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NOVEMBER 22, 2023

CRYPTO MARKET TUMBLED

Cryptocurrencies experienced a significant decline following Binance founder and CEO Changpeng Zhao’s admission of criminal charges from the U.S. Department of Justice. Zhao’s agreement involves a $50 million fine payment, and he will step down as chief executive. Furthermore, Binance was found guilty of violating the Bank Secrecy Act and failing to register as a money transmitting business, resulting in a $4.3 billion penalty and forfeiture. The U.S. Department of Justice, the Commodity Futures Trading Commission, and the Treasury Department collaborated on this action against Binance, while the Securities and Exchange Commission was conspicuously absent. Moreover, apart from Binance, another crypto exchange, Kraken, was sued by the SEC for the second time this year, and the government agency accused the crypto excange company of operating as an unregistered broker, clearing agency, and dealer, as well as commingling customers’ crypto assets with its own. Furthermore, the DOJ commended Tether for freezing $225 million of assets connected to a human trafficking syndicate in Southeast Asia. Following these events the crypto market was left rattled, as Binance Coin among other major cryptocurrencies such as Ripple’s XRP, Solana, Polygon, and Uniswap all experienced declines. In addition, Bitcoin was also affected as it fell below the $37,000 mark.

ROBUST HOUSING DEMAND

According to the seasonally adjusted index of the Mortgage Bankers Association, last week, the total number of mortgage applications increased by 3% compared to the previous week. This was accompanied by a decrease in the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances from 7.61% to 7.41%. The reduction in interest rates has contributed to the rise in mortgage applications, especially for loans with a 20% down payment, with points decreasing from 0.67 to 0.62 (including an origination fee). Joel Kan, the MBA’s deputy chief economist, noted that the decrease in mortgage rates, the lowest in two months, has prompted more households to apply for loans. However, it is worth noting that while refinance applications in the market increased by 2%, applications for home purchases rose by 4% from the previous week, despite remaining 20% below the same period a year ago. These trends suggest that while mortgage demand is showing an upward trend, it is still relatively low compared to historical averages. Concurrently, the housing market remains weak, with existing home sales in October dropping to the lowest level in 13 years, according to the National Association of Realtors, and with mortgage rates showing a slight decrease, analysts do not anticipate any significant changes in the near future. Matthew Graham, the chief operating officer of Mortgage News Daily, suggests that the market has shifted into holiday mode, with light volume and liquidity potentially causing unpredictable fluctuations.

RESILIENT JOB MARKET

The latest report from the Labor Department indicated a significant drop of 24,000 in the number of Americans applying for unemployment benefits, suggesting a strong job market despite the Federal Reserve’s 11 interest rate hikes since March 2022. This decline reflects a historically low level of jobless claims, signifying that most Americans currently enjoy job security. However, it is important to note that although hiring has slowed from the rapid pace of last year, the job market remains resilient. This is supported by the fact that despite a decrease in job openings, the economy continues to show strength. Additionally, the combination of a reduced inflation rate and a durable jobs market has raised optimism that the Federal Reserve can achieve a “soft landing” by slowing economic activity to control inflation without tipping the U.S. into a recession. This news has given rise to hope that the Fed can manage the economic dynamics effectively, maintaining steady growth while keeping inflation in check.

DECLINE DESPITE STRONG PERFORMANCE

Nvidia’s shares dipped despite exceeding Wall Street’s predictions in their fiscal third-quarter results as the tech company warned of an impending negative impact due to export restrictions affecting sales to China and other countries. The company’s finance chief, Colette Kress, expects a notable sales decline in these regions for the fourth quarter, which is anticipated to be offset by robust growth in other areas. Nvidia is working with clients in the Middle East and China to acquire U.S. government licenses for sales of high-performance products and is also striving to develop new data center products that comply with government policies, however, these efforts are not expected to have a significant impact in the fiscal fourth quarter. Nonetheless, it still worth highlighting that Nvidia outperformed expectations by reaching adjusted earnings of $4.02 per share and revenues of $18.12 billion, indicating a 206% year-over-year growth in revenue, with net income totaling $9.24 billion. In addition, the company’s data center revenue surged to $14.51 billion, with a substantial portion stemming from cloud infrastructure providers like Amazon. Moreover, despite the not so positive expectations, Nvidia remains optimistic about its plan to enhance supply over the next year.

INTERNATIONAL NEWS

European Central Bank Vice President Luis de Guindos has warned that investors may be underestimating the risks facing the Eurozone’s economy, given a year of interest rate hikes and increasing political tensions, particularly in the Middle East. He expressed skepticism about the prospects of a so-called “soft landing,” where inflation is contained without a major recession, aligning with the ECB’s assessment in its bi-annual Financial Stability Review. Despite a 0.1% contraction in output during the third quarter, the European Commission anticipates the Eurozone may avoid a recession due to improved purchasing power among consumers. Investors, on the other hand, are expecting rate cuts as early as April, but Guindos stressed the premature nature of these discussions, emphasizing the importance of a data-dependent approach and the need for steady communication. Additionally, he expressed confidence in the ECB’s ability to navigate potential challenges and ultimately achieve its inflation target.

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