Friday's Markets Update (November 8, 2024)

09 Nov 2024 by rate3

On Friday, equities rose to record highs once again, driven by optimism over Trump’s victory, a Fed interest rate cut, and surging consumer sentiment. The S&P surpassed 6,000, while the Dow reached 44,000 for the first time. Tesla's stock surged more than 8% after achieving a $1 trillion valuation. For the week, the S&P and Dow increased by almost 5%. The dollar is up while oil is down as gold holds. EU stocks fell due to a massive shift of capital to the other side of the Atlantic. The CCP revealed a plan to reduce China’s municipal debt from CNY 14 trillion to CNY 2 trillion over the next five years. Brazilian inflation continues to accelerate, and Italian manufacturing hit a year low. BTC and ETH continue to rise, with BTC testing $77K and ETH, which has seen drastic growth since the election, standing just below $3K for the first time in four months.

Details

Consumer sentiment rose to a seven-month high in November, driven by improved expectations for personal finances and business conditions. However, current conditions weakened slightly. Inflation expectations declined for the year ahead but increased for the next five years. 1Y trend: "Up" (SCA)

Crypto

The Ethereum Foundation released a financial report revealing a $970 million treasury, down from $1.6 billion in 2022. Most funds are in Ether (ETH), reflecting their belief in Ethereum's future. The report emphasizes conservative management and outlines new conflict of interest policies to address past issues. They also plan to focus on Layer 1 & 2 development and zero-knowledge cryptography advancements. (source)

World Markets

France's trade deficit widened in September, reaching a 12-month high. Exports fell due to weaker sales of industrial products, transport equipment, and energy products. Imports also declined, but at a slower pace. This widening deficit reflects a challenging global trade environment and weaker domestic demand. 1Y trend: "Side" (FR)
China's current account surplus surged to a 2-year high in Q3, driven by a record-high goods trade surplus. Weak domestic demand forced Chinese companies to export more to meet sales targets. While the services and primary income deficits narrowed, the secondary income surplus contracted. 1Y trend: "Up" (CN)
China has implemented measures to ease local government debt burdens (CNY 14.3 Trillion in 2023), including raising the debt ceiling and allowing debt swaps. This aims to free up funds for public spending, especially as land sales, a key revenue source, have declined. While the measures provide some relief, they fall short of the expected broader fiscal stimulus.
Brazil's annual inflation rate accelerated to 4.76% in October, exceeding expectations and the central bank's target range. Rising food and housing costs were the main drivers, fueled by drought, weaker currency, and strong economic activity. The central bank has already tightened monetary policy to combat inflation. 1Y trend: "Up" (Ibge)
Russian car sales surged 51% YoY in October, reaching a 17-year high (av.: 150,272.48; ATH (Apr. 2008): 291,020.00; ATL (May 2022): 24,268.00). This significant increase follows a period of decline due to sanctions and supply chain disruptions. While the market is recovering, it remains below pre-pandemic levels. 1Y trend: "Up" (AEB)
The FAO Food Price Index rose in October 2024, reaching a 10-month high. Vegetable oils, sugar, and dairy prices increased significantly, driven by factors like unfavorable weather conditions and strong global demand. Cereal prices also rose due to concerns over winter crop sowing. However, meat prices declined slightly. (FAO)
Italian industrial production fell sharply in September, marking the steepest decline YoY. This follows a period of declining output, reflecting weak domestic and global demand. While the pandemic years saw extreme fluctuations, the recent trend indicates a slowdown in the Italian manufacturing sector. 1Y trend: "Down" (IT)At the same time, Italian retail sales rebounded strongly in September 2024, defying expectations of weaker consumer spending. Both food and non-food sales increased, marking the fastest growth in several months. This suggests that Italian consumers may be more resilient than initially anticipated. 1Y trend: "Down" (IT)

Comment: Reconciling Contradictory Economic Indicators in Italy

The recent economic data from Italy presents a puzzling picture, with falling industrial production on one hand and soaring retail sales on the other. Here are three potential explanations for this apparent contradiction:

1. Inventory Adjustments: Businesses may be reducing their inventory levels to align with slower demand, leading to decreased production. At the same time, consumers may be increasing their spending on goods and services, driving up retail sales. This could be a temporary adjustment phase as businesses adapt to changing economic conditions.

2. Sectoral Shifts: The decline in industrial production may be concentrated in specific sectors, such as manufacturing, while other sectors, like services, may be experiencing growth. This could be due to factors such as global trade tensions, technological advancements, or shifts in consumer preferences. Retail sales, on the other hand, may be driven by growth in sectors like hospitality, tourism, or e-commerce.

3. Statistical Discrepancies: There may be statistical discrepancies or measurement errors in the data, leading to inaccurate conclusions. It's important to consider the methodology used to collect and process the data, as well as potential biases or limitations. Further analysis and clarification from statistical agencies may be necessary to fully understand the underlying trends.

In my opinion, the first two factors are more likely to be at play. This is supported by data from the EU, where the service sector continues to grow. However, over time, as the economy adjusts and potential stagflation takes hold, retail sales growth may also slow down.

Currencies

The dollar index rose to 104.7, ending the week 0.4% higher. Investors evaluated the impact of the Fed's recent 25 bps rate cut and Trump's election win on interest rates and growth. Powell hinted at uncertainty regarding future rate cuts, with a nearly 68% chance of another cut in December. Meanwhile, consumer sentiment reached a seven-month high, indicating strong spending, though the data does not reflect reactions to the election. 1Y trend: "Side"

Commodities

Oil prices fell, as concerns over Hurricane Rafael eased and China's stimulus measures disappointed. While some support came from potential US sanctions on Iran and Venezuela, overall sentiment was bearish due to weak Chinese demand and deflationary pressures. 1Y trend: "Side"
Gold prices held steady near $2,700 after the Fed's 25bps rate cut. The Fed acknowledged easing labor market conditions and progress on inflation but remained cautious. Chair Powell refrained from giving specific future rate guidance. The recent presidential election results are not expected to significantly impact the Fed's short-term policy stance. 1Y trend: "Up"

On Week 46, investors will focus on key economic indicators this week. Inflation, retail sales, and Fed officials' speeches will be closely watched. China's economic data, including loans, investment, and retail sales, will be crucial. Europe will see UK unemployment and GDP figures, German sentiment, and Eurozone inflation data. Other key events include Japan's GDP, Russia's inflation, Mexico's rate decision, and India's inflation data.