Bitcoin hits $99k

Welcome back to SovereignBeat!

• Dollar uptrend continues while markets divided on December rate cut

• UK inflation jumps to 2.3% as energy prices go up

• Japan sticks to tightening cycle amid inflation pressure

• Bitcoin hits $99K, but quickly retraces; US stocks gain again wow

• Oil prices surge above 5% as Russia’s war in Ukraine enters new phase

Let’s dissect

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Markets Snapshot

Macro and Fixed Income Markets

• US: On Thursday, the Department of Labor reported an unexpected drop in initial jobless claims for the week ending November 16, 2024, which helped boost sentiment toward the end of the week. Applications for unemployment benefits fell to 213,000, a decrease of 6,000 from the previous week, marking the lowest level since April 2024.

• The USD Index (DXY) closed the trading week at 107.5 on Friday, gaining 0.5% and remaining near a two-year high as investors assessed the Federal Reserve's policy outlook. Attention now shifts to forthcoming data on business activity and inflation. The markets currently assign a 52% probability to a 25-basis-point rate cut by the Federal Reserve on December 18th according to CME FedWatch. In total, traders price in about 66 basis points of total reduction by December 2025.

• Next week is set to bring several economic releases that could influence market movements. On Tuesday, the U.S. Federal Reserve will release minutes from its latest policy meeting, followed on Wednesday by a Fed's preferred inflation gauge PCE index and a revised government estimate of third-quarter GDP growth. With markets closed Thursday for Thanksgiving and an early close Friday, thin trading volumes could lead to major price swings if the report significantly misses expectations.

• EU: Business activity in the euro area contracted in November, highlighting an uncertain economic outlook. The Eurozone Composite PMI Output Index dropped to 48.1, a 10-month low, from 50 in October, as the manufacturing sector deepened its recession and the services sector began to falter after two months of marginal growth. (PMI readings below 50 signal a decline in output.) The PMIs for the euro area’s largest economies, France and Germany, also showed contraction.

• The weak PMI data reinforced expectations that the European Central Bank (ECB) may ease monetary policy further in December. However, a rise in negotiated wage growth—a key indicator the ECB monitors for underlying inflation—could make the case for continued caution on policy. Negotiated wage growth accelerated to 5.42% in Q3, up from 3.54% in the previous three months, as workers sought higher compensation to offset income losses caused by the recent surge in inflation. Unemployment is at a record low, and firms continue hiring despite sluggish economic growth, hoping to maintain a full workforce in anticipation of a recovery. This labor hoarding has strengthened unions' bargaining power, with workers demanding pay adjustments to offset inflation and restore real wage levels.

• UK: Inflation in the UK surged more than anticipated in October, primarily driven by higher household energy costs. The annual increase in consumer prices rose from 1.7% in September to 2.3%, the highest since April and above economists' expectations of 2.2%. The core inflation measure, which excludes volatile food and energy prices, edged up to 3.3%. Inflation in the services sector also increased slightly to 5%, in line with Bank of England (BoE) forecasts. The data strengthened expectations that the BoE is likely to maintain its current policy stance for the remainder of the year. Markets also reduced their projections for rate cuts in 2025, now anticipating two instead of three.

• Japan: The timing of the Bank of Japan's (BoJ) next interest rate hike remains uncertain, but it is expected to take place during one of the upcoming monetary policy meetings in December or January. Meanwhile, the yield on the 10-year Japanese government bond reached nearly 1.1%, approaching a 13-year high.

• In October, consumer inflation remained above the BoJ's 2% target. While the headline consumer price index fell to 2.3% year-on-year, this was anticipated due to the reinstatement of electricity and gas subsidies.

• Governor Kazuo Ueda noted earlier in the week that the central bank expects inflation driven by rising wages to heighten, as the economy strengthens and companies continue to raise salaries. He reiterated that the BoJ will maintain its tightening cycle if economic and price conditions evolve as expected.

Equity Markets

• US: All three main indexes climbed on average by 2% this week, recovering losses from the prior week's decline. By Friday's close, the Dow surpassed its record high set 11 days earlier, while the S&P 500 ended just 0.5% below its all-time peak, and the NASDAQ closed 1.5% under its record level.

• The Russell 2000, a U.S. small-cap stock index delivered a 4.5% weekly gain that erased the previous week's 4.0% loss. As of Friday, the Russell 2000's month-to-date performance in November was nearly 10%, buoyed by a post-election surge in small-cap stocks.

• Meanwhile, a U.S. large-cap value index outperformed its growth counterpart, narrowing the growth style’s year-to-date lead. The value benchmark recorded a 2.5% weekly gain compared to the growth index's 1.7% return.

• Bitcoin: The world’s leading cryptocurrency, hit a new record high for the third consecutive week. After closing near $91,000 last week, it surged past $99,000 by Friday afternoon before retreating to just under $96,000 on Sunday evening (crypto assets are traded 24/7). Despite the pullback, this represents a significant rise from its early November level of around $70,000.

Commodity Markets

• Oil: After falling nearly 4% the previous week, Brent crude oil prices rebounded by over 5%, driven by escalating geopolitical tensions. By Friday afternoon, oil was trading at almost $75 per barrel—close to its level at the beginning of the month but significantly lower than the recent high of $80 reached in October.

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