Market Observations - Nov 22
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Crypto Market Rundown:?
Several events from yesterday were worth noting in the crypto world. The first significant development is that Binance’s Changpeng Zhao is stepping down as CEO - Richard Teng, former Head of Regional Markets, has filled the position. The news put pressure on Binance Coin (BNB) and the rest of the market. As of now, BTC and other alts are beginning to recover from yesterday's pullback.
The global crypto market cap is $1.37T, a -3.18% decrease over the last day. The total market volume over the last 24 hours is $62.87B, a 10.55% increase day/day. Total volume in DeFi is currently ~$6.4B, or 10.18% of all volume. BTC.D (Bitcoin dominance) is currently 51.97%, an increase of 0.35% over the day.?
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U.S. Tuesday Market Wrap:
Stocks slid lower on Tuesday, snapping a 5-day win streak, as FOMC minutes indicate policy must stay restrictive. The Dow lost 63 points or 0.20%, the S&P fell 0.2%, and the Nasdaq gave back 0.6%. Four of eleven S&P sectors closed green. Healthcare +0.59% led, and technology -0.82% lagged.
The Fed indicates the policy must remain “restrictive” amid concerns that inflation could be sticky or tick higher. As rates remain higher for longer, housing data for sales in October came in at 3.79m units vs the 3.9m forecast. This marked the slowest sales pace since August 2010, a 14.6% fall from the prior year.
U.S. existing home sales fell 4.1% MoM and 14.6% YoY in October, with the median sale price of $391,800 rising 3.4% since last year. First-time homebuyers remain at a historically low 28% of all purchases, as low inventory, high rates, and high prices keep the market stagnant.
Symbotic shares jumped 40% after the warehouse automation company reported a 98% YoY revenue increase and significant margin improvements.
Nvidia’s earnings were this week’s most highly anticipated event. And as always, the market did its best to frustrate both bulls and bears after the report.
The company reported adjusted earnings per share of $4.02 on $18.12 billion in revenues. That topped expectations of $3.37 and $16.18 billion.
As for the breakdown, its data center revenue rose 279% YoY to $14.51 billion. Analysts had expected $12.97 billion. Executives said half the revenue came from cloud infrastructure providers like Amazon, while the other half came from consumer internet entities and large companies.
Meanwhile, its gaming segment’s revenues rose 81% YoY to $2.86 billion, beating the $2.68 billion expected. The professional visualization segment saw 108% YoY growth to $416 million, while its automotive segment rose just 4% YoY to $261 million.
While all of its segments are important, investors primarily focus on its data center business, given its role in supporting future technologies like artificial intelligence (A.I.).
Founder and CEO Jensen Huang said, “Our strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative A.I… NVIDIA GPUs, CPUs, networking, A.I. foundry services, and NVIDIA AI Enterprise software are all growth engines in full-throttle. The era of generative A.I. is taking off.”
As a result of the era taking off, Nvidia expects $20 billion in fourth-quarter revenue, implying a 231% YoY growth rate.
Despite the solid results and guidance, investors remain concerned about the potential implications of the U.S.’s export restrictions to organizations in China and other countries. Nvidia’s CFO Colette Kress said, “We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions.”
That matches similar commentary from Nvidia and others in the industry. For now, demand for high-tech chips remains so robust that it’s likely to outweigh supply for the foreseeable future. Geopolitical tensions remain a longer-term risk, but there are more than enough buyers for the company’s products in the short term.
As for investors’ initial reaction, the bulls say this report and guidance validate the company’s massive growth potential. However, bears say the stock’s enormous run-up since last year and sky-high valuation shows the business’ growth potential is already priced in.
Time will tell who is ultimately right long-term. But for now, only options premium sellers are happy, as NVDA shares trade essentially flat after the bell.
Corrective forces helped the dollar stabilize yesterday, and it enjoys a firmer tone today. The euro has slipped below $1.09, and the dollar has resurfaced above JPY149.00. The FOMC minutes seem dated by the more than 30 bps decline in the U.S. 10-year yield, the 7% rally in the S&P 500, and the roughly 3% drop in the Dollar Index. The implied year-end 2024 Fed funds rate has fallen by 10 bps to 4.51% (5.33% currently). The Japanese government downgraded its economic outlook for the first time in ten months. While the recovery is judged to be still intact, some parts have “paused,” it said.
Benchmark 10-year yields are little changed, though Gilts are underperforming ahead of Chancellor Hunt’s Autumn Statement shortly. The 10-year U.S. Treasury yield is near 4.39%.
Overnight, the Nikkei posted an outside up day; most of the other large regional markets were sold, dragged lower by the tech sector. Tech is less represented in Europe, and the SXXP is recouping yesterday’s minor loss and is around 30bps higher.
U.S. index futures have turned higher from earlier losses.
Gold jumped 1% yesterday and reached about $2007.60. It is consolidating in mostly a $5-band on either side of $2000.
A rise in U.S. oil inventories (~9mm barrels estimated by API) is helping cap the price of crude today. The January WTI contract has traded on both sides of yesterday’s range (~$76.90-$77.90). The market may be reluctant to take on new positioning ahead of the upcoming OPEC+ meeting.
?The U.S. economy is slowing, and the immediate question is the magnitude. Due to tomorrow’s U.S. holiday, today’s reports include weekly jobless claims, October durable goods orders, and the final November University of Michigan consumer survey. Recall that in the week ending November 10, weekly initial claims rose for the 3rd week in the past four to 231k, a 3-month high. Continuing claims rose for the eighth consecutive week; at 1.865m, it is the most in nearly two years. A small decline in initial claims would not surprise, while the rise in continuing claims is consistent with slower hiring. A slowing of the labor market is not just about wages but also demand. Note that the early forecasts for this month’s nonfarm payrolls are coming in around 175k, which, while better than the initial October estimate of 150k, would still see the three- and six-month averages decline.
Durable goods orders are volatile but, on average, declined by 0.4% a month in Q3. Through September, durable goods orders have averaged a 0.6% gain this year, twice the average for the same 2022 period. We already know that Boeing’s orders were almost halved from September’s 224, though deliveries increased (34 vs. 37). The median forecast anticipates a 3.2% decline, which would be the second steepest decline since April 2020 (The biggest decline was July’s 5.6% hit.). Excluding defense and aircraft orders, durable goods orders are seen edging up by 0.1% after a 0.5% gain in September.
Sam Altman is back. Following a day-long saga that saw him ousted and join Microsoft, and then OpenAI employees threaten to quit on masse unless he was reinstated, Altman will return and overhaul the ChatGPT creator’s board of directors.??The parties involved are still discussing which of the existing board members will stay. It’s a victory for Microsoft, OpenAI’s biggest backer, which had worked with other investors to engineer Altman’s return and wants to address the governance issues that caused the problem in the first place.
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