SVET Markets Weekly Update (October 21–25, 2024)

Equities closed mixed, with the Nasdaq finishing slightly in the green while the SP and Dow both declined. This divergence can be attributed to the mixed macroeconomic landscape. Manufacturing continues to decline, albeit at a slower pace, as indicated by the less pessimistic readings from the Richmond Manufacturing Index. While building permits have fallen, the consumer sentiment index has risen. Additionally, the dollar index decreased after reaching three-month highs.

On a global scale, the economic picture mirrors this mixed sentiment, with a continued slowdown but at a more measured pace. The IMF has revised its global growth forecast for 2025 down to 3.2%. However, consumer confidence in the Euro Area has increased. The Japanese yen has weakened slightly, approaching a critical level that could prompt intervention from the BoJ again. Meanwhile, the Mexican peso has continued to decline amid intensifying concerns over the automotive sector, exacerbated by Trump’s threats of steep tariffs on Mexican cars. In China, the offshore yuan has stabilized, reflecting subdued market reactions to the PBoC’s recent monetary easing measures, while foreign direct investment has shown a slight improvement.

In the cryptocurrency market, BTC is making attempts to reach its ATH, driven by a surge in demand for spot BTC ETFs, which has reached its highest level since the halving in April, coinciding with Trump’s favorable polling. ETH remains stuck in the $2.4K to $2.6K range, facing a lack of investor interest.

On Monday, stocks declined after their longest weekly rally of the year, as investors prepared for a busy earnings week, while Treasury yields rose, impacting consumer and homebuilder shares. Major earnings reports are anticipated from Tesla, Coca-Cola, and GE Aerospace, with 79% of companies exceeding expectations so far. Gold reached a new ATH as the yuan stabilized after monthly devaluation due to the CCP’s stimulus package, despite the PBOC’s recent monetary easing. BTC retreated sharply after yet another attempt to reach an ATH. It appears there is a significant sell wall built at the psychologically important level of $70K, which some major players are defending in order to accumulate as much BTC as they can before a historic breach attracts new buyers. ETH remains stuck at $2.6K, with low interest from investors.

Crypto

• Most crypto users get their blockchain information from social media, with Twitter leading at 41.7%. Telegram follows with 21.5%, and YouTube with 20.8%. Crypto news websites lag behind at 5%. Telegram has 950 million users, with 58% aged 25–44 and 53.2% male. With the rise of TON blockchain and in-app transactions, Telegram has grown as a home for crypto enthusiasts. TON Blockchain supports 7,734,371 transactions daily on average. (source)

Currencies

• The Japanese yen dropped below 149.5 per dollar, approaching the critical 150 level that could trigger intervention by authorities. Last week, it reached an 11-week low of 150.32 as the dollar strengthened due to positive economic data. Japan’s inflation rates also slowed to five-month lows of 2.5% and 2.4%. The nation’s top currency diplomat warned against excessive volatility, and markets are closely monitoring the 150 threshold for potential intervention. 1Y trend: “Down, Appreciating “
• The Mexican peso fell to 20 per USD, its lowest in six weeks, due to both domestic and external pressures prompting calls for looser borrowing. Concerns over the automotive sector intensified due to Trump’s threats of steep (3x) tariffs on Mexican cars. An IMF report projected a 1.5% growth this year, while the Bank of Mexico indicated a potential rate cut. Rising US rate expectations have also reduced interest in emerging markets amid limited Chinese stimulus efforts. 1Y trend: “Up, Depreciating “
• The offshore yuan stabilized at 7.13 per dollar amid subdued market reactions to the PBC’s recent monetary easing, which lowered interest rates to record lows. The one-year and five-year LPRs were both cut by 25 basis points. This followed hints from PBOC Governor Pan Gongsheng about potential further reductions. Despite a slight GDP growth of 4.6% in Q3 and a drop in the unemployment rate to 5.1%, new home prices fell for the 15th month, decreasing 5.7% year-on-year. 1Y trend: “Side”

Commodities

• Gold prices surged to new ATH (~$2,730) due to rising demand for safe-haven assets amid escalating Middle East tensions, along with upcoming presidential elections. Additionally, looser monetary policies from major central banks, including rate cuts by the PBoC and ECB, support gold, although strong economic data hints at a potentially less dovish Fed. 1Y trend: “Up”

On Tuesday, equities finished mostly flat, with the SP and Dow slightly down, while the Nasdaq rose. Concerns over interest rates and mixed earnings results persisted. Treasury yields reached a high of 4.22% before easing, reflecting traders’ reassessment of the Fed’s future actions. Key stock movements included General Motors rising, while Verizon and Lockheed Martin fell. Investors are monitoring upcoming earnings from Tesla, Coca-Cola, and Honeywell. The IMF reduced its global growth forecast to 3.2%. BTC continued to correct, reaching 67K, while ETH remained at 2.6K.

