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DECEMBER 4, 2023

CRYPTO RALLY

Bitcoin has recently achieved an important milestone by surpassing the $40,000 mark for the first time this year, reflective of broad enthusiasm around potential U.S. interest rate cuts and the growing anticipation for the approval of U.S.-stockmarket traded bitcoin funds. As of 8:00 AM CST, Bitcoin peaked at $41,525, its highest level since April 2022, following a turnaround from the slump experienced after FTX and other crypto-business failures in 2022. Furthermore, market confidence has been bolstered by Microstrategy’s disclosure of an additional $593 million bitcoin purchase in November. Additionally, let’s remark once again that hopes for broader access to crypto via traditional financial markets have been driven by the potential approval of a spot bitcoin ETF, which could lead to substantial capital inflows into the sector. Moreover, Ether also saw a surge to a 1-1/2 year high , reaching $2,253. Nonetheless, it is worth noting that although these gains are quite remarkable, both Bitcoin and Ether are still below their 2021 record highs of over $60,000 and $4,000, respectively.

GOLDEN SURGE

Gold prices have surged to a new high, hitting $2,100, signaling a sustained upward trend. The surge in gold prices is attributed to geopolitical uncertainty and potential interest rate cuts as recent months have seen a steady increase in gold prices driven by factors such as the Israel-Palestinian conflict, which has heightened demand for the precious metal. In addition, expectations of interest rate cuts have further supported the rising prices, and if the Federal Reserve policy does indeed change in 2024, resulting in lower interest rates, gold prices can be boosted up even higher. Also, 24% of central banks intend to bolster their gold reserves in the next 12 months, indicating the potential for increased demand from the official sector in the years to come. As a result, analysts anticipate this upward trajectory will persist into the next year, with prices remaining above $2,000.

BOND MARKET EXPECTATIONS

The recent bond-market rally points to traders believing that the Federal Reserve might cut interest rates as the economy starts to show signs of softening. This has led to lower yields and higher bond prices, and the debate currently focuses on whether the economy is headed for a smooth landing or a more severe downturn. Both scenarios suggest that rate cuts are imminent, possibly in March. Market expectations indicate at least a 1.25% point reduction in rates next year, paving the way for an extended bond rally. However, market volatility remains a possibility due to conflicting economic data and the Fed’s repeated assertion that they are not in a hurry to cut rates. The market seems to think that yields have reached their peak for the foreseeable future, and this expectation might pull considerable investment funds into longer-dated Treasury yields. Moreover, the upcoming key data, including the U.S. employment report and inflation data, will provide further insight into the Fed’s next moves.

INFLATION STILL UNCERTAIN

The Bank for International Settlement (BIS), which is key global central bank organization, has softened its strict stance on inflation, acknowledging positive progress but still cautioning that challenges remain. Amid signs that high inflation rates are lessening, global markets anticipate significant interest rate cuts in the near future. However, this shift has unsettled some policymakers.Key concerns included the continued risk of credit problems from rising borrowing costs and specific financial issues such as the consumer credit sector’s growth, particularly “buy-now-pay-later” payment models. Consequently, The BIS stressed the importance of staying watchful and adaptable in handling these financial changes, and it also repeated the move away from very low interest rates and the ongoing discussions about when to adjust them, underlining the need to handle these decisions while dealing with inflation well.

KEY EVENTS HAPPENING THIS WEEK

Monday: Factory orders report for October.

Tuesday: Job openings report for October, and S&P U.S. services PMI and ISM services reports for November.

Wednesday: U.S. trade deficit report for October, U.S. productivity third quearter report, and ADP employment report for November.

Thursday: Initial jobless claims for week ending on December 2, and Wholesale inventories and Consumer credit reports for October.

Friday: U.S. employment and unemploment reports for November, and preliminary Consumer sentiment report for December.

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