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OCTOBER 6, 2023

STRONG GROWTH

Despite challenges such as higher interest rates, labor disputes, and political issues in Washington, the U.S. economy showed resilience in September as according to the Labor Department, the job market outperformed expectations, with nonfarm payrolls increasing by 336,000, surpassing the estimated 170,000. Moreover, although the unemployment rate was slightly higher at 3.8% compared to the projected 3.7%, and wage increases were lower than anticipated, with average hourly earnings up by 0.2% for the month, several sectors experienced significant job growth. Industries such as leisure and hospitality, government, healthcare, and professional services all saw notable gains. However, the motion picture and sound recording industry faced a decline in jobs due to ongoing labor disputes in Hollywood. Furthermore, previous job growth estimates for August and July were revised upwards, indicating a stronger labor market. Following this favorable jobs report, the stock market reacted negatively, and yields on Treasury bonds increased, reflecting concerns regarding potential future interest rate hikes driven by sustained economic strength and inflation.

POSSIBLE REVERSAL

Bitcoin (BTC) is currently facing a potential reversal in the near term as its recent price gains have stalled. This lack of upward momentum, coupled with disappointing performance from ether (ETH) futures exchange-traded funds (ETFs), has put a dampener on the major cryptocurrencies. Bitcoin’s retreat against stock market buying signals a higher likelihood of a decline rather than further growth. Additionally, the underwhelming showing of ETH ETFs has eroded confidence in top tokens. Despite initial optimism surrounding the launch of ETH ETFs, low trading volumes have compelled analysts to adjust their expectations and shift focus towards Bitcoin investments instead. Consequently, ether has lost gains while Bitcoin has remained relatively stable. Moreover, in the broader cryptocurrency market, there has been minimal movement over the past 24 hours, with Cardano’s ADA tokens being the sole exception, displaying a notable increase.

DOWNWARD TREND

Gasoline prices in the U.S. are on a downward trajectory, with the potential to reach $3 per gallon in many regions in the coming weeks. This drop can be attributed to a $10 decrease in crude oil futures, driven by both economic fears and declining demand. While lower gasoline prices can benefit consumers and help alleviate inflationary pressures, they may also signify economic weakness, as recent data reveals the lowest seasonal gasoline demand in 26 years. The decline in wholesale gasoline prices has been significant, ranging from 6.9% to 10.8% per gallon. Various factors, including adverse weather conditions, surplus gasoline stocks, and discouraging economic data, have contributed to this situation. Looking ahead, experts predict that gasoline prices could potentially dip to $3 per gallon in the Midwest and East Coast by autumn, with some states already witnessing retail prices below that threshold.

YO-YO YIELDS

The fixed income market is currently experiencing a major decline, which is being described as the largest bond bear market ever. Bank of America Global Research has noted that the yield on U.S. 30-year bonds has dropped by 50% from its peak. In the past week, bond funds saw a significant outflow of $2.5 billion, while Treasury bonds continued to attract inflows of $4.6 billion for the 34th consecutive week. Despite the market turmoil, investors remain optimistic about stocks, as equity funds received $3.3 billion in inflows, and although there is widespread concern about the market, investors have not yet sold off their bonds.

IGNORING WARNINGS

The corporate landscape of America is witnessing a concerning surge in debt accumulation among CEOs and CFOs, disregarding clear warnings from Federal Reserve Chair, Jerome Powell, about the perils of excessive borrowing. Alarming as it may be, companies, both highly rated and lower rated, have been financing their operations, expansions, and share buybacks through increasingly high levels of debt. This concerning trend is symptomatic of a deeply ingrained culture of reckless borrowing and spending, which has been facilitated by years of persistently low interest rates. Regrettably, the consequences are starting to show as the financial health of numerous companies has began to deteriorate, resulting in a notable increase in defaults within several sectors. Moreover, while the Fed’s hiking campaign may be winding down, the debt boom may need further rate increases to curb this behavior, potentially causing economic repercussions.

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