SVET Markets Weekly Update (November 13–18, 2023)
On Week 46, after a surprising decrease in consumer prices, market sentiments turned upbeat for a day when traders weighed signals that the Fed may not hike rates further. As a result, Nasdaq jumped over 14K on Tuesday and continued to consolidate in that zone for the rest of the week. Meanwhile, BTC and ETH slid back on active profit-taking from some players.
On Monday, the Nasdaq relented as traders took a pause after Friday’s price surge, awaiting key economic data releases, including the CPI report. Investors also responded to Moody’s negative downgrade of the U.S. credit outlook. Tech stocks like Apple, Microsoft, and Amazon saw declines, while Nvidia and Tesla rose. Meanwhile, BTC continued its sideway drift in the 36K-37K range as ETH climbed above 21K.
In November, the RealClearMarkets/TIPP Economic Optimism Index increased to a seven-month high of 44.5 from 36.3. However, it has been negative for 26 straight months. The Six-Month Economic Outlook improved to 39.1 from 28.7, its lowest since 2001. The Personal Financial Outlook rose to 53 from 46.8, returning to positive. Confidence in Federal Economic Policies also increased to 41.5 from 33.5, its lowest since October 2013.
In October, consumer inflation expectations for the next year dropped slightly to 3.6% from 3.7%. Rent and food inflation expectations stayed at 9.1% and 5.6% respectively. Expectations for price growth in gas, college education, and medical care increased. However, median inflation expectations for a five-year period decreased to 2.7% from 2.8%, while those for a three-year horizon remained steady at 3.0%.
On Tuesday, Nasdaq rallied as inflation slowed, easing concerns about interest rate hikes. Nvidia surged to a record high. Tesla soared amid price hikes. Meta Platforms climbed as Amazon announced it will sell products on its platform. Meanwhile, BTC declined due to a technical correction.
The core annual inflation rate in the US, excluding food and energy, decreased to 4% in October 2023, down from 4.1% the previous month and below market expectations. Price increases slowed for shelter (70% of the total increase, slowed to 6.7% from 7.2%), recreation, personal care, and household items. However, motor vehicle insurance costs rose further. On a monthly basis, core consumer prices increased just 0.2%, below the 0.3% rise in September and forecasts.
On Wednesday, Nasdaq continued to rise as traders weighed signals that the Fed may not hike rates further, though rates will remain elevated for some time. Producer prices fell, indicating easing inflation. Retail sales declined but less than expected. Apple, Microsoft, Amazon, and Nvidia rose. BTC rebounded sharply from Tuesday’s deep plunge, reaching above 37.8K.
Producer prices (PPI) unexpectedly fell 0.5% in October 2023 compared to forecasts of a 0.1% rise, the largest monthly decline since April 2020. Goods prices dropped 1.4%, the first decrease since May, primarily due to a 15.3% fall in gasoline prices. Prices also declined for diesel fuel, hay, home heating oil, and light trucks. However, tobacco products prices rose 2.4%. Services prices were unchanged after six straight increases, as rises in transportation/warehousing services and services minus trade/transportation offset a decline in trade services margins. The producer price drop signals easing inflationary pressures.
The UK inflation rate fell to 4.6% in October 2023, down from 6.7% in August and September and below market forecasts of 4.8%. This is the lowest rate since October 2021, partly due to the recent reduction in energy prices after Ofgem lowered the household bill cap. Housing and utility costs dropped 3.5% with large declines in gas and electricity prices. Food inflation also eased to 10.1%, the lowest since June 2022. Additionally, price growth slowed for transport, restaurants, furniture, clothing, and other goods and services. The core inflation rate excluding food and energy fell to 5.7%, the lowest since March 2022. On a monthly basis, the CPI was unchanged. This sharp prices decease in UK confirms a world-wide trend on slowing inflation as economies continue to adjust to the World’s new geopolitical situation.
China’s industrial production grew 4.6% year-over-year in October 2023, slightly exceeding market forecasts of 4.4% growth. It was the fastest expansion since April, led by mining and manufacturing. However, utilities output slowed. By industry, production accelerated for non-ferrous metals, computers, and textiles. But growth decelerated for electrical machinery and chemicals, while output declined for non-metal minerals and general equipment. For the first ten months of 2023, industrial production was up 4.1% versus the same period last year, showing ongoing recovery despite headwinds. The October data indicates China’s industrial sector continues to see modest growth momentum.
On Thursday, the Nasdaq hesitated near its one-year highs as traders digested recent economic data. Weekly jobless claims rose to a three-month high, indicating a cooling jobs market. Import and export prices also declined sharply in recent months. With no rate hike expected in December, markets see a higher chance of a rate cut next year. Meanwhile, BTC and ETH corrected on profit-taking, reaching 36.2K and 1.98K, respectively.
