Digital Asset Market: BlackRock's bitcoin ETF, IBIT, dropped 5.3% on Monday following the announcement of Google's new quantum computing chip called Willow. This chip has significantly higher computing power than any existing supercomputer, which sparked fears that it could compromise the security of the Bitcoin network. However, experts have reassured that the chip is still not powerful enough to threaten Bitcoin's encryption. Despite this, the drop in BTC and IBIT prices suggests that quantum FUD has impacted the market (fear, uncertainty, and doubt).
Putting further pressure on BTC earlier today, Microsoft shareholders voted against adding Bitcoin to the company's balance sheet. This follows the board's recommendation to vote against the proposal. This decision goes against the current trend of tech firms such as MicroStrategy and Tesla making substantial investments in Bitcoin. Amazon shareholders have also previously proposed the company allocate a portion of its balance sheet to Bitcoin. The result is in line with Bill Gates' stance on cryptocurrencies.
Macro Economics: In light of China's continued economic struggles and rising US trade restrictions, the Politburo has announced a switch from a "prudent" to a "moderately loose" monetary policy stance for next year. This follows previous stimulus measures and a recent "mini bazooka" that included cuts to mortgage rates and bank reserve ratios. The move has sparked hope for an increase in the country's fiscal deficit, leading to a rally in the AUD and Brent crude prices. Gold prices also rose, and there was a slight drop in the Chinese yuan against the US dollar.
Donald Trump's plan to impose tariffs on imports from China, Canada, and Mexico will negatively affect the global supply chain. These tariffs, proposed to pressure these countries to unclear demands, will lead to higher prices for consumer goods and a need for businesses to reassess their supply chains. This could result in delays, increased logistics costs, and higher prices for consumers. The e-commerce logistics industry would be affected the most, particularly small and medium-sized businesses that may not have the resources to handle these changes. Overall, this would lead to losing consumer spending power and cause inflation. The immigration policy will affect industries such as agriculture, construction, and manufacturing that rely heavily on immigrant labor.
Equities: Stocks in the US were muted on Tuesday, with the Dow Jones Industrial Average slightly lower, while the S&P 500 and Nasdaq Composite were up. The market is cautious as investors await data on consumer inflation, which is key for future Fed interest rate decisions. Google's parent company, Alphabet, saw a 4% jump in share prices after claiming breakthroughs in quantum computing due to its new chip. However, Oracle's stock dropped 7% after its quarterly revenue fell short, and chipmaker Taiwan Semiconductor reported a 34% year-on-year increase in revenue in November, but also a decline from the previous month's reading.
The Fed and US Treasury: The focus of markets this week has shifted back to inflation, with the release of the November Consumer Price Index (CPI) expected to show little progress towards the Federal Reserve's 2% target. Economists predict that headline inflation rose by 2.7% annually in November, a slight increase from October. On a "core" basis, which excludes food and energy prices, CPI is expected to have grown by 3.3% over the previous year, marking the fourth consecutive month at this level. Looking back to the peak of 9% inflation in mid-2022, it is clear that there has been significant progress towards the Fed's target. However, the recent trend in inflation can be compared to the struggles of losing those last few stubborn pounds in a weight-loss journey. ADP chief economist Nela Richardson likens it to the Fed's efforts to bring inflation down to 2%, saying that it may be the "trickiest part" of the process. Just as trying to lose those last few pounds may have negative consequences, such as losing muscle gains, the Fed's actions may also have adverse effects, such as keeping rates "higher for longer." Any rate cuts in 2025 may be lower than the market wishes, despite Trump taking up his seat in the presidential office. The November nonfarm payrolls report has solidified the expectation that the Federal Reserve will cut interest rates when it meets this month.
Geopolitical: While rebels and extremists settle their scores and fight over Syrian control, Israeli Prime Minister Benjamin Netanyahu has announced the permanent annexation of the Golan Heights, saying it is essential for Israel’s security and sovereignty. Israel has continued airstrikes on Syrian military installations and assets, which they claim to have destroyed entirely. Israeli forces have also crossed into a buffer zone in southern Syria, bringing them closer to the capital, Damascus. Israel has warned the now-ruling Hayat Tahrir al-Sham that any threats to Israel will result in relentless attacks. On Sunday into Monday, Israel also targeted Syria's chemical weapons stockpiles. It is not clear how long the media will call them rebels before referring to them as extremists or terrorists.
View from our desk
Bitcoin faced dual setbacks today, first from Alphabet's (Google) quantum computing breakthrough announcement and second from disappointing outcomes at Microsoft's shareholder meeting. While the market has priced mainly in these developments, downward pressure on Bitcoin will likely persist for several days. However, the broader market remains unperturbed with opportunistic buying interest in the $90K to $95K range, reflecting sustained confidence among buyers.
In broader financial markets, inflation remains a focal concern. Critics argue that the Federal Reserve might have acted prematurely in cutting rates, with another reduction anticipated in December. Current data suggest that inflation could exceed expectations, casting doubt on the likelihood of further cuts in 2025. Former President Trump's tariff and immigration policies may exacerbate inflationary pressures, which could temper hopes for significant rate reductions—a notable shift from expectations held earlier this year.
These developments underscore the complex interplay of economic forces shaping market dynamics. Market participants will closely monitor inflation trends, and the CPI data is poised to take center stage. Despite evolving uncertainties, the landscape reflects resilience and caution as markets adjust to unfolding geopolitical and economic narratives.
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