Weekly Market Review & Analysis For October 11, 2021   

The stock market performed well in the second half of this week due to better-than-expected earnings and relatively positive economic data. With a 2.2% increase, the Nasdaq Composite was the leader, followed by S&P 500 with +1.8% (See: Site Admin>Charts & Analysis tab) and Dow Jones Industrial Average with +1.6%. The small-cap Russell 2000 with +1.5% also saw decent gains.

Ten of the eleven S&P 500 sectors finished the week in positive territory. Consumer discretionary and materials ended up with +3.6% each, and real estate gained 3.5%, while communication services with -0.4% was a single holdout.

Most companies, mainly banks, exceeded expectations when they reported their Q3 earnings. In September, a surprising 0.7% increase in total retail sales was also recorded, while initial weekly claims posting 293,000 dropped to their lowest level since the outbreak.

This positive news allowed the market to overlook persistent inflation pressures. As indicated by the Consumer Price Index (PPI) reports for September, higher oil prices print 82.47/bbl (+2.86, or +3.6%), and companies and reports highlight ongoing supply chain problems.

The stock market took its inflation cues from the U.S. Treasury market, which indicated a renewed tolerance for peak inflation. This was due to core CPI and core PPI being lower than expected month-over-month. The Ten-year yield fell three basis points to close at 1.58%.

The technical factors also played a role. On Friday, the S&P 500 closed higher than our Mean Res $4,454, and favorable price action carrying over into the next Mean Res $4.480 and Key Res $4,537. This was considered a positive indicator by traders and investors.

Separately, the Federal Open Market Committee (FOMC) Minutes of the September meeting showed that asset purchase would be cut monthly by $15 Billion ($10 Billion in U.S. Treasury securities and $5 Billion in Agency Mortgage-Backed Securities (MBS) if started later in the year and continued until the middle of 2022.

Overseas market

Global equity market(s) gained despite an increase in global bond yields. Fixed-income investors were harmed by the sharp rise in North American bond yields. Over the past five weeks, equity markets have been affected by rising bond yields. Equity market woes have been exacerbated by Washington DC political wrangling, credit market troubles, outages, and a Chinese economic slowdown.

Chinese stocks rose for the second consecutive week. As the energy sector continues its recovery on the back of firmer oil and natural gas prices, the cyclical/value-heavy Toronto Stock Exchange (TSX) was once again one of the top performers.

The evidence of energy and power shortages in Europe, Asia, and possibly the United States shows that a transition towards cleaner energy is still a work-in-progress. The world isn't ready to give up fossil fuels. This is a fact that the leaders of the OPEC+ cartel failed to recognize. They did not raise production quotas above their previously communicated increase by November's 400,000 bbls/day plan.

Companies in China's property sector continue to face credit problems. The woes of the offshore credit market are spreading to China's onshore market. For example, Evergrande's smaller version of Fantasia defaulted on its bond payment. Still, offshore and onshore equity markets saw encouraging gains (the Hong Kong's Hang Seng Index and Shanghai-Shenzhen CSI 300 Index).

This could be a sign that, while reforms and shakeouts in the realty sector continue to move forward, the worst of the broader stock market declines (peak-to-trough -17.9% CSI 300 and -20.1% Hang Seng) may have ended. Both markets have seen gains for two weeks despite the negative news from the property sector.

Other markets

This week saw soaring energy prices and metals rise. In strong backwardation, copper market briefly reached $10,000 per tonne. India's silver imports have increased 60% since last year. Paper gold short sellers will also be overwhelmed as there are enormous problems around the world.

After Thursday's resistance at $1,800, gold traded lower in the early trading session on Friday. It closed at $1,766, down $29. Silver closed at $23.26, down 24¢. Despite this, both metals closed the week in positive territory. The week's gold and silver prices are up $10 and 60¢, respectively.

It's not surprising then that this week saw the destruction of silver and gold prices. The Comex gold contract saw heavy trading on Wednesday's break-out at 313,621 contracts. On Wednesday, open interest rose by 16,433 contracts. On the next day, a large 2,393 contract was delivered.

All that matters is context. It is twelve weeks until bullion banks on LBMA must conform to the Basel III net steady funding ratio. They have been working hard to reduce their paper exposure within the short time remaining. Although Comex positions are challenging to reduce paper contracts, according to the CFTC's Bank Participation Report bullion contracts, 73% of Swap positions remain. However, London positions are eight to ten times more.

The energy-led commodity crisis is making it even more difficult for bullion market establishment. The West Texas Intermediate (WTI) crude oil is currently at $82 and has increased 10% since September 30, gasoline blend-stock is up 26%, and heating oil is up 10.5%. China directed its electricity producers not to induce power outages that could affect industrial production. They were instructed to go to the market to purchase coal and natural gas at all prices.

The knock-on effects are yet to add to the chaos. They are especially difficult for producers of essential raw materials that require high energy inputs such as aluminum, steel, and cement.

Cryptos

What a great way to end crypto market week! Bitcoin shoots to about $63,000 on Friday for the very first time since May (See: Site Admin>Charts & Analysis tab). Not only that, but Ethereum is also closing close to its all-time high, finishing at $3,934. 

The driving force behind this price increase is the possible approval of a bitcoin ETF by the Securities and Exchange Commission (SEC). It seems like the rumors are priced in part, as the bitcoin price has risen by a whopping 40% since the end of September. 

Will the SEC approve a bitcoin exchange-traded fund (ETF)? Either way, investors aren't willing to sell, according to some new statistics - HODL'ers going to HODL ("hold on for dear life.”)

These are exciting times. Generally, during a price increase, you would see some long-term investors take some profit. According to Glassnode's statistics, however, investors keep on holding their bitcoins. Right now, 13.28 million bitcoins haven't moved in more than a year. Keep in mind; there are only 18.8 million coins in circulation at the time of writing.

During the most recent top in May, some long-term investors sold their bitcoins, and the long-term supply dropped to 10.91 million bitcoin. Since then, long-term supply grew by a whopping 2.37 million bitcoin. 

Within these months, only 186,000 bitcoin has been freshly mined. This means that HODL'ers are holding 12.7 more coins than have been mined on average! The demand is out, driving the supply by an astounding number. 

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