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OCTOBER 10, 2023

SIGNIFICANT DECREASE

The ongoing conflict between Hamas and Israel, along with a significant sale of Ether by the Ethereum Foundation, had a notable impact on the broader cryptocurrency markets. As a result, over $100 million in futures positions disappeared, causing the market to slide by 2% on average. The recent sale of $2.7 million worth of Ether by the Ethereum Foundation has caused the token to slump by 3%, sparking concerns among traders. This decline reverberated throughout the ETH futures markets, with ether bulls being the most heavily impacted, losing over $30 million. Moreover, other cryptocurrencies also experienced downward trends, as Solana’s SOL tokens slipped by nearly 5%, XRP dropped by 3.7%, and Cardano’s ADA fell by 3.4%. Nonetheless, it is worth noting that although Bitcoin has also decreased, the major crypto showed relative stability with a 1% loss in the past 24 hours.

DECLINING SENTIMENT

According to a recent survey by the National Federation of Independent Business (NFIB), U.S. small business sentiment experienced a slight decline in September. This was primarily due to ongoing worries about inflation and persistent labor shortages. The survey revealed that Small Business Optimism Index dipped to 90.8, remaining below its 49-year average of 98 points for the 21st consecutive month. These findings echo the previous report from August, which saw the first decline in optimism since April, with businesses expressing concerns about a tight labor market and inflation. Moreover, NFIB’s chief economist, Bill Dunkelberg, has highlighted that business owners remain pessimistic about future business conditions, leading to their low confidence in the overall economy. Slow sales growth and slim profit margins have left owners with limited options, ultimately resulting in raising prices as a means of financial relief. To compound matters, small businesses are grappling with higher borrowing costs for credit due to the Federal Reserve’s aggressive rate hikes, and this, coupled with the broader economic uncertainty surrounding potential future recessions, has significantly dampened the outlook for businesses. Furthermore, the survey also revealed a considerable decrease in the number of owners expecting better business conditions over the next six months, along with a significant portion voicing concerns about inflation and labor difficulties. Notably, industries such as construction, retail, manufacturing, and services reported the most severe labor shortages, with a striking 93% of businesses struggling to find qualified candidates for their open positions.

PROFIT GROWTH EXPECTED

Profits at major U.S. consumer lenders are predicted to rise in the third quarter, in contrast to investment banks facing a slowdown in dealmaking. JPMorgan Chase, which is due to kick off the earnings season for large banks on Friday, is expected to show a 25% increase in earnings per share (EPS) compared to last year, although Goldman Sachs and Citigroup are projected to experience significant decline in EPS. The higher interest rates, longer funding, and borrowing costs are impacting banks’ financial operations and capital requirements, and with rising rates and a potential rise in borrowing costs, the recovery in dealmaking may be affected. Consequently, investment banking activity remains low, with global fees down 17% compared to the past year. Furthermore, surging U.S. Treasury yields pose risks to banks holding significant volumes of these securities. Nonetheless, despite the challenges, consumer divisions of large banks are expected to perform well, supported by a strong job market and moderate delinquency levels.

BOND MARKET REASSESSMENT

Many investors welcomed yesterday’s bond market closure as a much-needed break from one of the most difficult periods for fixed income in recent memory. In fact, the bond market’s current performance is yielding the worst results on record for investors as data from Bespoke Investment Group has revealed that annualized returns for long-dated Treasury notes and bonds over the past 20 years have never been worse, according to the Bank of America (BofA) Merrill Lynch 10+ Year U.S.Treasury Index. Even returns over shorter periods for these instruments have fared poorly. Notably, over the last 2-, 5-, and 10-year rolling periods, returns for long-dated Treasuries have been better more than 99% of the time. However, only returns over the past year for this index exceed the first percentile for historical returns. The data further revealed that annualized total returns over the past 1-year, 2-year, and 5-year periods now stand as negative for investors in long-dated Treasuries, with losses totaling 17.6% over the past two years. Over the last 10 years, returns have barely reached a positive rate of 0.8% per year. This is a sharp contrast to the average annual return of over 8% observed over 45 years. Consequently, the bond market’s struggles have been implicated in the recent stock sell-off, and investors are now reassessing their belief in the safety and stability of bond investments.

INTERNATIONAL NEWS

The International Monetary Fund (IMF) has increased its growth forecasts for Japan, indicating a positive trend in the country’s economy. Japan, as the world’s third-largest economy, is projected to grow by 2% this year, thanks to factors such as increased consumer spending, a surge in tourism, and a rebound in auto exports. These developments have led to an upward revision of 0.6 percentage points from previous estimates. In addition, the IMF expects Japan’s inflation rate to surpass the Bank of Japan’s target, with consumer prices predicted to rise by 3.2% in 2023 and 2.9% in 2024. Moreover, it is worth highlighting that Japan is outperforming other G-7 nations in terms of per capita gross domestic product, with a projected growth rate of 2.4% this year, the highest among the group. As a result, there is growing speculation that the Bank of Japan may consider reducing its aggressive monetary easing program, and its upcoming meeting is expected to include an increase in its inflation forecasts.

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