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DECEMBER 8, 2023


In November, the labor market showed steady growth as job creation continued to thrive. Nonfarm payrolls experienced an increase of 199,000, exceeding the Dow Jones estimate of 190,000 and outpacing the prior month’s gain of 150,000. This positive momentum in employment was complemented by the decline in the unemployment rate to 3.7%, surpassing the forecasted 3.9% and indicating an upward trend in job opportunities. Additionally, average hourly earnings saw a rise of 0.4% from the previous month and 4% from a year ago, potentially impacting inflation rates. While the job market news appeared largely favorable, reactions across financial markets remained mixed, with stock market futures showing a modest negative response and Treasury yields surging.


The cryptocurrency derivatives market is thriving, with record levels of Bitcoin (BTC) and ether (ETH) options trading on Deribit. The cumulative value of open BTC and ETH options contracts on Deribit reached an all-time high of $23.6 billion as of this mornig, making it the highest ever recorded. BTC options accounted for 67% of the total, while ETH options make up the remaining 33%. Particularly, call options have increased, especially at $50,000, $40,000, and $45,000 for Bitcoin, and $2,300, $2,400, $2,500, and $3,000 for ether. This increase could mean that traders expect further price rises. In addition, this postive sentiment is further supported by the ongoing rally in both cryptocurrencies, with Bitcoin recently surpassing the $44,000 mark largely driven by optimism surrounding ETFs – a remarkable 150% increase this year.


According to portfolio manager Paul Gambles, the Federal Reserve may need to cut interest rates at least five times next year to prevent the U.S. economy from tipping into a recession. Gambles has expressed concern that current policy is disconnected from economic factors, preventing any firm assumptions about when the Fed will recognize the damage its actions are causing to the economy. Despite this, Federal Reserve Chairman Jerome Powell has suggested that it is too early to claim victory over inflation, leaving the possibility of more rate hikes on the table. However, some experts predict that the next rate move will be down, with inflation potentially settling around 3% instead of the central bank’s target of 2%. Moreover, the Federal Reserve is expected to make its decision at its next and final meeting of the year on December 13th.


Despite rebounding, oil prices are on track for their longest weekly losing streak since 2018 due to concerns about a global oversupply. Global benchmark Brent has risen to nearly $76 a barrel but is still set for a seventh consecutive weekly drop. Similarly, West Texas Intermediate has climbed to almost $71 after declining by 11% over the last six sessions. This persistent decline comes despite uncertainties surrounding the effectiveness of deeper cuts considered by OPEC+. Moreover, traders are doubtful about the efficacy of these measures, and there are fears stemming from increased production in the U.S. Additionally, let’s remark that there is still uncertainty about a recession in the U.S. happening next year, and Chinese consumption is projected to grow by only 500,000 barrels a day next year, considerably less than the increase seen in 2023. This situation is favorable for central bankers as, for instance, retail fuel prices in the U.S. have dropped to the lowest level in a year, according to data from the American Automobile Association.


China’s Ministry of Finance recently held an auction for long-tenor government bonds, attracting significant attention due to the historically low yields realized. The 30-year bonds fetched an average yield of 2.9406%, marking the lowest since at least 2007. Despite Moody’s Investors Service’s decision to downgrade the country’s credit outlook, the auction drew strong interest. The bid-to-cover ratio stood at 1.04, the lowest in more than a year, reflecting the balance between demand and supply. Furthermore, the auction successfully issued 23 billion yuan ($3.2 billion) worth of bonds, maintaining consistency with the previous issuance. Notably, this result suggested sustained positive investor sentiment regarding China’s debt, echoing an optimistic stance toward the second-largest global economy. The demand for long-tenure bonds remained buoyant, driven primarily by insurers with asset-allocation needs. It is anticipated that this robust demand from insurers will persist, as noted by Zhou Guannan, a fixed-income analyst at Huachuang Securities Co. The auction result offered valuable insights into the prevailing market sentiment and investment trends in China’s bond market.

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