), with San Diego and Los Angeles leading the gains. However, prices dipped slightly month-over-month due to rising mortgage rates. Only Southern California and Washington D.C. saw price increases in January. (SP)
• Factory orders for durable goods rose 1.4% in February, exceeding expectations. This follows a January decline. Orders for transportation equipment (cars, machinery) bounced back significantly. Business spending plans also showed a modest increase. (Census)
• Richmond manufacturing index fell to -11 in March, signaling a slowdown. New orders and backlogs dropped sharply. Despite this, employment remained stable and wage growth continued. Businesses are still somewhat optimistic, but less so than last month.(RichFed)
• A Texas service sector business survey showed a decline in March(index -5.5). Companies’ outlooks remained flat, but uncertainty rose. Revenue growth slowed, and employment was steady. Price pressures eased, but future activity expectations stayed positive. (DallasFed)

Crypto

• The London Stock Exchange will start trading Bitcoin and Ethereum ETNs in late May, pending regulatory approval. This move aims to bring cryptocurrencies to the traditional stock market. (source)

World Markets

• German consumer confidence rose insignificantly to -27.4 in April, the highest level of 2024. Income and economic outlook improved modestly. However, willingness to buy remains very low, and saving is still high. Experts say a sustained economic recovery hinges on lower inflation and clearer government plans. (GFK)
• Spain’s economic growth slowed in 2023. The final quarter came in at 2.0%, following a similar increase in the previous quarter. This brings the full year growth to 2.5%, down significantly from 2022’s 5.8% expansion. (INE)

Currencies

• The weak yen prompted warnings from Japanese officials. Finance Minister Suzuki didn’t rule out intervention, and currency diplomat Kanda called the decline “speculative.” This follows the Bank of Japan’s recent rate hike, which had little impact on the currency.
• The Swiss Franc weakened to a 5-month low. The Swiss central bank cut rates rate by 25bps to 1.5% and lowered inflation forecasts (also to 1.5%), while the US Fed held rates due to high inflation. This policy contrast caused the Franc to depreciate.
• The Brazilian real weakened (to 4.98) due to lower inflation and a weak export outlook. Lower inflation data increased expectations of a dovish stance by the central bank, potentially slowing future rate cuts. Concerns about slowing demand for iron ore and soybeans in China, key Brazilian exports, also weighed on the real.

On Wednesday, stocks rebounded after a two-day slump. The Dow surged on strong performances from Apple and Intel, while the S&P hit a record high. Tech stocks lagged, with Nvidia dropping. Investors await Fed comments and inflation data for clues on rate cuts. Utilities, real estate, and industrials led gains. In the world’s markets, Chinese industrial profits surged, while EU consumer sentiments improved only marginally. BTC and ETH continued to slide down by several percentage points, forming a side-channel on daily graphs. The crypto market followed suit, with Algorand, Polygon, and Solana dropping by 3% and more.

Details

• 30-year mortgage rates dipped barely noticeable to 6.93% (previous: 6.97%) in late March. This could increase housing inventory, but experts say it will likely be slow as rates are expected to fall further this year. (MBA)

Crypto

• Republican lawmakers urged the SEC to clarify rules for digital assets like Ethereum, particularly regarding custody services. They argue Ethereum isn’t a security and current uncertainty harms the market. This impacts offerings like Ethereum ETFs and the broader digital asset landscape. (source).
• Fidelity applied to launch a spot ETF. This filing offers the possibility of some holdings being staked to earn rewards. (source)

World Markets

• Chinese industrial profits surged 10.2% in early 2024, reversing a 2023 decline. This points to an economic recovery fueled by government support. Private sector profits grew much faster than state-owned ones. Gains were strong in tech, autos, and energy, while profits fell in mining and agriculture. (CN)
• Eurozone economic confidence rose to a 3-month high (96.3) in March, beating expectations. Both manufacturers and consumers were more optimistic, with sentiment also improving in services and retail. Inflation expectations eased slightly, while manufacturers expect to raise prices. Confidence rose in France, Italy, and Germany, but fell in Netherlands and Spain. (EU)
• French consumer confidence rose in March to a near two-year high (91), but stayed below the long-term average. People felt better about finances, standard of living, and future inflation. They were also more optimistic about buying big items and job prospects. (Insee)
• Spain’s inflation rose to 3.2% in March, after a dip in February. This is in line with expectations. Energy prices drove the increase, but food price growth slowed. Core inflation, excluding volatile items, dipped to its lowest level in over two years — 3.3%. (Ine)
• Russia’s industrial output surged to a 2-year high of 8.5% in February, up from 4.6% growth in January. Manufacturing, utilities, and mining all saw strong gains. The overall Russian economy also grew at a solid pace of 4.6% year-on-year in January. (RU)

