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NOVEMBER 30, 2023

INFLATION HOLDS STEADY

In October, the measured inflation of personal spending met expectations, which may provide the Federal Reserve with more reasons to maintain steady interest rates and contemplate potential cuts in 2024. According to the latest release from the Commerce Department, the personal consumption expenditures price index, excluding food and energy prices, exhibited a 0.2% rise for the month and a 3.5% increase on a year-over-year basis, aligning perfectly with the consensus among Dow Jones. Furthemore, headline inflation remained unchanged for the month, holding at a rate of 3% over the past 12 months. This steadiness in inflation was partly due to a 2.6% drop in energy prices, counterbalancing a slight 0.2% increase in food prices. Moreover, within the categories, while goods prices experienced a 0.3% decrease, services observed a 0.2% rise. Notably, significant gains were recorded in international travel, healthcare, food services and accommodations, and among goods, the leading gainers were gasoline prices. Finally, personal income and spending both demonstrated a 0.2% increase for the month, aligning well with initial estimates.

THE ONE LAGGING BEHIND

While the crypto market is showing signs of a bullish trend, non-fungible tokens (NFTs) have failed to ride the market euphoria as espite a significant 70% year-to-date increase in ether value, NFT valuations remain stagnant or even decline. Prominent NFT indices, like Nansen’s NFT-500 and the Blue-Chip 10, have experienced notable drops in valuation. In addition, OpenSea, the largest NFT marketplace, has also suffered a decline in fees and revenue. Experts believe that for NFTs to regain ground, they need to go beyond speculative JPEGs and focus on utility-based applications in areas such as gaming, music, and social media. Until then, the performance of NFT prices will largely depend on speculative hype and mania in the market. Moreover, despite NFTs lagging behind the current bull market, it is worth noting that there are encouraging developments with the rise of utility-focused NFTs in areas like ticketing and loyalty programs. Additionally, Bitcoin ordinals, serving as a layer-2 solution for the Bitcoin blockchain, are gaining popularity and facilitating collaborations among different crypto communities.

BOND MARKET BOOM

November has definitely been a standout month for the U.S. bond market as despite the challenges witnessed throughout the year, investors have pushed up the prices of Treasuries, agency, and mortgage debt, resulting in November being the best month since the 1980s. Positive signals from cooling jobs data, soft consumer inflation figures, and dovish comments from Fed Chair Jerome Powell and Governor Christopher Waller played a significant role in fueling the market’s upward trajectory. Consequently, Bloomberg U.S. Aggregate Index returned 4.9% in November, driven by a drop in the benchmark 10-year bond yield. Furthermore, this rally came as a relief for bond investors, who were bracing themselves for a possible third consecutive year of losses, and it is worth to remark that the sustainability of this positive trend extending into December and beyond, hinges on key factors such as indications of a slowing economy, easing inflation, and the Federal Reserve’s decision to halt interest rate hikes.

CLAIMS HIT TWO-YEAR HIGH

According to the Labor Department, there was a slight increase in jobless claims last week, resulting in the highest number of people collecting unemployment benefits in the U.S. in two years. The number of applications for unemployment benefits rose by 7,000 to reach a total of 218,000 for the week ending November 25. This increase indicates a higher rate of layoffs during that period. Moreover, the overall number of individuals receiving unemployment benefits reached 1.93 million, which is approximately 86,000 more than the previous week and the highest level observed in two years. Continuation of claims has shown an upward trend in nine out of the past ten weeks. However, it is important to highlight that despite the slight increase experienced last week, the four-week moving average of jobless claim applications, which helps to smooth out weekly fluctuations, declined by 500 to stand at 220,000.

INTERNATIONAL NEWS

The Euro-zone is experiencing a cooling in inflation that has surpassed initial expectations, leading investors to believe that the European Central Bank (ECB) will cut interest rates sooner than previously suggested. Consumer prices rose 2.4% in November, falling below economists’ estimates and marking a two-year low. In addition, core inflation, which excludes volatile components like fuel and food, has decreased for the fourth consecutive month, settling at 3.6%. The ECB’s interest rate hikes have contributed to declining inflation and a contracting economy, with the Eurozone’s GDP shrinking by 0.1% in Q3. Consequently, expectations have shifted, with speculation of four quarter-point rate reductions in 2024 and a 70% chance of a fifth cut, potentially bringing the deposit rate back to 2.75% from the current record high of 4%. Moreover, while concerns exist over the impact on lending and the end of a real estate boom, the labor market remains stable, with joblessness rates holding steady at 6.5% in October. Nonetheless, despite this stable joblessness rate, Bank of Italy Governor Fabio Panetta is still warning against needlessly harming the economy and urges the ECB to ensure price stability without jeopardizing economic activity and financial stability.

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