05 December 2022
US large-cap S&P 500 closed 0.12% DOWN 🔻 Tech-heavy Nasdaq Composite closed 0.18% DOWN 🔻 Pan European STOXX Europe 600 closed 0.15% DOWN 🔻 HK’s Hang Seng Index closed 0.33% DOWN 🔻 Japan’s Nikkei 225 closed 1.59% DOWN 🔻
📊 IN THE MARKETS
Red-hot labour market
OPEC’s sticky oil cuts and a Russian capThree-quarters of traders lost money on bitcoinCrypto lending (and Genesis)
📖 MoneyFitt EXPLAINS
🎓 OPEC and OPEC+
📊 IN THE MARKETS
US stocks were more or less flat by the close of trading on Friday but had been much lower after the release of the November employment report, which showed both job creation and wages that were quite a bit higher than expected. In the current part of the cycle, both of those suggest that the Fed, the US central bank, will keep hiking interest rates to bring down still-decades-high inflation. The markets concluded that since it actually already knew the Fed would be doing this (because they’d been saying so repeatedly), the markets eventually recovered most of those losses.
Wall Street’s highly-paid analysts were expecting 200k new jobs in the non-farm payroll data for November, a big drop from 261k in October, but in the end, they were too low by almost a quarter as it came in at 263k. Unemployment came in at 3.7%, more or less as expected and still around 50-year lows. Along with the 0.6% surge in month-on-month wages, the most in nearly a year, there is still the risk of a wage-led vicious cycle of inflation since it’s way higher than headline and core PCE inflation of only 0.3% and 0.2% (in October).
Having been late to start its rate hikes, the Fed is desperate not to let up until inflation is definitely squashed, provided it doesn’t send the economy into a recession with terrible job losses. (The Fed has a “dual mandate” to not only contain inflation but keep employment high.) The red-hot labour market and the resilient economy in general may be strong enough for the Fed to err on the side of doing too much rather than too little.
OPEC’s sticky oil cuts and a Russian cap
OPEC 🎓, the Organisation of Petroleum Exporting Countries, and its allies, including Russia (known together as OPEC+) decided on Sunday to stick with its existing policy of 2 million barrels a day of production cuts (about 2% of world demand) just before new sanctions on Russian oil exports kick in. The policy started last month and is due to last till the end of 2023.
The cuts were agreed in October and started last month, and at the time drew criticism from the Biden administration, expecting the oil prices to rise further and hurt low- and middle-income countries (even while the super strong US Dollar was doing more damage on that front.) OPEC’s rebuttal was that there was concern about the demand outlook given the risk of recession from global interest rate hikes and slowing growth in China from ongoing Covid lockdowns.
In the event, oil prices did come down, somewhat validating OPEC’s view (raising concerns a few weeks ago that output would be cut further.)
Neither the main OPEC meeting on Saturday nor the OPEC+ meeting on Sunday discussed the Group of Seven (G7) + Australia price cap on Russian oil agreed two days earlier at $60 per barrel price. (Poland and the Baltic states had pushed for $30/bbl.) The move is meant to deprive Russia of oil revenue while keeping Russian oil flowing to global markets. Sanctions with Benefits, for Europe in particular. Any buyer wanting insurance from the EU or to use European tankers (especially the giant Greek fleet) will now have to pay that price or less. (Moscow said it would rather cut production than supply oil under the price cap. Russia has been selling most of its oil to countries like China and India, which have refused to condemn the war in Ukraine.)
Three-quarters of traders lost money on bitcoin
An analysis of retail crypto exchange app data by the Bank of International Settlements (a bank for central banks owned by central banks) found that as bitcoin prices rise, new small traders are sucked into buying. During those periods, the largest holders (so-called “whales” or “humpbacks”) sell, making a return at the smaller guys’ expense. (“Guys” as about 40% of these new users were men under 35, the most “risk-seeking” segment of the population, with the most eager buyers holding 1 bitcoin or less.)
Bitcoin’s early 2021 bull run pulled in 511 million new monthly active users around the world and back-of-the-envelope BIS calculations suggest around three-quarters of users have lost money on their bitcoin investments.
Crypto lending (and Genesis)
Meanwhile, in a different way of losing money in crypto, it appears that stalled crypto broker and lending firm Genesis owes the customers of crypto exchange Gemini some US$900 million through its Gemini Earn crypto lending offering when Genesis halted withdrawals last month and started looking to raise US$1 billion from investors (while denying any ‘imminent’ plans to file for bankruptcy.)
Gemini customers basically lent out their coins in exchange for high rates of return that are (were) far greater than anything offered in regular bank deposits. This practice arguably sits at the centre of the industry’s credit crunch.
DCG, the parent of Genesis, was valued at US$10 billion last year by investors including Singapore’s sovereign wealth fund GIC, Google’s venture arm CapitalG and (there they are!) SoftBank. Its subsidiaries include Genesis, investment manager Grayscale (which runs the largest bitcoin fund, GBTC) and CoinDesk (which blew up FTX –and perhaps soon its own parent– with that article one very long month ago.) DCG owes money to Genesis after Genesis lost $1.1bn on a loan to collapsed hedge fund Three Arrows Capital. To keep it afloat, DCG took on Genesis’s liabilities, somehow subsequently owing $1.1bn back to Genesis to add to US$575 million already borrowed from Genesis. Needless to say, much more clarity is needed, and these intercompany loans have muddied the picture for Gemini and the underlying creditors.
Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.
📖 MoneyFitt EXPLAINS
🎓 OPEC, the Organization of Petroleum Exporting Countries (and OPEC+)
A cartel of large oil-producing countries led by Saudi Arabia, which coordinates (but can’t dictate) output in order to influence oil prices. The 13 nation members produce 40% of the world’s oil and own over 80% of proven reserves. They include Iran, Indonesia, Nigeria and Venezuela but not other major oil producers like the USA, Russia, the UK, Malaysia or Norway. In 2016, OPEC+ was formed, a loose alliance with 10 other top oil-exporting countries (including Russia).OPEC’s mandate is for fair returns for investors, steady income for suppliers and efficient supply for consumers. Not all about higher and higher oil prices, though in the popular press it may seem that way.The concept’s simple: if the supply of almost anything (such as a raw material) is limited, then the price tends to go higher. But if supply is too little and the price is too high relative to its uses, then the world has a way of finding substitutes. (Also, selling very little at a high price preserves oil reserves but may make less money for producers right now than selling a lot at a lower price.)When OPEC says it is looking at output cuts, commodity markets react quickly by raising prices, with oil company share prices following suit… even before any output changes happen.
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MoneyFit Morning Archive (to 07-Nov-22)
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