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OCTOBER 26, 2023

REMARKABLE GROWTH

According to the latest report from the Commerce Department, the U.S. economy experienced a remarkable surge in growth during the third quarter, surpassing all expectations. Gross domestic product (GDP) expanded at an annualized rate of 4.9%, accelerating from the previous quarter’s 2.1% growth. Consumer spending, accounting for 68% of GDP, was a major driver of this growth, increasing by 4%. Additionally, other contributing factors included increased inventories, exports, residential investment, and government spending and investment. Furtheemore, despite challenges such as rising interest rates, inflation pressures, and geopolitical tensions, the resilience of consumer spending and overall economic performance highlights the strength of the U.S. economy. Moreover, following this latest report, economists predict a slowdown in growth ahead, but do not foresee a recession unless unforeseen shocks occur.

ALTCOIN RALLY

The recent surge in Bitcoin’s price has sparked a positive trend in other cryptocurrencies as many alternative coins, known as altcoins, have experienced double-digit percentage gains in the past week. One notable altcoin is Solana, which was previously overshadowed due to its association with the ongoing trial of former FTX CEO Sam Bankman-Fried. However, Solana has managed to break free from this slump and recording a 40% gain. In addition, Solana has also emerged as the top choice for investors in major exchange-traded products this year, attracting $74 million in investments. Furthermore, other lesser-known tokens like Chainlink, Aptos, and the meme token Pepe have also seen significant weekly gains. Fueling this market rally is the anticipation among investors that the Securities and Exchange Commission will soon approve a spot Bitcoin ETF in the U.S., and according to experts at Bloomberg, there is a 90% chance of approval by January.

LOW DESPITE INCREASE

The number of Americans applying for jobless benefits increased to 210,000 last week, but it remains historically low, signaling a strong labor market despite concerns about high interest rates and inflation. The four-week moving average of claims, which provides a more stable view, rose to 207,500. Overall, 1.79 million individuals were receiving unemployment benefits as of the week ending October 14, with a slight increase of 63,000 from the previous week. Surprisingly, despite the Federal Reserve’s efforts to control inflation by raising interest rates, the labor market and the broader economy have outperformed expectations. In September, employers added 336,000 jobs, resulting in a solid average gain of 266,000 over the past three months. The slight increase in the unemployment rate from 3.5% to 3.8% primarily reflects more people actively searching for employment, rather than a decrease in job availability. Analysts predict that the Federal Reserve will maintain interest rates unchanged in its next meeting, aiming for a “soft landing” to balance inflation reduction without triggering a recession.

BOND CRASH IMPACT

In recent weeks, there has been a big crash in the bond market, and it is definitely causing a lot of concern on Wall Street as the decline in Treasury prices has pushed the interest rates on 10-year U.S. Treasury bonds above 5% for the first time in 16 years. So, what does this mean for the economy, and your investments? Let’s remember that bonds are like loans that governments and companies take from people, and when you buy a bond, you are lending them money. In return, you get regular interest payments and your initial investment back later on. Bond yields tell you how much money you will make as a percentage of your investment, and it is important to highlight that the 10-year U.S. Treasury bonda are a big deal because they set the tone for other interest rates. The reason behind why the prices of longer-term bonds have been dropping fast is because the Federal Reserve has been raising interest rates, which makes bonds less attractive to investors. In addition, the U.S. government’s debt has been growing, and it seems they’re selling more bonds than the market can handle. So, why does this matter to you? Well, when bond yields go up, it is not great news for stocks. Higher bond yields make people more interested in bonds than stocks because they offer a better return for lower risk, and this shift can slow down the stock market. Moreover, rising bond yields can affect regular people too, taking into account that when bond yields go up, they tend to push up interest rates for things like mortgages, loans, and credit card bills, and companies may also have to cut jobs to deal with higher borrowing costs.

INTERNATIONAL NEWS

The European Central Bank (ECB) has decided to pause its interest rate hikes, despite concerns about inflation stemming from the Israel-Hamas conflict and fluctuations in the oil market. This decision comes after a series of ten consecutive rate increases since July 2022. It is worth noting that recent data shows a significant drop in inflation during September, and the ECB predicts that inflation will reach 2.1% in the medium term, they continue to rely on data analysis for future decisions. Maintaining a balance between controlling inflation and addressing weak business activity and sluggish growth forecasts poses a challenge for the ECB, and they care losely monitoring the bond market, which has experienced increased yields due to global sell-offs and heightened volatility. Furthermore, rising wage growth and energy price uncertainty arising from ongoing Middle East tensions contribute to inflation risks. Moroever, given the current economic conditions and the stance of other central banks, it is unlikely that the ECB will raise interest rates anytime soon, despite alluding to the possibility in the future. Instead, the focus may shift towards implementing rate cuts to stimulate economic growth.

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