The Philadelphia manufacturing index rose in November but stayed negative, indicating slowing growth. New orders and shipments fell, while employment was flat. Costs increased at a slower rate. Expectations for future growth remained weak, according to the survey. Overall, the index showed the manufacturing sector continued to struggle despite some improvement.
The housing market index from NAHB/Wells Fargo fell 6 points to 34 in November, well below expectations of 40. This was the fourth straight monthly decline, taking the index to its lowest since December 2022, as high mortgage rates have significantly hurt builder optimism and consumer demand. In particular, the index for current single-family home sales fell 6 points to 40 and the future sales index dropped 5 points to 39.
The number of people applying for unemployment benefits increased to 231K, the highest in almost three months, exceeding market expectations. Continuing claims also rose to 1,865,000, the highest in nearly two years, indicating that jobseekers are struggling to find work. These statistics suggest a weakening US labor market, supporting the Fed’s warnings of an economic slowdown and showing that businesses are feeling the impact of higher interest rates.
Import prices fell 0.8% in October, exceeding forecasts of a 0.3% decline. This was the largest monthly drop since March, led by a 6.3% fall in fuel import prices as petroleum and natural gas costs decreased.
Gold prices rose above $1,980 an ounce as new economic data strengthened expectations that the Fed would finish raising interest rates soon and could begin monetary easing by mid-2024. Meanwhile, Moody’s lowered its US credit rating outlook to negative, citing growing budget deficits and political conflicts in Washington, which supported gold prices.
Is gold subsiding its role to BTC?
The gold market has experienced several major periods of fluctuation and stability over the years. In the 1970s, there was a sharp rise in gold prices, when gold rose from its low 30 to almost 900 USD per ounce, driven by geopolitical conflicts and a weakening dollar due to the Federal Reserve’s low-interest rate policy. This period was followed by a decline and a long stagnation until 2000, characterized by a volatility and a lack of significant increase in gold prices, which ranged from ~200 to ~500.
From 2000 to 2014, there was another significant rise in gold prices (reaching above 1900), attributed to geopolitical tensions, a weakening dollar, and the Federal Reserve’s low-interest rate policy. However, a correction occurred until 2017, influenced by a strengthening dollar due to high Fed rates. In 2020, gold experienced a small rise back to all-time highs, but in the past three years (2020–2023), gold has stagnated due to a sharp rise in the dollar, attributed to high Fed rates.
The role of gold has remained significant, particularly during times of uncertainty, geopolitical tension, and economic turmoil. Gold has traditionally served as a hedge against inflation and a safe haven asset.
However, the rise of cryptocurrencies has introduced a new dynamic to the investment landscape. While gold and cryptocurrencies are both considered hedges against monetary inflation, the two assets have distinct characteristics. Gold has a long history of being a hedge against fear and geopolitical instability, while cryptocurrencies are a relatively new asset class that has gained attention for its potential as a store of value and investment only recently.
As economic and geopolitical landscapes continue to shift, the future role of gold and its relationship with cryptocurrencies will undoubtedly evolve. Cryptocurrencies are likely to assume a more prominent position in investment portfolios, particularly among younger investors as a response to the growing global instability.
On Friday, the Census Bureau reported an unexpected increase in new home construction in October, while the Nasdaq moved mostly sideways. Alphabet, Microsoft, Nvidia, Meta, and Apple saw declines, while Amazon and Tesla rose. Simultaneously, BTC and ETH continued to correct technically. Other news: SEC has postponed the decision on Franklin Templeton’s Spot Bitcoin ETF.
In October, building permits increased 1.1% from September to an annual rate of 1.487 million, according to preliminary data. The rise in permits continues to be driven by low housing inventory despite higher borrowing costs. Multi-family permits rebounded 2.2% while single-family rose 0.5% to a May 2022 high. Permits increased in the South and Northeast but fell in the West and Midwest.
The SEC has postponed the decision on Franklin Templeton’s Spot Bitcoin ETF application, as well as Global X’s and Hashdex’s applications. The new deadline for these applications is January 1, 2024. This delay has raised questions about the impact on Bitcoin’s market. The SEC can defer a decision on an ETF application three times before deciding whether to approve or deny it. This process typically takes around 240 days before a final decision is made.
On Week 47, key data releases include FOMC meeting minutes, durable goods orders, S&P Global PMIs, and home sales. Internationally, preliminary manufacturing and services PMIs will be released for several countries, while interest rate decisions are slated for Turkey, Sweden, South Africa, and Indonesia.