Details

• The Richmond Fed Manufacturing Index was -14, showing less pessimism than September’s -21 but marking a year of negative activity. New orders declined at a slower rate (-17 vs -23), while shipments fell (-8 vs -18) and backlogs decreased (-14 vs -16). Capital expenditures and employment continued to drop, though wages increased slightly (16 vs 15). Input costs slowed down (2.7 vs 3.4), but output prices rose more sharply (1.7 vs 1.6). 1Y trend: “Down” (Rich)

World Markets

• The International Monetary Fund reduced its 2025 global growth forecast to 3.2%, down 0.1 percentage points from July, while keeping this year’s estimate steady at 3.2%. The IMF cited rising risks from conflicts and trade protectionism but commended central banks for managing inflation. US GDP is now projected to grow 2.8% in 2024, up from 2.6%. The Euro Area’s growth forecast fell to 0.8%, while China’s and Japan’s forecasts were also lowered. The UK’s GDP estimate increased to 1.1%, and India’s remains at 7%. 1Y trend: “Side”

Commodities

• Newcastle coal futures are currently at $145 per tonne, down from a one-year high of $153 on October 7th, as strong domestic supply and alternative energy sources temporarily reduced demand for thermal coal. China’s coal output rose 4.4% in September, supported by increased production capacity after safety inspections ended. Despite economic concerns, thermal power generation in China increased nearly 10% YoY, with imports hitting a record 47.6 million tonnes, keeping futures 27% above March’s low. 1Y trend: “Up”

On Wednesday, equities declined, with the Dow and S&P falling about one percent, and the Nasdaq decreasing by about two percent. Rising Treasury yields affected stocks as the Q3 earnings season progressed and cautious outlook from Fed officials. Consumer confidence in the EU rose. Japan’s manufacturing decreased for four consecutive months. BTC rebounded marginally after three red days, while ETH continued to oscillate in a narrow range between 2.5K and 2.7K, averaging 2.6K for about three months.

Details

• Existing home sales fell 1% to an annualized rate of 3.84 million, the lowest since October 2010, and below forecasts. Sales decreased in the Northeast, Midwest, and South, while the West saw a 4.1% rise. The median home price dropped to $404,500 from $414,200. 1Y trend: “Down” (NAR)
• The average interest rate for 30-year fixed-rate mortgages with conforming loan balances in the US held steady at 6.52%, near two-month highs. After hitting a two-year low of 6.13% in September, mortgage rates have increased recently due to rising Treasury yields. 1Y trend: “Down” (MBA)

World Markets

• Consumer confidence in the Euro Area rose by 0.4 points to -12.5 in October 2024, the highest level since February 2022, but still below the long-term average. 1Y trend: “Up” (EU)
• The au Jibun Bank Japan Manufacturing PMI dropped to 49.0 in October 2024, down from 49.7 in September and below the forecast of 49.9. This marks four consecutive months of contraction and the strongest decline since March. Output and new orders also shrank significantly, with exports experiencing faster declines. Employment fell for the first time since February, and purchasing decreased for the first time in three months. Business sentiment hit a 2.5-year low, with mixed signs on inflation. 1Y trend: “Up”
• The Bank of Canada reduced its key interest rate by 50 basis points to 3.75% in October 2024, signaling more cuts if the economy follows expected trends. This move follows three previous 25 basis point reductions, responding to a significant slowdown in inflation, which fell to 1.6% in September, below the 2% target. The bank noted a slowdown in consumption and a rise in the unemployment rate above 6.5%. It anticipates GDP growth of 1.2% this year and 2.1% next year. 1Y trend: “Down”

Commodities

• Aluminum futures climbed to $2,660 per tonne, nearing the four-month high of $2,685 from October 2nd, despite declines in other base metals. Steady demand and rising supply concerns, particularly from China’s slowing factory output, helped stabilize aluminum prices, which are vital for electric vehicles and solar panels. Aluminum stocks at Chinese ports fell by 20% since March. Meanwhile, bauxite prices surged as Guinea ceased exports, further tightening supply for Chinese smelters amid decreased output from Australia and Jamaica. 1Y trend: “Up”

On Thursday, equities finished mixed, with technology stocks outperforming and leading to gains in the Nasdaq. Tesla surged more than 20%, adding over $100B in market value following strong profits. Other notable stock movements included declines in IBM, Honeywell, and Boeing. The dollar decreased, while the Indian rupee remained close to record lows due to increased foreign exchange outflows from Indian markets. BTC held steady near 68K, while ETH remained roughly unchanged at 2.5–2.6K.

