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OCTOBER 23, 2023

SOARING PRICES

Bitcoin (BTC) is gaining remarkable traction, capitalizing on the upward momentum of traditional assets such as gold. The leading cryptocurrency recently surged to its highest level since July, peaking at $30,797 earlier this morning, which represents a monthly increase of 14%, surpassing the more conservative 6.7% growth experienced by gold. The surge in both BTC and gold can be attributed to multiple factors, including escalating tensions between Israel and Hamas and growing speculation surrounding the Federal Reserve’s plan to tighten monetary policy, creating an inflationary environment. Additionally, market enthusiasm surrounding the potential approval of a BTC exchange-traded fund (ETF) reinforces optimistic sentiments. The recent surge in BTC prices show that investors are increasingly viewing the cryptocurrency as a reliable asset amidst economic uncertainty. In addition, market analysts have also noted that the options market suggests the potential for a substantial upward movement in BTC prices as market makers adjust their exposure accordingly.

HEATING COSTS DIVIDED

Heating your home this winter is expected to be more affordable, but there are some exceptions to this trend. Most states will see a decrease in heating costs from November to March, offering some relief for households, however, if you reside in certain states, you might not experience the same benefit. One such state is Connecticut, where heating costs are projected to increase by 8% this winter, primarily due to the surge in heating oil prices. This rise in prices can be attributed to global crude trading stabilization and the reliance on heating oil in the Northeast, which exposes the region to volatile global diesel markets. Additionally, factors such as aging buildings, reduced refining capacity, and limited natural gas pipelines aggravate the situation, leaving little room for relief. Furthermore, while households relying on electricity or natural gas are expected to see a decline in costs, those relying on heating oil face an uphill battle. This situation hits low-income residents in Connecticut particularly hard due to already increased prices in gasoline, rent, and groceries. In addition, the demand for assistance from organizations like Operation Fuel has risen exponentially, and they anticipate an even greater need in the coming months. Moreover, it is important to note that despite the overall expectation of lower heating costs compared to last year, weather-related disruptions or conflicts, such as the recent tensions between Israel and Hamas, could have a significant impact on Northeast’s heating prices.

FADING YEAR-END RALLY

According to Morgan Stanley’s strategist Michael Wilson, the chances of a year-end rally in U.S. stocks are diminishing due to various risks. Wilson, known for his bearish stance, believes that the S&P 500 could continue to decline as profit expectations for the fourth quarter and 2024 are too high, and there is tightening in monetary and fiscal policies. Analysts foresee a 1.1% earnings decline for S&P 500 companies in the third quarter, followed by a 5.2% rebound in the following months. However, Wilson’s pessimistic outlook has gained support as the S&P 500 faces consecutive monthly declines, driven by concerns about sustained higher interest rates. It recently closed below its 200-day moving average, a crucial support level that indicates the overall trend. Considering the outlook for earnings, valuations, and policies, Wilson believes it will be challenging for the S&P 500 to rise above previous support levels of 4,300 to 4,400 points. He has set a year-end target of 3,900, almost 8% lower than current levels. Moreover, other Wall Street strategists are echoing these concerns, given geopolitical risks and macroeconomic uncertainty. Even early reactions to earnings have been underwhelming, with companies that miss analysts’ estimates experiencing stock underperformance. Furthermore, strategists at JPMorgan Chase and RBC Capital Markets expect additional pressure on global stocks.

INTERNATIONAL NEWS

Euro zone government bond yields have experienced a sharp rise as global bond markets resumed selling off, causing the yield on the 10-year U.S. Treasury note, a global-benchmark, to reach its highest level in 16 years, surpassing 5%. In addition, the yield on the German 10-year bond also increased, although it remained below the 12-year high reached earlier in October. Bond yields rise when prices fall, and vice versa, and the recent surge in yields is driven by concerns about a strong U.S. economy that shows no signs of slowing down and apprehensions about rising levels of government debt. Moreover, while there was a temporary decline in yields on Friday due to investors seeking safety amidst Middle East tensions, the overall direction in bond markets has been marked by a significant increase in yields. Furthermore, looking ahead, market attention will be focused on the European Central Bank’s policy meeting on Thursday, particularly any indications regarding the reduction of their pandemic-era bond holdings. Additionally, the affirmation of Italy’s investment grade credit rating and Greece’s upgrade to investment grade will also be noteworthy events. Nonetheless, it is worth noting that these developments are expected to have only a modest impact on bond yields.

KEY EVENTS HAPPENING THIS WEEK

Monday: Fed Board Meeting, and earnings reports from Cleveland Cliffs and Logitech.

Tuesday: S&P Case-Shiller home price index(20 cities) report for August, S&P flash U.S. services and manufacturing PMI reports for October, and earnings reports from Microsoft, Google, Visa, Snap, Teladoc, Texas Instruments, Coca-Cola, GE, Verizon, 3M, Spotify, General Motors, NetEra Energy, Dow Chemical, and Nucor.

Wednesday: Mortgage bankers association (MBA) reports, New home sales report for September, earnings reports from T-mobile, Meta, IBM, ServiceNow, Boeing, Thermo Fisher, and General Dynamics.

Thursday: GDP report for third quarter, Initial jobless claims report for week ending on October, Pending home sales report and earnings reports from Amazon, Mastercard, Merck, UPS, Intel, Chipotle, Ford, Royal Caribbean, Altria, Southwest, American Tower, and Enphase Energy.

Friday: Nominal personal income and spending reports for September, PCE index report for September, Final consumer sentiment October, and earnings reports from Chevron, Exxon Mobil, AutoNation, and AbbVie Inc.

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