SVET Markets Weekly Update (September 5–9, 2023)
On a short Week 36, Nasdaq went down due to increasing inflationary worries, while BTC traded sideways in an all-too-familiar pattern.
On Tuesday, Nasdaq closed slightly higher, but was pressured by rising oil prices and concerns about global economic growth. The energy sector rose, while Airbnb and Blackstone climbed after news that they will join the S&P 500. Tesla also rose after reports of production rebound in Shanghai. BTC was trading sideway while FSB and IMF warned against total ban on crypto.
The OPEC+ alliance, led by Saudi Arabia and Russia, agreed to extend its voluntary oil production cuts of 1 million barrels per day until the end of December. This decision was made to support the stability and balance of oil markets. Russia also extended its voluntary reduction in oil exports by 300,000 bpd until the end of the year. The extension of the oil production cuts came despite concerns about the health of the Chinese economy. The services PMI at the world’s largest crude importer disappointed, which weighed on oil prices. However, the overall impact of the production cuts was to push WTI crude oil prices to a 9-month high.
Global financial bodies, including the Financial Stability Board (FSB) and the International Monetary Fund (IMF), warned that banning cryptos is not effective and may create risks.
On Wednesday, Nasdaq closed lower as strong economic data raised inflation concerns and bets against Fed rate cuts. The ISM Services PMI unexpectedly jumped to 54.5 in August, pointing to the strongest growth in the services sector in six months. Oil prices held at November level highs, which raised further concerns about a rise in inflation. BTC continued the boring sideway move as regulators keep pressuring companies to disclose their crypto-holdings more comprehensively through regular accounting reports.
The services sector grew at the fastest pace in six months in August, as measured by the ISM Services PMI. The index unexpectedly jumped to 54.5, beating expectations of 52.5. All the sub-indexes showed improvement, with business activity, new orders, employment, and inventories all rising. However, price pressures also intensified.
New US accounting standard will require companies to report crypto assets separately in financial statements, not as intangible assets.
On Thursday, the Nasdaq closed lower as investors worried about the Federal Reserve’s plans to raise interest rates. Tech stocks fell the most, with Apple down 2.9%. Lower-than-expected jobless claims and strong labor costs data pointed to a tight labor market, which could keep the Fed on track to raise rates. BTC has a small up-tick despite Fed Barr spoke against crypto again.
The number of filings for unemployment benefits fell to the lowest level since February. Continuing claims also fell to the lowest level since mid-July. This data suggests that the labor market remains strong despite the Federal Reserve’s tightening cycle.
Fed Barr said: Non-federally regulated stablecoins could pose significant risks to financial stability and policy. A robust federal framework is needed before they become widely adopted.
On Friday, Consumer credits disappointed but Nasdaq and energy stocks rose slightly, while Apple shares edged up after a sharp decline in the previous two sessions due to news that Chinese government workers were banned from using iPhones. G20 doubled down on its pan to implement “the travel rule” while BTC got down 25K again.
Consumer credit increased by $10.4 billion in July 2023, below market expectations of $16 billion. Revolving credit, such as credit cards, increased by $9.6 billion, while non-revolving credit, such as auto and student loans, increased by $773 million.
G20 leaders want to quickly implement a global framework for regulating cryptocurrency.
Inflation in Russia rose to 5.2% in August, the highest level in six months. The central bank is expected to raise interest rates to combat inflation, which is forecast to reach between 4.5% and 6.5% by the end of the year. Food and non-food prices rose, while services inflation slowed. Also, Russia’s GDP grew by 4.9% year-on-year in the second quarter of 2023, marking the country’s first expansion since the invasion of Ukraine. The growth was driven by a recovery in domestic demand and foreign trade, with sectors such as manufacturing, construction, and retail all contributing. However, health and social services contracted. Additionally, Russia’s budget deficit widened to a record high of RUB 2.361 trillion in the first eight months, as revenues fell and expenses rose. Revenues dropped by 3.5%, while expenses rose by 11.8%. The widening deficit is being driven by sanctions against Russia’s energy sales and the war in Ukraine.
On the other side of the conflict, the inflation in Ukraine slowed in August, decelerating to 8.6% from 11.3% in July. The slowdown was seen across most categories, with the most significant impact in recreation & culture, household appliances, housing & utilities, health, and food & non-alcoholic beverages. However, transportation inflation accelerated. On a monthly basis, consumer prices fell by 1.4%.
The FAO Food Price Index fell in August 2023, the eighth consecutive month of decline, reaching its lowest level since April 2021. All major food categories declined, except sugar, which rose due to concerns over the impact of El Niño.
The ongoing war in Ukraine has had a significant impact on the global food market. However, market forces have been able to redistribute food production to areas that are unaffected by the war, such as Oceania and Australia. This has helped to keep food prices stable and prevent a global food crisis.
In Ukraine, food inflation has actually fallen in recent months. This is due to a number of factors, including the government’s efforts to control prices and the increased activity of entrepreneurs who are taking advantage of the situation to start new businesses.
These developments demonstrate the power of market forces to respond to shocks and disruptions. They also highlight the importance of decentralization in economic management. Governments should not try to micro-manage the economy. When governments intervene too heavily, they can often do more harm than good.
In the present day, with advanced technology and communication, it is much easier for governments to destroy economies than to create them. This is because governments can easily disrupt the free flow of goods, services, and capital. They can also impose regulations that make it difficult for businesses to operate.
The best way to ensure economic prosperity is to create a decentralized system where market forces are allowed to operate freely. This will allow the economy to adapt to change and respond to shocks more effectively.
Here are some specific examples of how market forces have helped to redistribute food production and keep food prices stable during the war in Ukraine:
Farmers in Oceania and Australia have increased their production of wheat, corn, and other grains.
Exporters of food products from these countries have diverted shipments to countries that are affected by the war.
Food processors have switched to using different ingredients, such as substituting sunflower oil for soybean oil.
Retailers have changed their pricing strategies to keep food prices affordable.
Week 37 will see a flurry of economic data releases, with key indicators from the US, Europe, UK, China, Brazil, India, and Australia. Investors will be closely watching inflation data, retail sales, GDP growth, unemployment rates, industrial production, and other indicators for signs of economic health.