Currencies

• The Euro held steady around $1.08, likely ending the quarter down vs. the USD. This follows the ECB signaling future rate cuts due to falling inflation. Investors expect a cut in June, with some anticipating more by year-end. The dollar strengthened as US rate cut expectations eased.
• The yen weakened to a 32-year low (152), sparking talk of intervention by Japanese officials. Finance Minister Suzuki warned they might take action. This follows the Bank of Japan’s recent rate hike, which had little impact on the currency’s decline.
• The British pound held steady (1.26) but is on track for a quarterly decline versus the dollar. This follows dovish signals from the Bank of England, which kept rates unchanged despite inflation. Some policymakers shifted toward holding rates, leading markets to believe the UK could cut rates before the US, but one official downplayed that expectation.
• South Africa’s rand gained slightly (18.9) after the central bank kept rates high to fight inflation. Inflation is near the target range, but policymakers expect it to take longer to cool down. This means interest rates will likely stay high for a while. (77 words)
• Mexican peso strengthened to an 8-year high (16.6) due to lower unemployment and bets on continued tight monetary policy to fight inflation. The central bank cut rates slightly but signaled a wait-and-see approach.

On Thursday, stocks barely budged at the close of Q1, with investors awaiting inflation data and Powell’s comments. This caution persists despite a strong quarter for stocks, with the S&P up 10% (its best performance since 2019). Internationally, gold reached a new ATH on expectations of global rate cuts, oil rose due to geopolitical tensions, and the dollar index is up following hawkish comments from FOMC members. In the crypto market, BTC surpassed 70K and ETH reached 3.5K once again. Bitcoin Cash continued its surge, adding 7% and surpassing 575.

Details

• The economy grew at a solid 3.4% annual rate in Q4 of 2023, slightly better than first thought. This was driven by stronger consumer spending on services and increased business investment in areas like technology and structures. Housing investment grew modestly, while government spending rose more than expected. Trade played a smaller role as both exports and imports grew slower than initial estimates. A bigger-than-expected reduction in business inventories also weighed slightly on the final growth figure. (BEA)
• Jobless claims unexpectedly fell to 210K in late March, better than expected. This continues a trend of low claims, but a separate measure of ongoing unemployment ticked up slightly. The data suggests a tight labor market, potentially allowing the Fed to wait before cutting rates. (DOL)
• Chicago PMI showed a deepening contraction in March (index 41.4). This is the 4th straight month of decline and the worst in 10 months. New orders and production fell, while employment surprisingly rose. Prices paid by businesses also dipped. (ISM) Also, the Kansas City Fed’s manufacturing index plunged to -9 in March, indicating a steep decline in production. (KFed)
• At the same time, consumer confidence (Michigan Consumer Sentiment Index) rose to a 29-month high of 79.4 in March after a revision. Both expectations and current conditions improved, while inflation expectations dipped slightly. (SCA)

Crypto

• A new report by Statista predicts a surge in global cryptocurrency use. Here’s a quick breakdown:

1. Russia: Projected to have the world’s second-highest number of crypto users (38.5 million) by 2027, boasting the fastest growth rate (15% annually).
2. USA: Currently leads with 52.8 million users, expected to nearly double by 2027 (102.2 million).
3. Europe: Combined user base to reach 191.6 million by 2027 from 101.5 million in 2022 (14% annual growth).
4. Rest of the World: Expected to experience explosive growth, jumping from 291.7 million users in 2022 to 729.3 million by 2027 (20% annual growth).

World Markets

• German retail sales dropped 2.7% YoY in February. This follows a record low in March 2023 and indicates continued weakness in the retail sector. (DES)Germany’s unemployment rate stuck at a 15-month high of 5.9% in March. Disparities remain, with Bremen and Berlin worst hit, while Bayern and Baden-Württemberg fare best. (Stat)
• South Africa’s producer price inflation (PPI) dipped to 4.5% in February (below expectations), after a higher reading in January. The pace of price increases slowed down for various goods. Monthly inflation was also lower than forecast. (SA)
• Brazil’s unemployment edged up to 7.8% in early 2024, but remains low compared to levels (up to 15%) since 2015. The number of unemployed people increased, but wages also grew slightly. (IBGE)

Currencies

• The dollar rose to near a six-week high around 104.4 after a Fed official hinted at delaying rate cuts. This comes as inflation data remains strong. Investors await the key PCE inflation report for clues. The dollar gained ground against most currencies but could weaken versus the yen if Japan intervenes to support it.

Commodities

• Gold prices surged to a new ATH, on track for its biggest monthly gain (+8.5%) in over a year. This rally is fueled by hopes of Fed rate cuts despite stubborn inflation. Investors see gold as attractive due to lower yields and ongoing geopolitical tensions. The key inflation data on Friday will be closely watched for clues on the Fed’s future moves.
• Oil prices climbed above $82 per barrel for a third month in a row. This is despite a surprise inventory build and ongoing geopolitical tensions. The rise is fueled by expectations of OPEC+ maintaining production cuts at their upcoming meeting, along with higher refinery activity.

