SVET Markets Weekly Update (September 2–6, 2024)

On Week 36, global stocks took a hit, driven by concerns about a weakening labor market and a slump in the tech sector. Locally, job cuts increased significantly, while the unemployment rate remained steady. Crude oil prices plummeted to a thirteen-month low amid fears of a global economic slowdown. In the Eurozone, private sector activity strengthened, except in Germany. BTC and ETH plunged, targeting 50K and 2K, respectively, as the Ethereum Foundation increased its selling activity.

On Tuesday, stocks plunged, led by technology and economic concerns, with Nvidia and other chipmakers suffering significant downs. Communication services stocks also underperformed. Weak factory data added to the market’s woes, raising concerns about the economy and Fed’s potential actions. Globally, crude oil prices dipped to a nine-month low due to a weakening world economy. Meanwhile, BTC is around 57.6K and ETH is around 2.4K, both continuing to show red, signaling bearish trends.

Details

• The ISM Manufacturing PMI rose slightly in August but remained below 50, indicating continued contraction. factory activity. New orders, production, and employment all declined, while input costs increased at a faster pace than expected. These results suggest that the Federal Reserve’s interest rate hikes are having a negative impact on the manufacturing sector. 1Y trend: “Side” (ISM)

Crypto

• A poll shows that 50% of cryptocurrency holders intend to vote for Donald Trump, while only 38% favor Kamala Harris. Among non-crypto voters, Harris leads with 53% compared to Trump’s 41%. The survey indicates that 15% of voters own cryptocurrencies or NFTs, with a notable representation of young and racial minority groups among these users. Thus, significant political preferences vary between cryptocurrency holders and non-holders. (source)

World Markets

• The Brazilian economy grew faster than expected in the second quarter, driven by increased consumer spending and government investment. However, net exports were a drag on growth due to higher imports and lower commodity prices. This stronger-than-expected performance may support the case for a rate hike by the Brazilian central bank. 1Y trend: “Up” (Ibge)

Currencies

• The dollar rose slightly as traders weighed economic data. The ISM Manufacturing PMI showed that factory activity continued to contract, raising concerns about the impact of interest rates. Investors are looking for more economic data to inform the Fed’s expected rate cut. The dollar gained against the Australian dollar but lost ground against the yen. 1Y trend: “Side”

Commodities

• Crude oil prices plunged to nine-month-low, below 71, driven by weaker-than-expected Chinese economic data and lower oil demand in the U.S. and China. Meanwhile, OPEC signaled plans to increase production in the fourth quarter. 1Y trend: “Side”
• Gold prices dipped below $2,500 as investors awaited economic data to gauge the likelihood of a Fed rate cut. While recent inflation data has tempered expectations for a significant cut, markets still anticipate a total of 100 bps in rate cuts this year. In Europe, the ECB is also expected to lower rates due to slowing inflation. 1Y trend: “Up”

Comment: What’s Up With Australia?

For years the Australian Dollar (AUD) keeps within a range of 0.8 to 0.6. Since 1990, the AU200 stocks index has tripled in value and continues to grow slowly after previous fluctuations. The annual GDP growth rate of Australia has been gradually declining since 2008, averaging approximately 2.5%. The unemployment rate stands at 4.2%, which is close to its record low and has decreased consistently from a high of 10% in the 1990s.

Inflation in Australia is at 3.8%, nearing its lowest levels. The Australian Central Bank has stubbornly maintained its interest rate at 4.35%, which is consistent with levels seen in 2010. Business confidence is on the verge of entering negative territory, while historically, it has reached a high of around 18. Consumer confidence in Australia experienced a significant drop in 2022, remaining at around 80 since then.

Overall, the Australian economy is heavily reliant on commodity exports and has a relatively low growth rate. It is significantly affected by the economic conditions of its major export partners, particularly China. As China’s economy faces downturns, so does the Australian economy. There has been little progress in diversifying away from this dependency into high-tech sectors over the past 40 years, leading to the same cyclical issues. This situation exemplifies the ‘Resource Curse.’

On Wednesday stocks traded mixed but closed slightly in the green, correcting upward after Monday’s drop, the sharpest seen since early August. A decline in job openings to a four-year low raised expectations of a larger Fed rate cut. Energy and tech stocks underperformed. Globally, oil prices continue to drop due to fears of a global recession. BTC and ETH were almost unchanged, technically remaining bearish, with 50K and 1.7K as the next targets.

Details

• Job openings declined in July for the first time in two years, falling to the lowest level since 2021. This decrease was primarily driven by fewer openings in healthcare, government, and transportation sectors. While hires and separations remained relatively stable, job quits decreased to a two-year low. 1Y trend: “Down” (BLS)
• Factory orders rebounded strongly in July, increasing by 5% and exceeding expectations. This growth was driven by a surge in durable goods orders, particularly for transportation equipment. However, excluding transportation, orders grew at a much slower pace. 1Y trend: “Down” (Census)
• Despite all “re-shoring” rhetorics the trade deficit widened in July to its highest level in two years. Exports reached a record high, but imports grew even faster, driven by technology goods and intellectual property. The deficits with China and Canada also expanded. 1Y trend: “Down” (BEA)

Crypto

• El Salvador’s President Nayib Bukele, a strong supporter of BTC, has acknowledged that his cryptocurrency initiative hasn’t gone as intended. In a recent TIME magazine interview, Bukele admitted that “Bitcoin hasn’t had the widespread adoption we hoped for”. (source)

World Markets

• The Eurozone’s private sector activity strengthened in August for the sixth consecutive month, led by services. However, manufacturing remained weak, and new orders, employment, and business confidence declined. While input costs fell, output prices rose. France and Spain contributed to the overall improvement, while Germany experienced a second consecutive decline. 1Y trend: “Side” (SP)
• The German private sector contracted at a faster pace in August, driven by a sharp decline in manufacturing. New business and exports fell significantly, while job cuts increased. Inflation rose slightly, but cost pressures eased. Business confidence weakened, particularly in manufacturing. 1Y trend: “Down” (SP)

Commodities

• Crude oil prices fell sharply, reaching the lowest level in 10 months (68). Concerns about rising supply, a potential deal to restart Libyan oil production, and weak economic data from China and the US contributed to the decline. 1Y trend: “Side”

Comment: What’s Up With Mexico?

