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NOVEMBER 29, 2023

U.S. ECONOMY GREW STRONGER

The U.S. economy demonstrated exceptional growth in the third quarter of 2023, with real gross domestic product (GDP) expanding at an annual rate of 5.2%. This marked a notable acceleration from the 2.1% growth observed in the previous quarter, reflecting a robust economic activity. The upward revision in GDP growth primarily stemmed from increased nonresidential fixed investment and higher state and local government spending. Morover, although there was a slight decrease in consumer spending, which remains a crucial component of the economy, the overall increase in GDP was supported by positive contributions from consumer spending, private inventory investment, exports, and government spending. In addition, both residential and nonresidential fixed investments experienced growth as well, contributing to the accelerated GDP expansion in Q3 compared to Q2. Furthermore, inflation, as measured by the gross domestic purchases price index, remained stable at 3.0%, indicating a controlled economic environment. Also, personal income witnessed significant growth, along with corporate profits.

CRYPTO MARKET SURGES BULLISHLY

Bitcoin has surged above the $38,000 threshold due to the renewed hopes of a spot exchange-traded fund (ETF) approval and anticipated rate cuts in traditional markets. This upward momentum began yesterday afternoon following the lastest comments from Federal Reserve governor Chris Waller, which suggested a slowdown in the economy and indicated that current policies were appropriately positioned given the moderation in inflation. This was taken positively in the crypto market as interest rate decisions often have a significant impact on this market, with higher rates typically leading to a decrease in risk assets like cryptocurrencies as investors shift their focus towards bonds for profitability. Furthermore, the bullish momentum extended to other cryptocurrencies as well, with Solana (SOL) leading the gains among base blockchains, rising by 8% in the past 24 hours to make up for previous losses. Avalanche (AVAX), Cardano (ADA), and Tron (TRX) also experienced notable price increases, each climbing over 5%. Moreover, in a separate development, analyst at the global bank Standard Chartered cited the anticipated approvals of multiple spot bitcoin ETFs, which they believe will occur sooner than expected and serve as potential catalysts for an upward trend.

GLOBAL BOND MARKET RALLY

The global bond market is currently experiencing a significant rally, with the Bloomberg gauge of global sovereign and corporate debt showing the highest monthly gain since the 2008 financial crisis. This rally is primarily driven by increasing speculation that central banks, including the Federal Reserve, will begin cutting interest rates next year. In addition,  the recent comments from Fed Governor Christopher Waller have further strengthened expectations of rate cuts, and yields on U.S., European, and Australian bonds have dropped significantly. However, some investors are concerned that the market may be overpricing the magnitude of rate cuts, but despite this, corporate bonds have also benefited from the dovish shift in central bank expectations, with spreads on investment-grade global company debt narrowing to the lowest levels since April 2022. This surge in demand for corporate bonds reflects increased investor optimism about the U.S.economy, which has led to the retreat of the average yield on corporate bonds from its October peak of nearly 6%.

DECLINING RATES BUT MIXED DEMAND

Mortgage rates witnessed a decline last week, marking the fourth decrease in the past five weeks, which naturally caught the attention of potential homebuyers. However, this drop in rates did not have the same effect on existing homeowners, as the demand for mortgage refinancing significantly decreased. Consequently, the overall volume of mortgage applications remained relatively unchanged, with only a slight uptick of 0.3% from the previous week, according to data from the Mortgage Bankers Association. In addition, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances also experienced a slight decrease, while points slightly increased for loans requiring a 20% down payment. Nonetheless, although there was a 5% surge in mortgage applications for home purchases during the past week, this number still fell short by 19% compared to the same period last year. On the other hand, applications for refinancing saw a sharp decline of 9% compared to the previous week, with only a modest 1% increase year over year. This decline in refinancing activity can be attributed to the current mortgage rates being 88 basis points higher than they were a year ago, effectively limiting the number of homeowners who can benefit from refinancing opportunities.

INTERNATIONAL NEWS

Economic sentiment in the euro zone saw a modest increase for the second consecutive month in November, aligning with expectations. The positive uptick in sentiment among services, retail, and consumers outweighed a decline in manufacturers’ confidence, as revealed by the European Commission’s monthly survey. The sentiment index rose to 93.8 points from a revised 93.5 in October, in line with economists’ forecast of a slight increase to 93.7 points. Notably, the services sector surpassed expectations with a rise in sentiment, while sentiment in the manufacturing industry declined against anticipated growth. Employment expectations were dampened, mainly due to less optimistic plans among service managers, although there were marginal changes in the expectations for industry, retail, and construction. In terms of inflation, consumer expectations declined for the second consecutive month, and manufacturers’ selling price expectations reached a three-year low. Overall, the euro zone’s economic sentiment reflects a mixed outlook, with positive signs from certain sectors but challenges to be addressed in others.

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