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NOVEMBER 14, 2023

STEADY INFLATION

Based on the latest data released by the Labor Department, there were encouraging signs of improvement in the U.S. economy in October as inflation remained flat from the previous month, suggesting that the grip of persistently high prices may be easing. The consumer price index (CPI), which measures the cost of a wide range of commonly used goods and services, increased by 3.2% from the prior year, although it did not show any change for the month. This data was slightly below the expectations of economists surveyed by Dow Jones, who had anticipated respective readings of 0.1% and 3.3%. Additionally, when looking at core CPI, which excludes the prices of food and energy, there was an increase of 0.2% for the month and a 4% rise from a year earlier, also slightly lower than the forecast of 0.3% and 4.1%. Following the release of this latest data, the reaction in the financial markets was notably positive in response to this news as there was a spike in futures tied to the Dow Jones Industrial Average, while Treasury yields experienced a sharp decline, both indications that investors were encouraged by the signs of stability in inflation. Moroever, the steady inflation in October offers hope that the recent surge in prices may be plateauing, which could lead to improved consumer confidence and a more stable economic environment.

UNCONVINCING VIEW

JPMorgan is not convinced about the recent rise in digital currencies, especially the excitement around the likely approval of spot Bitcoin exchange-traded funds (ETFs), as although many have high hopes that these Bitcoin ETFs will attract new money into the market and show that the crypto industry is winning against government regulations, the bank thinks that the new ETFs might not bring in new investments. JPMorgan reasoned that instead of drawing in fresh capital, it is more probable that existing investment will merely switch over from current bitcoin products to the newly approved spot ETFs. To support their view, the bank pointed to the lackluster interest in similar ETFs in Canada and Europe, and they believe that similar patterns can be expected in the U.S. Furthermore, JPMorgan emphasized recent legal battles involving major crypto entities such as Ripple and Grayscale, citing that while these incidents may represent defeats for the SEC, they underscore the ongoing regulatory uncertainties still looming over the crypto industry. In conjunction with these events, concerns regarding the pending U.S. crypto industry regulations and the high-profile FTX fraud case further contribute to the cautious outlook of JPMorgan. Moreover, adding to these factors, JPMorgan also discounted the bullish sentiment regarding the upcoming Bitcoin halving in April next year. The bank labeled the argument for a significant price boost as a result of the halving “unconvincing” due to the unpredictable nature of its effects and the belief that any potential impact has already been priced into the market.

OPTIMISTIC SHIFT

According to the latest Bank of America Corp. fund manager survey, investors have become significantly more positive about bonds, holding their largest overweight position in bonds since 2009. This optimism is driven by the strong conviction that interest rates will decrease in 2024, leading to a massive adjustment in their investment portfolios. Furtheremore, the survey has also indicated a rising confidence in global stocks and bonds, as investors express a preference for a soft landing and lower rates, leading to a decrease in cash levels to a two-year low. Additionally, the survey reveals a significant shift in investor positioning, with a move towards overweighting equities for the first time since April 2022. Notably, there is a clear preference for sectors such as pharmaceuticals, technology, and telecommunications stocks, while there is increased cautiousness towards utilities, materials, and discretionary stocks. Moreover, the survey also found that two-thirds of investors view a soft landing as their base case scenario for the global economy in 2024, and the most crowded trades are long big tech, short China equities, and long T-bills.

BID TO AVOID SHUTDOWN

House Speaker Mike Johnson faces a pivotal moment as he rallies Democratic support for his proposal to avert a U.S. government shutdown. Aiming for a vote on a temporary funding measure under a two-thirds majority rule, Johnson must navigate potential resistance from both Democrats and hardline conservatives within his own party. The Democrats are wary of the proposal due to its omission of emergency funding for Israel and Ukraine, as well as its potential to lead to a two-step shutdown next year. Despite some indications of receptivity from Democratic leaders, the measure encounters opposition from at least nine ultra-conservatives within Johnson’s party, who are steadfast in their demand for substantial spending cuts and changes in immigration law. Moreover, as the nation eagerly awaits the outcome of this critical vote, President Biden has expressed a measure of openness to the proposal, highlighting ongoing negotiations with Senate leaders from both parties.

INTERNATIONAL NEWS

The euro zone economy slightly shrank in the third quarter of the year, confirming the prediction of a possible technical recession if the economy continues to weaken in the fourth quarter. Eurostat reported that the gross domestic product in the euro zone fell by 0.1% quarter-on-quarter and had a 0.1% year-on-year rise. In addition, European Central Bank vice president Luis de Guindos warned of a potential slight contraction or stagnation in the economy in the following quarter, as business activity data showed weakening demands in the services industry during October. Nonetheless, it is worth noting that despite these economic downturns, employment in the euro zone grew by 0.3% quarter-on-quarter and 1.4% year-on-year. Moroever, quarterly economic growth was reported at 0.1% in France, 0.3% in Spain, and 0.5% in Belgium, while Germany experienced a 0.1% slump, with no growth in Italy, and contractions in Austria, Portugal, Ireland, Estonia, and Lithuania. Factors contributing to this growth slump include high inflation, record high interest rates, and slowly tightening fiscal policy.

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