Markets Digest FTX, Fed & Santa Claus (Cheat Sheet)

S&P 500 11-14

The markets had another turbulent week. Last Monday, I told you that falling inflation would likely boost market sentiment on Monday, and I was right. Those who bought low and sold high deserve praise.

The Nasdaq 100, for example, jumped 7.5% on Thursday after slightly lower-than-expected U.S. inflation sent markets up.

The reason for the surge is that many are considering that the Federal Reserve may not have to take as drastic measures as anticipated to bring inflation back within acceptable ranges.

It’s still in the early stages, but it may be a turning moment. This describes the current state of the market, which is based on the theory that the Fed cares about the economy and stock market more than inflation.

Even while annual inflation is still high (7.7%) and the war is probably not yet won, the fact that inflation has been slowing for four months in a row automatically brings the day the Fed no longer has to play whipping father closer.

Fed Bottomline

I tend to think the Fed will continue rate hikes until CPI is lower than five and unemployment is higher than 5, whichever comes first.

Santa May Bring Coal

The University of Michigan released the preliminary results of its consumer sentiment and inflation expectations surveys for November, which it used to check economic data. Consumer confidence was down, and inflation forecasts were rising.

This leads me to think that the normal “Santa Rally” caused by holiday sales may fall short of expectations.

Implosive Trading on the FTX

The collapse of FTX and the fall of Sam Bankman-Fried was the most notable event of the past week. The value of the digital currency in the cryptocurrency market has continued to fall.

With the departure of its founder and CEO, the cryptocurrency exchange FTX filed for bankruptcy. After FTX filed for Chapter 11, the price of bitcoin quickly dropped to a two-year low, and experts in the industry think that the crisis has the potential to continue pushing down prices across the entire sector and the stock market as a whole. Gold is starting to turn bullish.

Elections?

A week after the mid-term elections, there are still many unknowns. What I think is generally accepted is that the Republicans failed to take the Senate and underperformed.

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If the Republicans control the House, it will likely be positive for the markets and economy as neither party will be able to do anything.

Suppose the Democrats control the House and Senate. In that case, it will likely be very negative to the markets and economy as they will increase spending and other Keynesian policies that led to high inflation and weak growth.

KEY EVENTS & CALENDAR

  • Tuesday, November 15 – PPI (MoM) (October)
  • Wednesday, November 16 – Retail Sales (MoM) (October)

The focus will stay on US data next week. Retail sales are scheduled for Wednesday after producer prices and the Empire State index is released tomorrow. On November 15–16, the Group of Twenty will meet in Bali, but Vladimir Putin won’t be there to enjoy the weather and company of his fellow leaders.

BONDS

U.S. 10-year bond yields have fallen as a result of the sustained moderation of inflation, which has an effect on interest rates. About 4.1% prior to the announcement, they dropped to 3.8% after. The yield curve has not corrected its inversion; shorter-term maturities (3- and 6-month maturities) and longer-term maturities (2- and 5-year maturities) continue to pay better than 10-year maturities.

Even if October’s confirmation of still soaring inflation in Germany (11.6%) is concerning, the trend is moderating across Europe as a whole. The yield on a 10-year Bund is 2.05%, the yield on an OAT is 2.56%, and the yield on a 10-year Gilt is 3.33%. We see a drop of almost 20 points from the previous week. Debt in Italy has dropped from 4.44 percent to 4.00 percent in just a few days.

COMMODITIES

OIL

Energy commodities saw prices for barrels level out after being hit hard at the start of the week by a turnaround in China, where authorities are determined to keep their zero-Covid policy in place. Instead, the market was anticipating a loosening of this health policy, which would be indicative of a further opening of the Chinese economy and, in turn, lead to higher oil demand. The majority of the 2023 demand expansion is attributed to China. Strong demand and unusually low stocks in the United States have contributed to the ongoing increase in diesel prices.

The White House is feeling the heat from this dynamic, despite their best efforts to slow the increase in energy costs. Brent from the North Sea is currently selling at around $96 per barrel, while WTI from the United States is at around $89 per barrel. Mild temperatures on the old continent are postponing the start of the heating season, giving states more time to stock up on gas. Prices for Dutch TTF, a European benchmark, are hovering around 120 EUR/MWh.

GOLD & PRECIOUS METALS

Base metal prices increased this week despite contradictory economic data from Beijing. Metal stocks are scarce; thus, manufacturers are charging rush fees to those consumers who need their orders fulfilled quickly. Copper sells for $8,060 per metric ton, aluminum costs $2,270, and nickel fetches $24,400. Gold continued its weekly upward trend by trading at over USD 1,700 per ounce.

CRYPTOCURRENCY

The week has not gone well for cryptocurrency investors. As of this writing, the cryptocurrency market as a whole has lost $180 billion due to the recent demise of the FTX platform, the second-largest platform in terms of the trading volume. Bitcoin has lost over 20% of its value since Monday, bringing it back down to roughly $16,500. A point that had not been since sometime around the year 2020.

While the full impact of FTX’s demise on the cryptocurrency industry is still unknown, it will undoubtedly be felt. Meanwhile, crypto investors are watching their digital fortunes disappear.

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