Details

• The Chicago Fed National Activity Index fell to -0.28 in September, down from -0.01 in August. Production indicators contributed -0.21, while sales, orders, and inventories remained at -0.03. Employment indicators dropped to -0.03 from neutral. The personal consumption and housing category improved slightly to -0.01 from -0.03. The three-month moving average also decreased to -0.19 from -0.14. 1Y trend: “Side” (CFed)
• Unemployment claims decreased to 227K for the week ending October 19th, marking the lowest level this month and falling short of expectations of 242K. This decline suggests resilience in the labor market amid rising interest rates, reinforcing the likelihood that the Fed will avoid aggressive rate cuts. 1Y trend: “Up” DoL
• The Composite PMI increased to 54.3 in October, up from 54.0 in September, indicating growth in business activity at the quarter’s start. The service sector led this growth (PMI at 55.3), while manufacturing continued to decline (PMI at 47.8). Employment dipped slightly amidst pre-election uncertainty, though business confidence improved, anticipating post-election stability. 1Y trend: “Up” (SP)
• In October, the Kansas Fed Composite Index was -4, an improvement from -8 in September and close to -3 in August. This index averages production, new orders, employment, supplier delivery times, and raw materials inventory. The decline affected both durable and nondurable goods, especially in chemical, steel, and beverage manufacturing. 1Y trend: “Down” (KFed)
• In September, building permits dropped 3.1% to a seasonally adjusted annual rate of 1.425M, revised from an initial estimate of 1.428 million. Permits for buildings with five or more units fell 9.2% to 405 thousand, while single-family authorizations decreased by 0.4% to 963 thousand. The Northeast, Midwest, and South experienced declines in permits, while the West saw an increase of 8.9% to 331 thousand. 1Y trend: “Down” (Census)

Currencies

• The dollar index decreased to 104.2, after rising nearly 1% to three-month highs over the previous three sessions. Investors are focused on interest rates and anticipate the Fed won’t reduce rates as much as previously thought, due to strong economic data and election uncertainties. Initial jobless claims dropped, returning to pre-hurricane levels. The probability of a 50bps rate cut this year decreased to approximately 68%. The dollar weakened against the British pound and Japanese yen. 1Y trend: “Side”
• The Indian rupee has remained below 84 since mid-October, close to record lows, amid rising foreign exchange outflows from Indian markets. Concerns about sustaining economic growth prompted investors to reduce their positions in Indian equities and bonds, leading to significant net outflows recently. Additionally, investors shifted focus to Chinese markets after new stimulus measures and expectations for RBI easing declined due to September’s consumer inflation surpassing 5.5%, exceeding the RBI’s 4% target. 1Y trend: “Up, Depreciating”

On Friday, stocks closed in the red after the Nasdaq reached an ATH but then retreated, even as Michigan consumer sentiment hit its highest level in six months. Declines in banks overshadowed gains in technology, with Microsoft and Apple rising 1–2% ahead of earnings. For the week, the S&P and Dow fell, while the Nasdaq gained slightly. EU inflation expectations decreased. China’s FDI improved marginally but is still down 30% YoY. BTC (67K) and ETH (2.5K) finished slightly in the red, remaining volatile within narrow ranges.