The Mexican peso has recently weakened past 19.85 per USD. Over the past 30 years, it has depreciated by 20 times since the 1990s due to active business expansion and government interventions. In contrast, the IPC Mexico Stock Market has grown more than 50 times during the same period.

From 1994 to 2024, Mexico’s annual GDP growth rate averaged only 2.07 percent, a disappointing figure given the global economic expansion of that period, which was hampered by numerous bureaucratic barriers.

Meanwhile, the unemployment rate in Mexico rose from 3% to 5% in 2009 but returned to 3% as a phase of vigorous economic growth ended in the mid-2000s. This downturn was influenced by government interventions that rendered businesses less effective in managing their workforce.

Mexico’s inflation rate has dramatically declined from 20–30% annually in the 1990s to around 5% today, reflecting tighter control by monetary authorities and increased economic effectiveness. The Bank of Mexico has maintained interest rates at a record 10–11%, which diminishes the local economy’s attractiveness for small and medium-sized enterprises (SMEs).

As a result, business confidence in Mexico has remained relatively low, never exceeding 60 for decades, while consumer confidence has also been suppressed throughout much of the 2000s and 2010s.

Overall, Mexico’s economic potential — supported by its large population, favorable geography, resource availability, and proximity to the world’s largest economy — remains largely untapped due to inadequate governance and significant economic and political mismanagement.

On Thursday, stocks traded mixed as investors anticipated Friday’s employment report. Private payrolls data showed weaker-than-expected job growth, but falling unemployment claims provided some optimism. Overall, conflicting economic signals raised concerns about a potential recession and the Fed’s monetary policy. Internationally, the Eurozone construction sector continued to contract. BTC and ETH dropped marginally to 56K and 2.4K, reinforcing bearish sentiments.

Details

• Job cuts surged in August, reaching a five-month high. Tech companies led the layoffs, reflecting growing economic uncertainty. This aligns with other indicators suggesting a softening labor market, supporting the case for lower interest rates. 1Y trend: “Up” (CH)
• Initial unemployment claims decreased slightly but remained elevated compared to earlier this year. The decline suggests a marginally improving labor market, but it remains historically tight. Outstanding claims also fell, and the four-week moving average decreased.
• 1Y trend: “Up” (DOL)
• The ISM Services PMI rose slightly in August, surpassing expectations. While new orders and employment showed growth, production slowed, and the backlog of orders decreased. Prices continued to rise at a faster pace, driven by increased costs in various sectors. 1Y trend: “Down” (ISM)

Crypto

• Private Telegram groups are not private anymore. The corresponding statement was removed today from TG FAQ. Telegram generates substantial revenue from cryptocurrency-related activities. Despite an overall loss, the company reported $342.5 million in revenue in 2023, with over 40% stemming from its cryptocurrency wallet and collectible sales. Telegram’s operations are based in the British Virgin Islands. (source)

World Markets

• The Eurozone construction sector continued to contract in August, with new orders falling sharply. This led to a decline in activity, employment, and purchasing. All three segments of the construction sector experienced contractions, with housing and commercial construction seeing the steepest declines. While input prices rose slightly, inflation remained below long-term averages. Despite this, construction companies remain pessimistic about the future. 1Y trend: “Down” (PMI)

On Friday, stocks plunged due to concerns about a weakening labor market and tech sell-off. Major tech companies and chipmakers suffered significant downside. The August jobs report and Fed comments further fueled market anxiety, leading to the worst weekly performance since early 2023. Globally, oil dropped to its yearly lows on global economy slowdown concerns. BTC and ETH were followed stocks preparing to test 50K and 2.0K, correspondingly, again. That is added by Ethereum Fundation starting to selling ETH in unseen earlier volumes.

Details

• The unemployment rate decreased to 4.2% in August from 4.3% in a prior month, matching expectations. The number of unemployed people remained stable, with a slight decrease in temporary layoffs. Long-term unemployment persisted, accounting for over 20% of the unemployed. 1Y trend: “Up” (BLS)

Crypto

• The Ethereum Foundation has substantial ETH reserves ($650 million worth of funds) but has been selling some (1K ETH just today) to fund operations and support the ecosystem (~100M USD yearly). This has caused controversy within the community. Vitalik has also been selling Starknet tokens for similar reasons. (source)

World Markets

• The FAO Food Price Index declined in August, primarily due to lower cereal and sugar prices. Wheat prices fell amid weak demand and increased competition from Black Sea exports. Sugar prices dropped due to improved production prospects. Meat prices also decreased slightly. However, vegetable oil prices rose due to higher palm oil costs. Dairy prices increased due to strong import demand and limited supplies. 1Y trend: “Side” (FAO)

Commodities

• WTI crude oil prices fell sharply this week due to OPEC+ delaying production increases, weak economic data in China and the U.S., and potential supply increases from Libya. However, a significant drop in U.S. oil inventories provided some support. Overall, oil prices experienced their worst weekly decline in months. 1Y trend: “Side”

On Week 37, global investors will be closely watching local inflation data as well as that from Euro Area, China, Mexico, Brazil, Russia, and India. Other important releases include ECB interest rate decision as well as trade data, consumer confidence surveys, GDP growth, and unemployment rates in various countries.

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