To Be Approved or Not To Be?

Thoughts of the Day

The US Unemployment rate remains low at 3.7% despite expectations of it ticking higher to 3.8%. The US jobs market remains resilient and that will keep the US Federal Reserve on its toes as the officials do not want to declare victory on inflation prematurely.

As long as inflation continues to fall towards the 2% target, they are likely to keep interest rates unchanged for now.

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Day Ahead

Euro area unemployment rate expected to remain at 6.5% in November.

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What Happened Yesterday

Market Movements as of New York Close 8 Jan 2024
  • Fedspeak:
    Bowman (current voter, known hawk): “Inflation could fall further with policy rate held steady for some time. It will eventually become appropriate to lower the Fed’s policy rate, should inflation fall closer to 2%.”
    Bostic (current voter, known dove): “It will eventually become appropriate to lower the Fed’s policy rate, should inflation fall closer to 2%. The Fed still needs to give tight policy time to work on cooling off inflation.”
    (Bowman shifted from a hawkish stance to a more dovish tone. Bostic is still as dovish as before)
  • The New York Federal Reserve’s Survey of Consumer Expectations saw expectations decline at the one-year horizon to 3%, down from 3.4% a month ago. The three-year outlook dipped to 2.6% from 3%, while the five-year horizon slipped to 2.5%, down 0.2 percentage point from November.
  • The US Treasury Yield curve inversion widened to 0.37% as the US 2-year bond yield and the 10-year bond yield fell -0.04% to 4.36% and 4.01% respectively.
  • The US stock futures traded slightly weak during the Asian and early London trading sessions as Boeing (-8.45% premarket) traded lower due to the Federal Aviation Administration ordering a temporary grounding of dozens of Boeing 737 Max 9 aircraft (following an incident where the plane’s door plug blew out in midair and the pilot had to execute an emergency landing). Momentum then started to pick up in the mid London session.
  • The US stock market opened almost unchanged from Friday. It then started to trade higher with Nvidia (+6.43%) reaching an all time high after announcing new chips (see headline 2) . Consequently, the S&P 500 closed +1.41% higher on the day (high: +0.47%, low: -0.14%), the Dow Jones gained +0.58% (high: +0.49%, low: -0.31%) while the Nasdaq jumped +2.11% (high: +0.82%, low: -0.20%). 
  • The crypto market rose strongly on the optimism from the tech sector as well as the revelation of the ETFs fees charged by issuers. BTC rose almost 7% and broke above the 47,000 level as various ETF applicants announced discounted fees in a bid to gain market share for when the approvals come.
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Headlines & Market Impact

Companies disclose expected fees for spot bitcoin ETFs ahead of SEC decision

Notable Snippet: A raft of investment managers disclosed the fees they plan to charge for their proposed spot bitcoin exchange-traded funds (ETF), in another step toward approval this week by the U.S. securities regulator.

BlackRock (BLK.N), VanEck, Ark Investments/21Shares and Bitwise, among others, said in filings with the Securities and Exchange Commission (SEC) that they expect to significantly undercut the average market rate for U.S. ETFs.

Their rates were well below the average rate that analysts had anticipated and that even some issuers had indicated would be the range.

A spot crypto ETF would track the market price of the underlying crypto asset, giving investors exposure to the token without having to buy the currency. Euphoria around an approval has helped bitcoin, the world’s largest and best-known digital asset, rally in recent months.

The SEC, which has previously denied all spot bitcoin ETF applications citing potential for fraud, is expected to announce its decision as early as this week.

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Nvidia rallies to record high as chipmaker announces AI-related components

Notable Snippet:  Shares of Nvidia (NVDA.O) surged to a record high close on Monday after the world’s most valuable chipmaker unveiled new desktop graphics processors taking advantage of artificial intelligence.

Nvidia’s stock climbed 6.4% to end at $522.53, its highest close ever, after the company announced the GeForce RTX 40 SUPER Series of graphics processors, aimed primarily at video game enthusiasts.

Ahead of the Consumer Electronics Show in Las Vegas, Nvidia also announced other components and software related to AI.

Viewed as the leading supplier of processors used in AI computing, Nvidia’s stock more than tripled in 2023.

Traders exchanged over $32 billion worth of Nvidia’s shares during Monday’s session, making it the most traded company on Wall Street, according to LSEG data. Nvidia’s stock market value now stands at nearly $1.3 trillion.

The latest rally in Nvidia’s stock helped propel the PHLX semiconductor index (.SOX) 3.3% higher.

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Fed Governor Bowman adjusts rate stance, says hikes likely over but not ready to cut yet

Notable Snippet: Federal Reserve Governor Michelle Bowman, who had been one of the central bank’s staunchest advocates for tight monetary policy, said Monday she’s adjusted her stance somewhat and indicated that interest rate hikes are likely over.

However, she said she’s not ready to start cutting yet.

In remarks delivered at a private event in South Carolina, Bowman noted the progress made against inflation and said it should continue with short-term rates at their current levels.

“Based on this progress, my view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time,” she said. “Should inflation continue to fall closer to our 2 percent goal over time, it will eventually become appropriate to begin the process of lowering our policy rate to prevent policy from becoming overly restrictive.”

“In my view, we are not yet at that point. And important upside inflation risks remain,” she added.

As a governor, Bowman is a permanent voter of the rate-setting Federal Open Market Committee. Prior to this speech, she had repeatedly said additional rate hikes likely would be needed to address inflation.

“I will remain cautious in my approach to considering future changes in the stance of policy,” she said, adding that if the inflation data reverses, “I remain willing to raise the federal funds rate at a future meeting.”

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Phan Vee Leung
CIO & Founder, TrackRecord