Dow challenges peak, Bitcoin’s mainstream moment is expected

The Dow Jones has quickly shaken off yesterday’s late losses is challenging record highs despite the comedown of the Fed minutes yesterday. The market remains optimistic over the state of the US economy, supported by today’s various jobs sector data releases; the flip-side is that too much strength could slow the pace of interest rate cuts with the Fed “likely at or near its peak rates” according to December policy meeting minutes yesterday. The Bitcoin rally will be tested pretty soon, as the SEC is intended to approve (or not) Bitcoin ETFs.

TODAY’S MAJOR NEWS

The labor market remains robust, a question mark on interest rate cuts

Today’s first-time claims for unemployment benefits, the Challenger Job-Cut report, and ADP monthly employment report continued to show a strong labor market, with people being hired and keeping their jobs without any sign of the mass layoffs you’d expect to see if the economy is slowing. Friday’s Non-Farm Payroll employment report will carry significant weight regarding the Fed’s interest rate plans.

• First-time claims for unemployment benefits fell to 202,000 in the week ending December 30, below the expected 217,500 and down from 220,00 in the previous week. The four-week moving average fell to 207,750 claims, down from 212,500 the last week
• Continuing claims for the week ending December 23 fell to 1.855 million, down 31,000 on the week. The four-week moving average for continuing claims dipped slightly to 1.867 million. 
• The Challenger Job-Cut report for the US showed a slowing pace of layoff plans in December, with 34,817 announced job cuts in the future, down from 44,510 in the previous month.
• This morning’s ADP monthly employment report showed that the private sector added a solid 164,00 jobs in December, above the expected 115,000 and up from 101,000 in the previous week

Purchasing Managers’s Indices (PMIs) continue strong trend

• S&P Global reported their December US services PMI at 51.4, up from 51.3 previously, which was also the 51.3 average trade estimate. (Any reading above 50 is a positive for the business sector and economy)
• The services number was up from 44.7 a year ago, the eleventh straight month of expansion, and the best reading since July 2023
• S&P’s composite PMI came in at 50.9, down from 51.0 reported previously

Is Bitcoin’s mainstream moment here?

The Securities and Exchange Commission will soon rule on whether 14 different money managers will be allowed to launch their spot bitcoin exchange-traded funds, ushering in Bitcoin’s ‘mainstream moment’; ETFs would significantly broaden Bitcoin’s appeals for retail and pension fund investors, owning it without the hassle of trading digital assets. For context, the SEC has denied every ETF proposal submitted for the past several years, arguing the products were vulnerable to market manipulation. Wall Street believes it will give the thumbs up. BlackRock, Fidelity, and Franklin Templeton are all registered Bitcoin ETFs. JPMorgan Chase and Goldman Sachs will help these money managers set up and trade these ETFs, trading the underlying asset. Bitcoin surged 164% in 2023 and hit $45,000 in 2024. This week, Bitcoin tumbled 10% as contrarians argued that SEC is not off the table. Is Bitcoin’s mainstream moment here?

Inventory builds hit US oil prices

WTI crude oil has been churning lower throughout the morning and continues to do so after the Department of Energy (DOE) weekly release. However, crude seems content in the $70-75/bbl range, awaiting news from OPEC+ and the Federal Reserve. Volatile DOE weekly data showed crude oil inventories down 5.5 million barrels this week, compared to an expected 3.4 million bbl draw), but gasoline and distillates posted massive 10+ mln bbl builds. Those products drive losses in the energy complex, along with a bearish minor week-over-week natural gas stock withdrawal. 

China’s property debt remains challenging for economic recovery

China’s property developers are estimated to hold 737.3 billion yuan ($103 billion) of offshore and onshore bonds due this year, according to Fitch, up 11% from 2023. That means rising repayment pressure for developers at a time when property sales are expected to slow down with further pressures on prices. Support from the government may be limited, as the local governments also bear heavy debt burdens. 

China’s local government-backed companies borrowed aggressively in the previous years on behalf of provinces and cities to mainly finance infrastructure projects, such as roads and ports. According to a Bloomberg estimate, China’s local government will have to pay back 4.65 trillion yuan ($651 billion) worth of bonds due over the next 12 months, up 13% on the year. 

A lack of sign of recovery in property sales will test China’s ability to contain financial risks as mounting debts come due this year. The knock-on impact could crimp global growth forecasts and cause Chinese investors to further distance themselves from the purchase of US Treasury.

TODAY’S MAJOR MARKETS

Dow heads back to all-time highs

• The Dow Jones rallied 0.4% this morning, again approaching all-time highs, with the Nasdaq, S&P 500 and Russell 2000 up 0.1% 
• The Nikkei 225 was down 0.5% as investors feared interest rate increases, with the Dax and FTSE 100 up 0.5%
• The VIX, Wall Street’s fear index, was unchanged at 13.9

Bitcoin rallies after weakness

• Bonds were unchanged, with10-year TIPS index-linked yields up to 1.79%, and 2- and 10-year yields at 4.39% and 3.99%, respectively
• The dollar index was unchanged at 102.4
• Versus the Dollar, the Yen was off 1.1%, the Euro was off 0.2% and Sterling was up 0.1%
• Bitcoin rallied by 3.4% to $44,095, after a several per cent sell-off as traders worried that the SEC might (again) deny a BTC ETF

Oil prices rally strongly on US reserve building

• Crude oil fell 1.3% to close to $1.7 per barrel, hit by signs of stocks building in US Department of Energy stocks data
• Gold prices rose 0.3% to $2,049 per ounce, while Silver prices were unchanged at $23.2 per ounce
• The grain and oilseed complex remains in the doldrums, with ample supplies and headwinds from a strong dollar

Analysis by Arlan Suderman, Chief Commodities Analyst: Arlan.Suderman@stonex.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com