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FEBRUARY 14, 2024

CRYPTO BOOM

The cryptocurrency market has experienced a significant upward trend, with Bitcoin surpassing the $51,000 milestone and reaching a market capitalization exceeding $1 trillion. Ether also saw a 4.1% increase in value, alongside positive gains exhibited by other tokens like Avalanche and Polygon. Despite concerns about inflation, the market has demonstrated resilience, driven by the recent approval of Bitcoin ETFs and the anticipation surrounding the upcoming Bitcoin halving. Notably, the introduction of US exchange-traded funds dedicated to Bitcoin has spurred substantial investments, contributing to the market’s robustness. Nonetheless, despite the current market’s strength, analysts have cautioned against potential hurdles and a possible temporary decline in Bitcoin’s price since the Bitcoin halving is anticipated to limit the supply of the leading digital asset.

GOLD PRICES SLUMPED

Gold prices suffered a decline, dropping below the crucial $2,000-per-ounce level, largely driven by the release of a stronger-than-anticipated U.S. inflation report. This unexpected development prompted investors to reconsider their expectations regarding potential rate cuts by the Federal Reserve. The report revealed a consumer prices increase of 3.1%, surpassing earlier projections of a 2.9% rise. As a result, traders revised their forecast, now anticipating three 25-basis-point rate cuts in 2024, down from four. This realignment aligns with the Fed’s own projected timeline, suggesting a possible delay in any rate adjustment until June. These shifts, combined with a rise in the U.S. dollar index and 10-year Treasury yields, contributed to mounting pressure on gold. Market attention has now turned to forthcoming U.S. retail sales data and producer price index numbers, as well as scheduled speeches by at least five Fed officials. Some analysts believe gold might plummet to the $1,925-1,950 range, followed by a potential rebound. In other parts of the precious metals market, platinum and palladium saw increases, while silver experienced a slight decline.

SHIFT IN MOMETUM

After a temporary lull in December and January, mortgage rates are once again on the rise, impacting demand. Last week, mortgage applications dropped by 2.3%, with the average interest rate for a 30-year fixed-rate mortgage climbing to 6.87%, the highest since December 2023. Although applications to refinance loans decreased, they remain 12% higher than a year ago. Meanwhile, applications for mortgage purchases also saw a decline, dropping by 12% compared to the previous year. The rising rates are making it challenging for buyers to afford homes due to limited housing inventory. Furthermore, the recent increase in rates and harsh winter conditions have slowed down the pace of home sales. Following a government report that showed higher-than-expected inflation, the average rate for a 30-year fixed mortgage hit 7.08%. Consequently, mortgage lenders raised rates in response to the bond market’s reaction, resulting in reduced affordability and demand for home purchases.

TAX REFUND CURRENTLY LOWER

During this tax season, the IRS has issued more than 2.6 million refunds totaling around $3.65 billion so far. The average refund stands at $1,395, compared to $1,963 last year, representing a decrease of about 29%. This year’s tax season commenced on January 29 and the average refund data is based on just five days, compared to 12 days last year; nevertheless, the IRS views this as a promising start. Taxpayers claiming specific refundable tax credits will not receive refunds until at least February 27, as per IRS regulations. Despite potential tax legislation pending in Congress, the IRS is encouraging taxpayers to file when prepared instead of waiting. Yet, a January survey from IPX1031, an investment property exchange service, found that nearly half of taxpayers plan to delay filing until March or later, citing complexity and stress. Additionally, considerations, such as inflation, could result in higher refunds, particularly if income did not keep pace with inflation, according to Mark Steber, the chief tax information officer at Jackson Hewitt.

INTERNATIONAL NEWS

In the UK, prices rose less than expected in January, particularly for food and household items. Inflation increased by 4% compared to last year, the same as in December, while services inflation, which is more relevant to domestic pressures, also rose less than predicted. In addition, food prices fell for the first time in two years, bringing relief to households, and energy prices and second-hand car costs rose, but energy bills are expected to decrease in April. Furthermore, factory gate prices paid by retailers also fell by the steepest decline since the early days of the pandemic. Following the release of this data, the pound lost value, and the market now expects earlier and steeper interest rate cuts as the results indicate that inflation might soon return to the Bank of England’s (BOE) target. Also, Chancellor of the Exchequer Jeremy Hunt said that the plan to control inflation is working. Moreover, the UK figures show a decrease in household expenses, which will be good news for Prime Minister Rishi Sunak, who is dealing with a cost-of-living crisis.

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