On Friday, the stock market is closed for the Easter break. Powell delivered his remarks at the San Francisco Fed, indicating he’s not in a hurry to cut rates, contrary to majority expectations. This may reflect negatively on Monday’s market opening. Globally, gold continues to outperform, hitting a new ATH at $2,230 while steel prices fall to 4 years low on weakening Chinese economy. BTC and ETH remained within narrow ranges of $72K-$68K and $3.6K-$3.4K on hourly charts, forming a double top pattern on daily ones. Meanwhile, Bitcoin Cash keeps rallying, rising approximately four times YoY and outperforming all major alts except Solana, which surged approximately eight times YoY.

Details

• Core inflation (PCE), excluding food and energy, remained steady in February at 0.3% monthly and 2.8% annually. Personal income grew, but at a slower pace than January. Spending surged in February, driven by services like finance and transportation, along with car purchases. This suggests inflation might be plateauing, while consumer confidence is rising. (BEA)

Crypto

• Bitcoin Cash (BCH) saw a dramatic reversal in mid-February, skyrocketing 55% in a week. This surge comes ahead of a key event: the halving on April 3rd, which cuts new coin creation in half. This, along with the launch of BCH futures contracts on Coinbase and a rising network hash rate, has fueled a return of investor interest and speculation about BCH’s future. Even BCH co-founder Roger Ver is reigniting the debate about BCH’s role as the “true” Bitcoin. (source)
• A UK government task force published a report exploring how blockchain technology can be used in investment funds. This builds on their earlier work and looks at using tokens as collateral and streamlining the investment process. The government welcomes this progress, highlighting the UK’s position as a leader in financial innovation. (source).
• Crypto analysts argue that cryptocurrencies, particularly meme coins and NFTs, are better suited for the modern attention economy than Web2 platforms, which struggle to accurately measure and compensate user attention. (source)

World Markets

• Ukraine’s current account deficit shrank significantly to $111 million in February 2024, compared to $705 million a year earlier. This is due to a sharp drop in both service and good imports. Smaller surpluses from other areas partially offset this improvement. (UA)
• Vietnam attracted $4.6 billion in foreign investment in the first quarter of 2024, up 7.1% YoY. Pledges for future investment also rose, indicating continued growth. Manufacturing received the most investment, with Singapore and Hong Kong as the top sources. (MPI)

Commodities

• Gold prices remained near record highs above $2,230 despite thin trading. This is due to expectations of central banks cutting rates, including the Fed’s possible move in June. Geopolitical tensions also boosted demand for safe-haven gold.
• Steel prices plunged to a 4-year low due to weak demand in China. Steel mills are taking in iron ore, but production is down as construction slows. This reflects a gloomy outlook on China’s property market despite government attempts to boost it.

On Week 14, locally focus is on jobs data and economic activity indicators. Globally, inflation reports and manufacturing health are key. Trade data and interest rate decisions will also be watched closely.

Comment: On falling PMI in major States.

So, we still have burgeoning stocks coupled with a weakening economy, along with Powell’s constantly dwindling influence. He continues to play political games in an election year, giving the market hints on impending cuts, only to retract them, trying to navigate between pressure from both Democrats and Republicans. Meanwhile, economic data from the week confirmed the economic slowdown.

Democrats are worried about their falling popularity among key, low-income electorate due to high rates, affecting mortgages and slowing the economy. Plus, accumulated inflation pressure is unbearable. At the same time, Republicans enjoy rates, which undermine Democrats’ position. Let’s see how things develop.

In Kansas, the main manufacturing industries heavily impacting regional PMIs include transportation equipment manufacturing (35%), machinery manufacturing (25%), and food manufacturing (20%).

Corporations such as Spirit AeroSystems Holdings Inc., Textron Aviation, and Cargill are major players in transportation equipment manufacturing, machinery manufacturing, and food manufacturing respectively, significantly influencing regional PMIs.

In Chicago, the dominant manufacturing sectors influencing regional PMIs are machinery manufacturing (30%), fabricated metal product manufacturing (25%), and food manufacturing (20%).

Prominent corporations like Caterpillar Inc., John Deere & Company, and Archer-Daniels-Midland Company are key contributors to machinery manufacturing, fabricated metal product manufacturing, and food manufacturing respectively, impacting regional PMIs.

In Michigan, key manufacturing industries significantly affecting regional PMIs are transportation equipment manufacturing (40%), machinery manufacturing (25%), and fabricated metal product manufacturing (20%).

Companies like General Motors, Ford Motor Company, and Fiat Chrysler Automobiles are dominant players in transportation equipment manufacturing, significantly affecting regional PMIs.

So, falling regional PMIs indicate a rapidly worsening situation in key industries such as transportation, food, and machinery across the country. The Fed must pay attention to that.

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