Weekly Markets Update - 23.10.04

MARKET PERFORMANCE SUMMARY:

Between 25 Sep ’23 and 01 Oct ’23 the TOTAL CRYPTO MARKET including BTC rallied +3.06%, reference Figure 1, outperforming major traditional indices.

The S&P500 dropped -0.73% as renewed inflationary concerns driven by high oil costs resurfaced. Despite August’s core PCE index (the Fed’s primary inflation gauge) increasing 3.9% Y-o-Y, the slowest rate in nearly two years, it remains at nearly double the policy target (2%). Meanwhile, headline PCE inflation touched a 7-month high of 0.4% M-o-M mainly driven by higher energy prices. While the core reading is the one the Fed watches closely, investors are worried that inflation could prove more difficult to tame. The worry spurred a sell-off in bonds which has seen the US10YR yield end the week +3.24% higher. Weekly jobless claim numbers provided additional source of concern that rates will stay higher for longer. They edged higher by 2 000 to 204 000 on the week ending 23 Sep ‘23, well below market expectations of 215 000 – pointing to a tight labour market that gives the Fed leeway to introduce additional hikes as early as November ‘23. The negotiations to prevent a government shutdown and the autoworkers strike also weighed markets. The former was resolved at the last-minute with the president signing a 45-day funding deal bill to keep the government open on 01 Oct ‘23. The latter clouds the outlook for the final quarter of the year even as new vehicle sales in the United States are projected to rise for a sixth consecutive month in September ’23 on strong demand.

The DAX and CAC 40 dropped -1.10% and -0.60%, respectively (see Figure 1), over concerns of higher U.S. rates for longer in the west, and a weak Chinese economy in the east. However, investors drew some positivity from domestic inflation data with consumer prices increasing 4.3% Y-o-Y in September ’23 - the slowest pace in about two years and 0.9% slower than in August ‘23. As inflation responds to the recent hiking cycle and economic slowdown in the region looms over sentiment, the ECB is expected to halt hikes this year with a slight possibility of a rate cut by June ’24. The FTSE fell -0.89% during the week as the property sector is dealt further blows from elevated borrowing costs. The UK Nationwide House Price Index dropped by 5.3% Y-o-Y in September ‘23, the same pace as in the previous month. Despite the drop being softer than expected, the recent trend represents the most rapid plummet in housing prices since mid-2009 during the Great Recession.

The SHANGHAI composite’s stand-out resilience wore off as the index dropped -0.64% (see Figure 1) during a holiday-shortened week. The composite PMI climbed to 52.0 in September ‘23 from 51.3 as general activity improved from August ’23 – providing further evidence that the economy is gradually bottoming out. Investors will look forward to more positive economic data to offset China’s frail property sector which led to the Asian Development Bank trimming its 2023 economic growth forecast for China to 4.9% from a July forecast of 5.0%. To add insult to injury, the Wall Street Journal reported during the week that Hui Ka Yan, chairman of embattled property group China Evergrande Group, is being investigated on suspicion of transferring assets offshore while the company struggles to complete unfinished projects. The NIKKEI fell -1.64% (see Figure 1) as the BoJ reiterated its commitment to ultra-easy monetary policy. The comments followed the release of Tokyo’s core inflation rate, a leading indicator for nationwide price trends, which surpassed the central bank’s 2% target for the 16th consecutive month. Persistent policy divergence with western central banks suppressed the Yen again last week which slumped to 11-month low against the Dollar. Japan’s 10YRJGB yield hovered above 0.75% even after the BoJ bought 300 billion Yen worth of bonds with maturities between 5 and 10 years on 29 Sep ’23.

The JSE ALL SHARE dropped -1.33% (see Figure 1) – closing off on a -3.40% decline for the month - as local investors digested signs of a prolonged period of higher interest rates. On the domestic front, South Africa's private sector credit grew 4.38% Y-o-Y in August 2023, below market forecasts and the 5.87% increase in the previous month. While this marked a 26th straight month of growth, it also furthered a trend of moderating pace since February ‘22. South Africa posted a budget deficit of ZAR 47.33 billion in August 2023, larger than a gap of ZAR 42.67 billion in the same month a year earlier – This is important as the government’s fiscal responsibility comes into more focus with the upcoming national elections.

BTC and ETH made strong gains of +6.24% and +9.33%, respectively (see Figure 1), breaking from other risk assets that struggled during the week. BTC's recognition in Shanghai has boosted its value and influenced positive sentiment towards it as a digital asset. Meanwhile, Valkyrie Funds LLC received approval from the SEC to include ETH futures in their existing BTC ETF. However, the SEC postponed its decision on several proposals for spot BTC ETFs once again – citing reasons closely related to the government shutdown which was narrowly avoided at the very end of the week. Investors will be looking forward to approvals during the month of October to sustain crypto’s boost this week.

?INSAAPH CAPITAL’S TAKEAWAY:

?The week closed off a rather disappointing quarter for the stock market. The uncertainty of the recent government shutdown scare introduced a short-term uptick in volatility but as with most political events, government shutdowns have historically had little lasting impact on equity performance as markets tend to look through the noise and focus on the fundamental drivers. In Q4, the focus will be on the impact of high interest rates headwinds on the economy and stocks. A surge in oil prices has confounded the inflation narrative which has otherwise been that inflation is cooling globally. The expectation is that demand for energy will subside as summer passes and general demand will moderate leaving labour resilience as the primary predictor of the Fed’s next move in the near-term. To this end, investors should look forward to the U.S. jobs report in the w/c ?02/10 which will gauge the amount of leeway the Fed has to tighten policy further before the end of the year.

Key Points: The week closed off a rather disappointing quarter for the stock market. However, like most political events, the impact of the recent government shutdown scare is temporary and markets will focus on the impact of high interest rates on the economy and stocks. With inflation generally cooling, investors should look forward to the U.S. jobs report next week which will gauge the amount of leeway the Fed has to tighten policy further before the end of the year.

CONSILIENCE PERFORMANCE SUMMARY:

As at 01 Oct ‘23 CONSILIENCE’s price return since its inception was +4.98%, reference Figure 2. CONSILIENCE recorded a gain of +7.01% for the week, outperforming Bitcoin (BTC) by +0.77%. Since CONSILIENCE’s inception, CONSILIENCE’s outperformance of Bitcoin (BTC) increased to +41.45% and to +46.87% against Ethereum (ETH).

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?Solana (SOL), Compound (COMP), and Maker (MKR) were the best performing crypto assets in CONSILIENCE’s portfolio, recording the highest cumulative gains for the week? of +24.21%, +18.76% and +16.69% respectively, reference Figure 3.

CONSILIENCE - TOP ASSETS PERFORMANCE SUMMARY:

Solana (SOL), Cardano (ADA), and Tron (TRX) were the best performing top cryptoassets by market capitalisation (Top Assets) in CONSILIENCE’s portfolio recording the highest cumulative gains for the week? of +24.21%, +12.50% and +12.50% respectively, reference Figure 4.

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CONSILIENCE - TOP DEFI ASSETS? PERFORMANCE SUMMARY:

Compound (COMP), Maker (MKR), and AAVE (AAVE) were the best performing top DeFi assets by market capitalisation (Top DeFi Assets) in CONSILIENCE’s portfolio recording the highest cumulative gains for the week? of +18.76%, +16.69% and +15.58% respectively, reference Figure 5.

Top DeFi Assets outperformed Top Assets last week.

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