Details

• In October, the University of Michigan’s consumer sentiment index rose to 70.5, up from a preliminary 68.9, marking the highest level in six months. Both economic conditions and expectations improved, driven by better buying conditions for durable goods due to lower interest rates. Concerns about the upcoming election affected consumer views, with those anticipating a Harris presidency dropping from 63% to 57%. Inflation expectations remained steady at 2.7%, while five-year expectations fell to 3%. 1Y trend: “Up”(Umich)
• In September, new orders for manufactured durable goods fell by $2.2B (0.8%) to $284.8B, following a similar decline in August. The drop was mainly due to a $3.1B (3.1%) decrease in transportation equipment. Orders for machinery, computers, and capital goods also declined. However, excluding transportation, new orders rose by 0.4%, while non-defense capital goods orders excluding aircraft increased by 0.5%, exceeding market expectations. 1Y trend: “Side” (Census)

Crypto

• Demand for spot BTC ETFs has surged to its highest level since the BTC halving in April, while interest in futures trading appears to be declining. According to a Glassnode report, daily trading volumes for futures contracts are about $35B, significantly lower than the $80B seen after BTC hit its ATH of $73,679 in March, indicating a lack of significant activity among futures traders. (source)

World Markets

• In September, median inflation expectations in the Euro Area fell to 2.4%, marking a new low since September 2021, down from 2.7% in August. Three-year inflation expectations also declined to 2.1%, the lowest since February 2022. Income growth expectations rose to 1.3%, while nominal spending growth remained steady at 3.2%. Economic growth projections stayed at -0.9%, but the expected unemployment rate increased slightly to 10.6%. 1Y trend: “Down” (EU)
• Foreign direct investment (FDI) in China fell by 30.4% to CNY 640.6B in the first three quarters of 2024, showing a slight improvement from the 31.5% decline recorded in the first eight months. 1Y trend: “Down” (CN)
• In October, Germany’s Ifo Business Climate indicator rose to 86.5, its first increase in five months, surpassing expectations. The current conditions sub-index improved to 85.7, while business expectations climbed to 87.3. Despite brighter expectations, skepticism remains as the economy shows signs of stability. In manufacturing, optimism increased, although the current situation is still viewed negatively, with order shortages persisting. Conversely, the service sector saw improvement, particularly in logistics, tourism, and IT. 1Y trend: “Down” (Ifo)
• In September, France’s Initial Jobless Claims rose to 42.20K, up from -12.70K in August 2024. Historically, claims have averaged -0.80K from 1996 to 2024, peaking at 807.30K in April 2020 and hitting a low of -190.50K in June 2020.
• Spain’s Q3 unemployment rate dropped to 11.21%, the lowest since Q2 2008, aligning with market expectations. Unemployment fell by 1,200 to 2.754M, while employment rose by 138,300 to 21.823M. 1Y trend: “Down” (INE)
• The Bank of Russia unexpectedly raised its key interest rate by 200bps to 21%, exceeding the anticipated 100bps increase. This is the highest rate on record, surpassing the 20% hike following the 2022 ruble crash. The central bank highlighted persistent inflation driven by strong domestic demand, limited economic capacity due to Western sanctions, and a labor shortage. Deteriorating trade conditions and an expansive 2024 Federal Budget further exacerbated inflation expectations. 1Y trend: “Up” (CBR)

Week 44, will be eventful as investors await Q3 GDP growth estimates, non-farm payroll data, the unemployment rate, and JOLTS job openings. Key reports will also include ISM Manufacturing PMI, consumer confidence, and PCE inflation. Major companies like Microsoft, Alphabet, and Apple will announce their Q3 earnings. In Europe, inflation and GDP data will be released by several countries, while Asia will see China’s PMIs and Japan’s interest rate decision.

Comment: What’s Up With The World Markets?

Overall, markets appear to be entering a plateau, buoyed by slightly improved economic indicators but weighed down by uncertainties in geopolitics. The risks of entering a global stagflation scenario are increasing, as central banks worldwide exhibit weakness and hesitation in their easing policies, failing to act decisively to promote job creation and manufacturing growth.

Furthermore, the widening divide between the Global North and South — highlighted during the recent BRICS summit in Kazan — suggests that artificial political barriers, such as tariffs, are likely to further slow down the global economy in the near future. In this context, easing monetary policies by central banks have become a necessity; however, inertia and the outdated charters of these institutions hinder timely responses to the macroeconomic situation. Compounding this issue is the rapidly developing military sector, which will significantly increase government expenditures globally, inevitably leading to higher taxes that could suppress business productivity even more.

In addition, politically driven border closure policies between the North and South will likely exacerbate inflationary pressures, as industrial production from the North becomes more expensive for Southern economies, while energy and food costs rise for the North. Consequently, this could trigger inflation on both sides of the increasing divide. Rising inflation will, in turn, limit the ability of central banks to pursue active easing policies.

Taken together, these factors create an environment conducive to the onset of global stagflation.

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