SVET Reports
Thursday's Markets Update (September 14, 2023)
On Thursday, the Nasdaq rose, with Arm Holdings’ successful IPO lifting investor sentiment. Headline producer inflation beat estimates, while core PPI met expectations. Also strong economic data indicated the economy resilience. Retail sales increased. BTC extended its rally re-energized by the ECB rate announcement. Other news: House GOP want to control the issuance of CBDCs.
Details
Producer prices rose 0.7% in August, the highest level since June 2022. Energy prices led the increase, while core prices rose 0.2%.
Comment
The producer price index (PPI) is a measure of the prices paid by producers for goods and services. The August increase in PPI shows that input costs for businesses are rising, which is likely to be passed on to consumers in the form of higher prices. This is a sign that inflation is likely to remain elevated in the near term.
The war in Ukraine, OPEC+ political games and most lately China reportedly increased industrial output are a major factors driving up energy prices, which are a major component of PPI.
The Fed is expected to raise interest rates in September again in an effort to cool inflation. However, it is not clear how effective this will be. The Fed’s efforts to curve inflation by suppressing demand may have reached their limits. The US economy is already slowing, and raising interest rates further could tip it into recession.
Crypto
Republicans in the House of Representatives are pushing for legislation to prevent the Federal Reserve from issuing CBDCs without express approval from Congress.
Comment
Outdated politicians can only help crypto by delaying their own stupid proposals amid their fight against each other.
Many politicians in the world are still stuck in the old ways of thinking and are not open to new technologies like cryptocurrencies. They are often quick to make knee-jerk reactions to things they don’t understand, and this can lead to bad policy decisions that stifle innovation.
The good news is that the outdated politicians and their corrupt fight against each other are only delaying the inevitable adoption of cryptocurrencies. The technology is too powerful and too disruptive to be stopped. As more and more people learn about the benefits of cryptocurrencies, the demand for them will only grow.
In the end, the outdated politicians will be left behind as the world moves on to a new era of finance. Cryptocurrencies will become the new normal, and those who embrace them will be the ones who benefit the most.
Macroeconomics
ECB hikes rates for 10th time, signals end of tightening cycle. The refinancing operations rate reached a 22-year high of 4.5%. The deposit facility rate set a new record at 4%.
ECB Forecasts:
Average inflation: 5.6% in 2023 and 3.2% in 2024,
2025 rate: 2.1%.
Core inflation: 5.1% in 2023, 2.9% in 2024, and 2.2% in 2025.
GDP growth: 0.7% in 2023, 1.0% in 2024, and 1.5% in 2025.
Comment
The ECB’s signaling of the end of the tightening cycle is a significant development, as it shows that monetary authorities around the world are starting to become more worried about recession than inflation.
This is a shift in thinking from earlier this year, when many central banks were raising interest rates aggressively in an effort to combat inflation. However, the recent slowdown in economic growth has led some central banks to reconsider their approach.
The ECB is not the only central bank that has signaled a possible end to the tightening cycle. The Bank of England has also said that it is likely to pause its rate hikes in the coming months. And, of course, the Fed, which has been the most aggressive central bank in raising rates, has also hinted that it may slow down its pace of tightening in the near future.
The shift in thinking among central banks is a reflection of the fact that the global economy is facing a number of challenge. These challenges are likely to weigh on economic growth in the coming months and years.
As a result, monetary authorities are starting to worry that raising interest rates too aggressively could tip the economy into recession. The ECB’s decision to signal the end of the tightening cycle is a sign that the central bank is aware of this challenge.
Commodities
Oil prices rose to a 10-month high on Thursday, as traders bet that the global oil market will tighten further in the coming months.
Comment
The major cause of this rise are geopolitical games and resurgence of the production in China. The International Energy Agency (IEA) said that extended supply cuts by Saudi Arabia and Russia will mean a substantial market deficit through the fourth quarter. OPEC also projected a large deficit of 3.3 million barrels per day in the fourth quarter, while the US EIA forecasts a smaller deficit of 230,000 barrels in the same period.