Notice the Silence…

Thoughts of the Day

Bitcoin’s price has doubled since October, reaching new multi-year highs, but mainstream media remains notably silent compared to the previous cycle. This is a sign that the retail traders/investors/punters are not really involved yet and the grind higher has been supported by institutional money and the persistent flows into the newly launched BTC ETFs.

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Day Ahead

The 2nd estimate of the US GDP Growth Rate is expected to show a QoQ growth of +3.3% in Q4’23 down from +4.9% in Q3’23.

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What Happened Yesterday

Market Movements as of New York Close 27 Feb 24

Bowman (current voter, known hawk):
“Latest inflation data suggests slower progress on inflation. If inflation moves sustainably to the 2% goal, it will eventually be appropriate to cut rates, but not there yet.”
(Bowman remains on the hawkish side.)

The monthly Consumer Price Index (CPI) indicator in Australia for January 2024 remained steady at +3.4%, the same as the month before and below the anticipated +3.6% by market analysts. Excluding fluctuating items and travel, the monthly CPI rose by +4.1% in January, a slight decrease from December’s increase of +4.2%. This level of inflation continues to surpass the Reserve Bank of Australia’s (RBA) target range of +2-3%. The reaction in the AUD was muted.

In its first policy meeting of 2024, the Reserve Bank of New Zealand kept the official cash rate (OCR) unchanged at 5.5% as expected, marking the fifth consecutive meeting without a change in rates. The tone from the RBNZ was more dovish than expected because they noted that risks to the inflation outlook have become more balanced. The NZD traded -0.77% lower against the USD in reaction, with the NZDUSD falling from 0.6174 to 0.6126. In his press conference, RBNZ Governor Orr said that the central bank did discuss an interest rate hike but saw that it was comforting to see inflation expectations decline. The RBNZ is one of the more proactive central banks in the developed economies and their turning dovish could be a sign of things to come.

The US Treasury Yield curve inversion narrowed to 0.39% as the US 2-year bond yield rose +0.02% to 4.70 while the 10-year yield rose +0.03% to 4.31%.

The US stock futures traded quietly during the Asian trading hours but saw a brief spike in the London trading session with the S&P 500 futures up +0.17% when the New York session began.

The US stock market opened a tad higher from Monday. It then started to trade slightly weaker due to US Consumer Confidence from the Conference Board coming in lower than expected at 106.75 (vs 115 expected and 110.9 prev – revised from 114.8). However, the US stock market then started to recover slightly. As a result, the S&P 500 rose +0.17% (high: +0.22%, low: -0.24%), the Dow Jones slipped -0.25% (high: +0.05%, low: -0.48%) while the Nasdaq gained +0.21% (high: +0.30%, low: -0.35%).

The crypto market remains strong as optimism continues. The BlackRock Bitcoin ETF recorded over $1.3 billion in daily trading volume for the second consecutive day. BTC broke to new multi-year highs above 57,000.
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Headlines & Market Impact

OPEC+ to consider extending voluntary oil output cuts, sources say

Notable Snippet: OPEC+ will consider extending voluntary oil output cuts into the second quarter, three OPEC+ sources told Reuters, to provide additional support for the market, and could keep them in place until the end of the year, according to two of them.

Last November, the Organization of the Petroleum Exporting Countries and allies led by Russia agreed to voluntary cuts totalling about 2.2 million barrels per day (bpd) for the first quarter this year, led by Saudi Arabia rolling over its own voluntary cut.

Oil prices have found support this year from rising geopolitical tensions due to attacks by the Iran-aligned Houthi group on Red Sea shipping, although concern about economic growth and high interest rates has weighed. Brent crude was trading near $83 a barrel on Tuesday.

Extending the output cuts into the second quarter is “likely”, one of the OPEC+ sources, who declined to be identified by name, said. Two of them said a longer extension until the end of the year was possible.

OPEC+ is facing a flood of U.S. output. The U.S. has become the biggest European oil and liquefied natural gas supplier after Russian sanctions and Middle East supply disruptions due to Red Sea attacks.

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US durable goods orders slump; business investment on equipment appears soft

Notable Snippet:  Orders for long-lasting U.S. manufactured goods fell by the most in nearly four years in January, while business investment on equipment appeared to have eased, signs that the economy lost momentum at the start of the year.

Concerns about the economy’s outlook, especially the labour market, and the upcoming presidential election were uppermost in consumers’ minds in February resulting in confidence retreating after three straight monthly increases. The decline in confidence reported by the Conference Board on Tuesday was despite inflation expectations over the next 12 months falling to the lowest level in almost four years (at 3%).

The reports joined a stream of weak data, including retail sales, housing starts and manufacturing production. Some of the softness has been blamed on freezing temperatures last month as well as difficulties adjusting the data for seasonal fluctuations at the start of the year. Nonetheless, economists are not forecasting a recession this year.

“Business capex lays the seeds for future economic growth as the expenditures enable companies to invest more to meet the demand for their goods and services down the road,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “While economists have taken down their recession warnings, business leaders with boots on the ground are less certain of the economy in the future.”

Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, plunged 6.1% last month amid a sharp drop in commercial aircraft bookings, the Commerce Department’s Census Bureau said. That was the largest decline since April 2020, when the economy was reeling from the first wave of COVID-19 infections.

Data for December was revised lower to show orders falling 0.3% instead of being unchanged as previously reported.

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China’s oil demand growth could halve from pre-Covid levels as property, auto sectors struggle

Notable Snippet: China’s oil demand growth this year could be half of pre-Covid 2019 levels, according to Eurasia Group, as key segments of the world’s second-largest economy struggle from a slowdown.

The country is unlikely to return to its model of an oil-intensive economic growth this year, with its construction and auto sectors — key drivers for oil demand — now looking “exhausted,” the risk consultancy said in a note.

The consultancy expects demand growth to be around 250,000 bpd to 350,000 bpd, less than half of what it was in 2019 — demand growth will not return to the million barrels per day seen between 2015 and 2020.

“The incremental fuel demand growth in China that the oil industry has come to literally bank on over the past two decades is no more,” Eurasia Group said.

China will lose its spot to India as the primary driver for global oil demand through 2030, the International Energy Agency said in a report.

Chinese oil consumption hit an all-time high of 16.03 million barrels per day last year — a 1.2 million barrels per day growth — as the country took advantage of plunging oil prices to import large volumes of cheap crude, analysts from JPMorgan wrote in a recent note.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord